Time To Book That Trip To Europe

If you’ve got a trip to Europe on your “bucket list,” you might want to go for it now.  For Americans, travel in France, Germany, Italy, and the other members of the Eurozone will be as cheap as it has been in years — for the next few months, at least.

The value of the Euro — the collective currency of the Eurozone — has been in free fall against the American dollar over the past few months.  On Friday, the Euro fell to $1.12, which is its lowest level in 11 years.  That’s a very sharp decline from earlier in the year, when the Euro was trading at around $1.40.

European economies are weak, and the European Central Bank has announced that it will be engaged in a “quantitative easing” program that will seek to expand the money supply — and, inevitably, have an inflationary impact — in an effort to spur economic growth.  And because the ECB has just announced its program, and it will take some time for all of the details to be absorbed by the financial markets, we can expect the value of the Euro to continue to fall against the dollar in the near future.

All of this is good news for Americans who are interested in visiting Europe.  Because the  Federal Reserve Board has already completed the quantitative easing program in the U.S. and has announced that it will be raising interest rates in the near future, the dollar should remain very strong against the Euro.  That means American tourist dollars will get better exchange rates at currency stores and will have more buying power on the streets of Paris and Rome — which will bring down the real cost of lodging, meals and museum fees.

Couple that with the ever-present European interest in encouraging tourism, and it’s not hard to forecast that bargain-hunting U.S. travelers will have a field day in 2015.

Adverse To Austerity

Elections have occurred in Greece, France, and Italy in the past few days, and voters have cast their ballots against the austerity measures that were imposed to try to put a brake on the European debt crisis and, in Greece and France, have thrown out the governments that agreed to those measures.

In France, the flamboyant Nikolas Sarkozy was replaced by a Socialist, Francois Hollande, who says he seeks an alternative to austerity and vows to increase taxes and spending.  In Greece, voters deserted the parties that had dominated the political landscape for decades and splintered their support among a broad range of parties, including the disturbingly neo-Nazi “Golden Dawn”.  The same trends were seen in local elections in Italy.

No one should be surprised by these results.  Austerity is hard; Europeans are soft.  They’ve become accustomed to rich benefits, lots of vacation time, a short work week, and generous pensions that allow them to retire at an early age.  The problem is that their lifestyle has been financed by debt, and now people are only willing to lend them more if they agree to actions that will bring their fiscal house in order.  The fact that Greek voters and French voters don’t like the austerity doesn’t change that result.  Why would you want to lend money to someone who hasn’t shown the responsibility or willpower necessary to pay you back?

This likely means that the Eurozone concept will fail.  Appeals for continental unity only go so far, and hardworking and thrifty German and Dutch voters aren’t going to support the unrestrained spending of the Greek and Italian and Portuguese governments forever.  The Euro will end as a unified currency, the responsible northern European countries will return to their highly valued local currencies, and the southern European countries will slink back to their devalued and debased drachmas and lire, look around for new saps to loan them money with no hope of being repaid, and find there are no takers.  At that point, the current days of “austerity” might begin to look pretty good, in retrospect.

There’s a lesson in here somewhere for America.

 

Uh Oh (Again)

The news from Europe has not been good for some time now — but today may be a turning point into even more negative territory.  As the United States enjoyed the Labor Day holiday, equity markets across Europe plunged by an average of 4 percent.  Germany’s DAX took the hardest hit, falling by more than 5 percent.

It’s not hard to understand why European investors are troubled.  Greece, Spain, and Portugal all are struggling with serious debt problems, and recently Italy, one of Europe’s biggest economies, also has tumbled into distressed territory.  In the meantime, the large, more solvent northern European countries — particularly Germany — have had to prop up their profligate southern European partners.  Germany’s financial support of free-spending Eurozone countries hasn’t gone down well with German voters, who delivered a stinging rebuke to the ruling party in regional elections.

Interestingly, some political leaders in Germany and elsewhere seem to see the ongoing problems as a reason for an even closer political and economic union between the nations of Europe — whereas European citizens, in contrast, appear to be yearning for more control over the destinies of their own countries.  The depths of the Eurozone debt problems are not yet fully understood, and analysts wonder how much worthless debt is held by European banks and whether the piecemeal bailout efforts will ever staunch the outflow of investor confidence.  Given all of these circumstances, it’s not hard to foresee more hard times ahead in the Eurozone.

Applying Mom’s Wisdom To The Greek Debt Crisis

The dominoes set in motion by the Greek debt crisis totter and topple. The credit ratings of other European states with debt problems similar to those of Greece get revised downward, and the costs of servicing their debt soar.  Cracks in the facade of the European Union continue to appear, as the frugal states question bailing out the profligate borrower states — especially those with economies, and debt burdens, that are much larger in real terms than are found in Greece.  The value of the Euro drops like an anvil directed at Wile E. Coyote’s noggin.   Nervous creditors wonder if a wave of government bond defaults are in the future.  And, across the globe, stock market indices drop with sickening speed as investors question whether the world could be plunged into an even more severe recession.

It is clear that unsustainable and unsupportable government borrowing is what led to the Greek crisis and the dire predicaments of other European countries.  The choice for the United States is whether to chart a different course and start making serious spending cuts right now and or to continue our massive federal borrowing and potentially follow the Greeks and other European states into the debt abyss.

On this Mother’s Day, it seems appropriate to apply some of Mom’s wisdom to this issue.

We all remember the scenario.  You were a kid who wanted to get your Mom’s permission to do something.  She was not cooperating because she perceived, rightly, that it seemed like an ill-fated and stupidly risky venture.  As she resisted all of your persuasive powers, you eventually said:  “But Mom!  Everyone else is doing it!”  And her inevitable response was:  “If everyone else jumped off a cliff, would you jump, too?”  That ended the argument — and usually, either right away or after a while, you knew deep down that your Mom’s judgment was the right call.

In the United States, we can listen to Mom or we can join other countries in jumping off the cliff.  I’m for listening to Mom.

Greece And California (Cont.)

I’ve posted before on the problems with Greece’s debt and its implications for the European Union and its member nations.  Today a deal with respect to Greece’s debt problems was announced; it involves pledges of support for a financing plan by EU countries and lending from the International Monetary Fund.

Looking at the deal that has been struck, it seems calculated simply to calm the markets for the moment and stop,  or at least slow, the headlong slide of the Euro against other currencies.  If the markets aren’t calmed, don’t be surprised if another European summit is needed.  The deal also does not address the political fissures exposed by the Greece debt crisis, with German citizensm, for example, feeling like the ant being asked to subsidize the grasshopper.

Two points in the linked article are of particular interest to those of us in the States.  The first is the notion that Greece is having to refinance its debt at a 6 percent interest rate because of investor concerns about its ability to repay the debt.  If investors were to be similarly insistent on higher interest rates for American debt, our budget deficit, and the amount of our spending consumed by debt payments, would skyrocket.  That is a sobering concern.  The second point of interest is the chart showing budget deficits as a percentage of GDP and overall debt as a percentage of GDP, in Great Britain and certain European countries.  The picture is not a pretty one, and suggests that Greece may just be the first of a series of European countries to face severe debt problems.