Europe Is Still There, And Its Problems Are Getting Worse

In America, we have the ability to just ignore the rest of the world now and then.  When the news from abroad is too depressing, we turn it off and focus on more interesting American things instead, like a celebrity scandal or  the new iPhone or a weirdly viral YouTube video.

I think most Americans have tuned out the debt crisis in Europe.  It has been going on forever.  There’s no end in sight.  Lots of different, faraway countries are involved. The Europeans appear to be dealing with it.  So why should we care?  Look, a squirrel!

On Friday Standard & Poor’s cut the credit ratings for the debt issued by nine European countries.  France, Europe’s second-largest economy, lost its AAA status, Italy’s debt is now rated the same as that of Kazakhstan, and Portugal’s debt is down to junk bond status.  Even worse, it looks like Greece won’t be able to reach agreement with its creditors, which would mean that the latest Eurozone effort to address the Greek debt crisis would fail and Greece would be facing default and bankruptcy in March.

In the modern world, the economies of countries are connected in countless ways.  We sell lots of good and services to Europe; if its economies crash, those markets vanish and American businesses will suffer.  American banks, mutual funds, and investors have purchased the sovereign debt of European countries and would experience huge losses in the event of defaults.  And, of course, Europe’s current predicament is just a peek at America’s likely future if we don’t deal promptly with our governmental debt problems.  European countries that are saddled with enormous debt are now at the mercy of ratings agencies, creditors, and faceless bureaucrats at the International Monetary Fund.

So, we can be distracted if we choose — but Europe is still there, and its problems are, too.  They may be our problems soon, if we don’t start paying attention.

It’s All Greek To Me

Every day brings a new twist to the Greek/Eurozone debt drama.  It’s as confusing and quick-moving as a whirling Greek folk dance.  One day it’s general euphoria because another bailout deal has been struck.  The next day it’s back down in the dumps because the markets question whether the bailout will work.

The most recent outlook change is stunningly abrupt, even when judged against by the roller-coaster turnabouts that have characterized the ongoing European solvency crisis.  The decision by Greece’s prime minister to put the new round of austerity measures up for approval by referendum has shocked other European governments and put the latest deal in peril, causing markets around the world to plummet.

People are afraid that the Greeks won’t approve of the deal because they don’t like the austerity measures that have been imposed on them already.  No kidding!  So far as I can tell, the Greeks have borrowed to the hilt to finance a lavish, benefits-rich lifestyle that has been effectively underwritten by the Germans and the rest of thrifty Europe.  The Greek grasshopper just wants the German ant to save it, again, from the ravages of the approaching winter.

Although I don’t sympathize with the Greeks, who created their own predicament, isn’t the European response to the notion of a referendum a bit . . . awkward?  A plebiscite is in the finest traditions of democratic government, — which was invented in Greece, after all.  Is having a referendum really such a bad idea, when the alternative is to have unpopular austerity measures shoved down the unwilling throats of the Greek people, who are likely to respond with general strikes, work stoppages, and riots that will just make the situation that much worse?   Why not let the Greek people have their say?

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.