The EU Crisis Comes to a Head


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Yet such painlessness has its limits. The longer the EU (and the United States for that matter) “kick the debt can down the road” by underwriting debt with more debt, the more such debt accumulates. So do interest payments that consume ever-greater shares of government budgets. Greater expenditures dedicated solely to making interest payments mean less money for government programs, absent massive tax hikes–or further austerity measures that eventually become unsustainable in and of themselves.

In Europe, the urgency of the crisis stems from the fact that private investors, represented by the European bond market, want higher interest rates to protect themselves against losses. Higher interest rates, or more specifically any yields over seven percent, are seen as the border line above which paring down national debt becomes unsustainable. It is precisely this reality that drove European Central Bank policymaker Christian Noyer to accuse S&P of  ”becoming a motor” in the current crisis. “When you look at the way S&P formulated its argument, you can see that they have changed their methods,” Noyer contended. “The methodology has become much more political and less linked to economic fundamentals.” This is the same “shoot the messenger” reaction that occurred when America’s credit rating was lowered, despite $15 trillion of debt and no respite from deficit spending.

As of now the EU supra-nationalists retain the upper hand. In the latest effort to placate bondholders, Germany is reportedly ready to “soften the language“ in the statutes of the European Stability Mechanism (ESM), the new bailout system scheduled to replace the current European Financial Stability Facility (EFSF) in 2013. It can only happen if the 17 member nations agree to stricter budget oversight, and sanctions for those who miss EU-mandated budget targets. It may even include a procedure for taking fiscally irresponsible nations to court.

Tellingly, it seeks to reduce the liability of private bondholders who got a haircut in the restructuring of Greek debt. Bondholders who feared a precedent had been set where they would be expected to eat substantial losses every time an EU member faced a crisis. This makes them hesitant to purchase more debt–which drives interest rates up.

Nicolas Sarkozy was even more emphatic. “It must be clear that what has been done for Greece, in a very particular context, will not happen again, that no other state in the euro zone will be put into default,” he said. “It must be absolutely clear that in the future no saver will lose a cent on the reimbursement of a loan to a euro zone country.”

So who would replace these so-called savers when they are rendered immune from the consequences of their own behavior? Taxpayers, once again reminding the “little people” that their “betters” are still determined to privatize profits and socialize losses.  And it is exactly that attitude that makes any austerity packages, no matter how heartily deserved and/or necessary, an even more bitter pill to swallow than it already is.

The siren song? On April 17th, the True Finns party, who ran on a platform in part opposing taxpayer bailouts of debtor EU nations, became the biggest party in the country despite highly questionable policies in other areas. The equally questionable Marie Le Pen has made abandoning the euro one of the centerpieces of her presidential campaign. Investment advisor and financial columnist Mike Shedlock offers an educated guess as to where such indications are leading. “Eventually, there will come a time when a populist office-seeker will stand before the voters, hold up a copy of the EU treaty and (correctly) declare all the ‘bail out’ debt foisted on their country to be null and void. That person will be elected.”

European leaders have until Friday to come up with their latest package, one that will placate national interests, even as it renders them moot. The other alternative? An orderly breakup of the EU, devaluation of national currencies to promote growth, and the restoration of national sovereignty. Either choice will engender significant amounts of pain. The only remaining question becomes whether that pain is endured in a future where each country will eventually be rendered immune to the consequences of another nation’s reckless behavior, or whether the threat of “too big to fail” will be the odious glue that binds the EU–and ultimately the rest of the world as well–together.

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  • Alvaro

    The EU is a monster, a project for politicians by politicians.

  • http://www.genussallee.at Weihnachtsgeschenke

    On one side the EU is an economical union which has to be last, on the other side the political union which is a punch of corruption and has to be vanish.

    Für Weihnachten kann man hier Süsse Weihnachtsschokolade kaufen. Und hier kann man noch süsse Silvester Glücksbringer kaufen

  • SHmuel HaLevi

    About 8 years ago I was invited for a technology exchage meeting in Germany, Berlin and Staufen. Naturally I shopped about and met people at restaurants, supermarkets, public transport, etc. In the Staufen region we mingled with farmers as well.
    It did not take a degree in economics to see the vast majority desinterest on the Euro and a longing for the DM. It did not take long to reach saturation.
    The day after is what I worry about.

  • StephenD

    There is a story from Daniel about his interpreting a dream for the king; what some folks refer to as "The Greek Template" as far as prophesies go. Now we see the pieces coming together to make up the 7 heads and 10 horns of Revelation (the revitalization of a "Roman Empire" through the EU). Still, our hope must be that it is ultimately in G_D's hands.
    " And it is He who changes the times and the epochs; He removes kings and establishes kings…" Daniel 2:21
    Nothing is going to happen that isn’t in the plans of G_d. I just hope we, as a people, are prepared for what those changes may bring.

  • mrbean

    All this is secondary. Over the last generation, Muslims have immigrated in large numbers, to the point where a number of cities are a majority Muslim (Malmo, Sweden, Rotterdam, Netherlands). Current demographic trends suggest that a significant number of European countries will be a majority Muslim by mid-century. As Bernard Lewis commented in a controversial interview with a German newspaper, “Europe will be Islamic by the end of the Century,” a prediction that Robert Spencer then took for the title of an article. And however the initial immigrants may have felt about the Western countries to which they moved and in which they accepted state support, recent years have seen the spread of a particularly powerful strain of Jihadi Islamism among many, especially an alienated youth.

    • ayelethashahar

      All of which makes me very glad that (1) I will almost certainly dead by mid-century, and (2) by choosing not to have children I have not given hostages to the nightmarish future our insanely leftist, multicultural-addicted policies have guaranteed.

  • NAHALKIDES

    The only thing Ahlert gets wrong is the idea that spending cuts somehow hurt the economy. Less spending by government is the one thing that could save Europe – and us. The "pain" is that the entitlement class gets to steal less of other people's money than they could before, which isn't at all painful to those of us who have been footing the bill for the welfare state's excesses.

    • Oleg

      I think that what Mr. Ahlert meant was that so much of the economy of these countries is dependent on government spending, spending by the "entitlement class", and state intervention in the economy, that the shock of suddenly taking it all away would throw these countries into a recession. It's rather like a herione addict or an alcoholic quit "cold turkey", their body has been so used to the drug for so long that it has become dependent on it to feel normal even though the habit is self destructive. They will never solve this debt crisis if one group of statists (socialists) is instructing another group of statists how to solve this. Trying to tax their way out will only exacerbate the sitution, taxes destroy the private economy and only private free eneterprise can get them out.

  • tanstaafl

    Who elects the bureaucrats in Brussels?

    • mrbean

      They are not ELECTED! The European Commission is a council that is independent from all national governments in Europe. The word Commission refers to the members appointed by each country in Europe to manage the affairs of the EU. One member is appointed from each country to the EU. The word Commission is taken generally to refer to both the appointed members from each country as well as to the staff that manages the Commission. The appointed representatives from each country are called the Commissioners. All of them are appointed from former elected officials in their own countries. Their responsibilitites while acting as Commissioners is to consider the good of the EU as a separate governing body rather than to owe allegiance to their native country. These Commissioners serve for five years when new appointments are made.

  • Seamystic

    Just check Englands 1694 Bank Act, which is the basis of all National Banks in Democratic societies, and the built in ever expanding Debt in Perpetuity. http://mypage.direct.ca/l/lbouchar/ "GUARDIANS OF DEMOCRACY" CHAPTER 2, 3 & 6.
    Debt in Perpetuity is the new slavery of mankind, through the ever expanding National Debt, built into that act of 1694.

  • crackerjack

    The Euro is not Europe. The European Union is the best thing that happend to the war torn continent since Christianity. Well into the third generation living in peace, stability and growing integration, Europeans are sure not looking back for the days of petty nationalistic strife that sent every generation up in arms agains each other.

    When the difference between France and Spain are of no more relevance than that between California and Florida, Europe will have taken a great leap forward.

  • crypticguise

    There simply is no easy solution for the EU. The EU will disappear and the Euro is going to be transformed into multiple currencies.

    Thank God, we in the United States of America have an opportunity in 2012 to rid ourselves of more Democrat Socialist Congressmen and the Marxist in the White House. The EU has no such choices ahead of it. There is NO MORE MONEY, folks.

  • Fred Dawes

    EU Will come down when the big 6 banks tell it to come down,all that you see is BS After the EU The USA will come down like a house of cards, all of this has been talked about for 40 years and all of it has been part of the one world plan, also understand one fact no one is looking at the big money Islam guys but many are talking about the jews why is this? the muslims have billions and billions inside this country to make jews look evil and muslims look good. Just look at who is really behind the system.

  • crackerjack

    The only country worldwide set for a Muslim majority within the coming decades is Israel, if it holds on to it's occupation.

  • Alvaro

    The same territory that the Arabs occupied in 636-637?