The EU Crisis Comes to a Head


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As the European Union debt crisis moves towards an ostensible resolution on December 9th, complications arise. Ratings agency Standard & Poor’s has warned that the failure to reach an agreement may result in an unprecedented downgrade of as many as 15 EU countries simultaneously. “Systemic stresses in the euro zone have risen in recent weeks to the extent that they now put downward pressure on the credit standing of the euro zone as a whole,” S&P said in a statement. Cutting through the economic jargon, a “resolution” of the crisis comes down to a single choice: there will either be a European Union, or individual countries will retain some semblance of national sovereignty.

As has become routine, the focus of the crisis centers around two European leaders, German Chancellor Angela Merkel and French President Nicolas Sarkozy. They are attempting to hammer out a plan that calls for more cooperation among the 17 countries that use the euro, most of which centers around tighter fiscal controls to prevent member states from overspending.

Yet the fundamental differences in each leader’s approach seem irreconcilable. Merkel would like to change the EU treaty itself, making rules regarding borrowing and spending stricter, and imposing penalties on countries that persistently engage in fiscal irresponsibility. Sarkozy agrees–sort of. He likes the basic concepts, but resists ceding more power to the bureaucrats in Brussels.

The reason? Unlike Merkel, Sarkozy is facing a difficult re-election in April. It is an election in which upstart challenger Marie Le Pen is currently ahead of Sarkozy 23 to 21 percent, according to a survey by Ifop for France Soir and a poll taken by the Harris Institute. Why does she resonate? Part of the reason is her contention that “France sacrificed to the EU basically all it had–the national currency, sovereignty over its territory, and independence in political and economic decision-making, eventually losing the status of a nation and accepting the role of a vassal of the EU and the dying Euro.”

It is a sentiment that resonates far beyond the borders of France. And that sentiment is largely triggered by a single concept: austerity. Austerity packages reveal the divide between what Europe’s socialist governments have promised and what they can actually deliver. Moreover, they reveal the unrealistic expectations of people long immersed in the cradle-to-grave entitlement mindset that is no longer sustainable.

Portugal offers some insight into the disconnect. Its parliament put together an austerity package that includes salary cuts, tax hikes and an increase in working hours for a country already enduring a recession. The package was necessary in order to secure a $104 billion loan in May of 2010. Yet Portugal is expected to remain in recession, and unemployment is expected to reach a record 13.4 percent in 2012. As a result, the country endured a union-organized strike on November 24th that shut down Portugal’s transport system, and triggered massive discontent throughout the nation.

Parliament reacted by reinstating previously suspended 13th and 14th month salary payments for civil servants earning less than 1,100 euros a month instead 1,000 euros. In other words, Portuguese civil servants have come to expect two extra months of salary every year. Anything less is an effrontery. One that rankles even more when it is presented as a necessity to save the European Union, as opposed to Portugal itself.

Italy offers another example. The new government, run by technocrat Prime Minister Mario Monti, has put together an austerity packed called “Save Italy.” It aims to raise more than $13.4 billion from a property tax, a new levy on luxury items, an increase in the value added tax (VAT), a crack down on tax evasion, and an increase in the pension age to 66. As with Portugal, unions have expressed opposition, and two of them announced a two-hour strike against the measures scheduled for December 12th. Also like Portugal, recession is almost inevitable, if not occurring already.

Why is recession inevitable? Two reasons. First, nothing in either of these austerity packages, or those of other EU nations involved in the same process, does anything to boost economic growth. As is pointed out here, four-out-of-five of Italy’s reforms involved raising taxes. Higher taxes are inimical to growth.

Second–and this is a four-star cautionary tale for the United States–the size and scope of government has become so large that cutting it down to manageable levels requires layoffs and spending cuts that will lead to recession. This paradox could have been avoided before the socialist parasite became big enough to devour the national host. Now some measure of pain is inevitable.

Yet it is resistance to that pain, at virtually all costs, that drives both the Keynesian-inspired stimulus machinations in America and the bailout mentality in Europe. Nobody, from the governments who engaged in reckless spending and financial institutions that underwrote it, to the people who benefited from unsustainable “goodies” bestowed as a result, want to bite the fiscal bullet.  Everyone wants the grand unwinding of trillions of dollars of debt to be as painless as possible.

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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?