Greece Is The Word

If you’re somebody who has been saving for retirement and investing your savings in the financial markets, here’s a bit of friendly advice:  don’t check the markets today, or for that matter all of this week.  You’ll just be depressed.

The problem is Greece.  It defaulted on its repayment of loans from the International Monetary Fund last week, and yesterday its voters overwhelmingly rejected a referendum that would have imposed strict austerity measures.  Greece’s finance minister Yanis Varoufakis, who had opposed the austerity measures — he once said that “austerity is like trying to extract milk from a sick cow by whipping it” — then resigned with a flourish, saying that the referendum result would “stay in history as a unique moment when a small European nation rose up against debt-bondage.”

“Debt bondage”?  That’s a good one!  Try it on your bank the next time your mortgage or car payment comes due.

The problem for Greece is that there is no alternative to repaying its debts.  Greece is paying the piper for electing bad leaders who didn’t recognize the inevitable crash that was coming from constant borrowing to pay for a broken economic and pension system.  After defaulting on its IMF loan, Greece really has nowhere to turn for cash.  Who is going to loan money to an impoverished country where the citizens apparently don’t recognize their obligation to repay their debts?

All of this would be a valuable economic lesson in unsustainable borrowing if Greece were just going down the tubes by itself.  The problem is that Greece is part of the European Union, and its problems therefore are Eurozone problems.  Now European leaders need to figure out whether they have Greece exit the EU — not exactly a ringing endorsement of EU political and financial stability — or extend still more credit to the Greeks, which probably isn’t going to sit well with voters in Germany and other prudently managed EU countries who wonder why they are picking up the tab for Greece’s problems.

All of which loops back to affect those of us who have saved and invested.  Financial markets hate uncertainty, and the Greek crisis has now become uncertain to the nth degree.  Today we’ll be seeing news coverage of closed Greek banks, crowds in the streets trying to find cash, and frowning finance ministers going to meetings in ornate European buildings — not exactly scenes that speak of financial stability.  So even though the Greek problem has nothing to do with the U.S., in our global economic system our financial markets will be affected just the same.

It will be a wild ride until the Greek problem is finally resolved, and there really is only one solution:  Greece will need to leave the EU, issue its own currency, and witness the worst hyperinflation seen in Europe in decades.  After its economic system crashes and its elderly citizens see their savings eaten up by inflation, maybe the Greeks will recognize that some austerity and continuing “debt bondage” really wasn’t so bad.

Euro Zone Danger Zone

With all the bad news around the world lately — from ISIS savagery to North Korean nuttery, from Russian power plays in Ukraine to Chinese saber-rattling in the Pacific, from the Ebola outbreak in west Africa to Boko Haram mass kidnappings — nobody’s paying too much attention to Europe.  That’s unfortunate, because Europe is a mess right now.

Economically, Europe is a basket case.  In the second quarter of this year, Germany’s economy — the largest on the continent — shrank by 0.2 percent.  The most recent data indicates that business growth continued to slow in August.  In France, the economy is completely stagnant, producing no growth for several quarters while unemployment is above 10 percent.  The French economy minister resigned yesterday in a public disagreement with the country’s very unpopular President about whether France should follow austerity policies or policies that funnel government money directly to households; the economy minister said he felt compelled to speak out to try to avoid the European Union’s “descent into hell.” 

The unemployment situation in Europe is terrible.  Statistics presented by the European Central Bank president at an international conference last week are daunting — they show European unemployment growing while American unemployment is declining and indicate that the recession that hit the world in 2008 really hasn’t ended in the Eurozone.  The statistics also show that people who aren’t highly educated are losing their jobs by the truckload and that jobs are vanishing in the business sectors that traditionally employed less educated people — like construction and heavy industry.  The service sector is holding steady, which means that if you’re looking for a job in the Eurozone and you don’t have advanced degrees, you’re lucky to get a position as a waiter.

When economies fail and bitter people can’t find jobs to fill their time and feed their families, political and social unrest follows closely behind.  It therefore shouldn’t be a surprise that we are seeing a deeply troubling increase in anti-Semitism in Europe, from public protests triggered by the Israeli-Hamas fighting in Gaza to attacks on synagogues and social media hate speech.  The fact that some Europeans are returning to virulent anti-Semitism of their forefathers indicates that the EU initiative really hasn’t materially changed a continent where prejudices run deep.

The economic, political, and social situation in Europe is a toxic mix.  Other crises have distracted attention from the various Eurozone woes, but we shouldn’t ignore what’s happening across the Atlantic.

Nationalism, Or A Desire For Self-Control?

In Europe, elections to the European Parliament last week sent shock waves through the political firmament.  Parties of the right and left that ran campaigns against the European Union — known as “Euroskeptics” — made significant gains in England, France, Denmark, and Greece, although pro-EU parties collectively will still be in the majority.

The political reaction was immediate, as leaders who had previously characterized the Euroskeptics as a fringe movement scrambled to respond to the wave.  In Great Britain, Prime Minister David Cameron — whose Conservative Party was thumped and finished third in British balloting, behind the Euroskeptic UK Independence Party — acknowledged that people were “deeply disillusioned” with the EU.  In France, where President Francois Hollande’s Socialist Party finished third behind the Euroskeptic National Front, Hollande went on TV to call for the EU to scale back its role.  Noting that the EU had become “remote and incomprehensible,” Hollande said he will speak to other European leaders about focusing on the economy and added that the EU needs to be “effective where it is needed and to withdraw from where it is not necessary.”

The politics of multi-party European countries seem very murky here in the two-party U.S.  It’s not clear whether the recent vote is the product of simmering nationalism — a very loaded word in Europe, where it provoked two devastating World Wars — or anger over austere financial policies and moribund economies, or concern about immigration, or a simple desire for self-determination rather than ceding control over policies to unelected bureaucrats in Brussels who are seemingly answerable to no one.  Or perhaps it is a combination of all of those factors, as well as others.

The EU started as an economic entity that sought to combine the economies of European countries into a cohesive unit, with a single currency, that could compete on the world stage with the United States and Japan; eventually it became more of political and regulatory entity that plays an increasingly significant role in everyday life.  A sizable number of Europeans now seem to be questioning whether they want what the EU has become.  And Europe’s political leaders are wondering:  what is the alternative?

Horrors! Horsemeat!

There’s an interesting scandal playing out in Europe.  Products marketed as beef in fact contain horsemeat, and consumers and governments are outraged.

In all, “beef” products sold in 16 different countries have been found to contain horsemeat.  Efforts to trace the source of the horsemeat follow a tortured path from British stores to France, Luxembourg, Cyprus, and the Netherlands.  Ultimately, the trail leads to Romania, where officials disclaim any role in a fraud:  if Romanian slaughterhouses are producing horsemeat, they say, it is forthrightly labeled as horsemeat.  No one, therefore, quite seems to know how horsemeat got into the  “beef” product chain.  That’s why the British Environment Secretary says the scandal involves some kind of international criminal conspiracy.  No one has gotten sick — although health ministers want to test products to make sure they don’t include an animal painkiller that could pose risks for humans — and the fraud claims all relate to simply mislabeling horsemeat as beef.

At bottom, the issue seems to boil down to squeamishness about eating horsemeat.  No one wants to eat My Friend Flicka.  Why is there a cultural taboo in some countries about eating a horse?  We eat cows, chickens, buffalo, pigs, goats, sheep, lambs, ducks, geese, and other birds.  Why should those animals be knocked off to enhance the food supply, but not horses?

I’ve never eaten horsemeat — at least, I don’t think I have, although as this EU scandal indicates, you never really know — but I wouldn’t hesitate to give it a try.  Meat is meat, and meat is protein.  In my view, the fact that it once wore a saddle doesn’t change the analysis.

The Final Debate

Tonight, in Florida, President Obama and Mitt Romney have their final debate.  This debate will focus on foreign policy and — as UJ notes in his post today about the Middle East — there is a lot to talk about.

The debate will follow the same format as the first debate.  There will be six 15-minute discussion pods on topics selected by the moderator, Bob Schieffer of CBS News.  The moderator will open each segment with a question, each candidate will have two minutes to respond, and the moderator will guide a discussion of the topic for the remainder of the 15 minutes.  The six topics selected by Schieffer are:  “America’s role in the world,” “Our longest war — Afghanistan and Pakistan,” “Red Lines — Israel and Iran,” “The Changing Middle East and the New Face of Terrorism (I and II),” and “The Rise of China and Tomorrow’s World.”  The moderator reserves the right to change the topics depending on developments, and the order of the topics also can be changed.

It will be interesting to see if there is a change in tone for tonight’s debate.  The last presidential debate was heated, with some very sharp exchanges.  Hyper-aggressive posturing by the candidates may be acceptable when domestic policy is being discussed, but foreign policy is a different arena.  Although the candidates obviously will be thinking of how their statements will affect the presidential race, they also need to be mindful of the foreign audience that will be watching the debate.  I’m sure the people of Israel, for example, will be carefully reviewing the discussion during the “Red Lines:  Israel and Iran” segment.  The candidates will need to speak clearly and be cautious in their comments and (of course!) avoid the devastating gaffe.  I’m sure both the President and Mitt Romney have been practicing the pronunciation of the names of foreign leaders.

For those of us here in America, Libya obviously has been in the spotlight.  Every day, revelations raise new questions about our security arrangements in Benghazi, our lack of a response while the attack was ongoing, and our conflicting and misleading statements after the attack ended.  Another big topic will be Afghanistan and Iraq, where so many of our sons and daughters have served for so long and so many families have suffered devastating losses.  What can we do to make sure that the gains obtained through their service are protected, while extricating ourselves from conflicts that seem never-ending?

It’s a dangerous world out there.  In addition to the rise of Islamic fanaticism and the always unsettled Middle East, there is the ongoing, hair-trigger stand-off between North and South Korea, a resurgent Russia eager to flex its geopolitical muscle, a European Union that seems to be collapsing under the weight of its fiscal irresponsibility, and tensions between China, Japan, and Taiwan about the sovereignty of islands, among many other issues.  UJ’s post notwithstanding, I don’t think President Bush can be blamed for all of these issues — and even if he could, laying blame on a President who has been out of office for four years does nothing to solve the problems.  In tonight’s debate I’ll be listening for thoughtful discussion of these issues and reasonable solutions, not finger-pointing.

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.

Greece And California

The Greek debt crisis is putting enormous strains on the European Union.  Greece is heavily in debt.  Its 2009 budget deficit was projected to reach 13 percent of its Gross Domestic Product.  Greek’s mounting debt problems prompted fears that Greece would default, causing investors to sell Greek debt instruments, which in turn put pressure on the European Union’s common currency, the Euro.  As a result, European financial and political leaders are pressuring the Greek government to impose unpopular austerity measures, and some members of the Greek community have been protesting those cuts.  In the meantime, Greece is appealing to Germany and France, as the financially stronger members of the EU, for support.  The French President, Nicolas Sarkozy, says the EU has to support Greece or give up on the idea of a common currency and common political future.  The German government seems to be more on the fence.

The interesting point about this story is not that it has happened — with Greece’s borrowing-oriented, over-the-top welfare state mentality, a budget crisis was inevitable, and other debt-laden EU countries are not far behind — but the cultural and political fissures that have been exposed. In Germany, in particular, citizens and politicians are resisting bailing out the Greek government because they believe they are subsidizing sybaritic, free-spending ways of the Greeks.  In Greece, workers can retire at 63; in Germany, they must work until age 67.  Some Germans believe that the salaries paid to Greek civil servants are too large, that Greeks are too lazy, that the Greek culture is corrupt, and that Greek farmers are swindling the EU.

What the Greek debt crisis really demonstrates is that any political union must be based on trust and equity.  When times get tough, there must be a sense of shared sacrifice and shared values.  Eventually, if enough Germans believe they are being played for saps because they are working hard to support the unsustainable lifestyles of pleasure-loving Greeks (and others), they will refuse to continue to do so and the European Union will fracture and fail.

There is a lesson in all of this for California, which is facing its own version of a serious debt crisis.  Over the long term, California cannot expect the federal government to bail it out of its budget problems.  It won’t take long before hard-working Texans, or North Carolinians, or Ohioans, will object to subsidizing California’s absurdly generous public pension system, its unwillingness to cut programs, or its oppressive regulatory regime that has caused many companies to flee the Golden State for more business-friendly locations.

America is more politically and culturally cohesive than the European Union; Texans have much more in common with California than Germans have in common with Greece.  Still, the pressures that come from the ant subsidizing the grasshopper are the same, and would better be avoided by California getting its budgetary act together.