Europe's Fix Not Just Smoke and Mirrors

by John M. Curtis
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Copyright December 13, 2011
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                When French President Nicolas Sarkozy and German Chancellor Angela Merkel met at Elysee Palace in the 1st Arrondissement in Paris Dec. 5-6, they hoped to find a quick-fix for the Eurozone’s sovereign debt crisis threatening the euro or common currency.  Since its launch in 1999, the euro promised unparalleled prosperity for the some 17 members of the European Union, a community of 27 nations, accounting for a combined Gross Domestic Product of over $16 trillion.  European Union officials hoped to create a United States of Europe, an economic common denominator so powerful, eventually to replace the U.S. dollar as the world’s reserve currency.  While the experiment worked for a while, several prosperous members of the Eurozone began to run in the red.  With strong tradition of costly progressive socialism, the Eurozone ran out of cash.

            Comparisons to the Eurozone prompted many progressive-minded elected officials, largely Democrats, to push hard in the United States for comparable medical, social and retirements benefits.  President Barack Obama pushed hard for his March 23, 2010 health care bill, offering health insurance to some 30 million uninsured Americans.  Fought tooth and nail by Repbulicans, the legislation now faces scrutiny in the U.S. Supreme Court, because of lawsuits claiming it’s unconstitutional to force U.S. citizens to buy health insurance.  Sometime in June 2012, the Supreme Court will decide whether Obama’s plan can go ahead toward the dream of national health insurance.  Whatever happens in the High Court is anyone’s guess.  Europe faces no problems in the courts only the complicated mess of paying for the most lavish health care, social and retirement benefits in world history. 

            Federal Reserve Board Chairman Ben S. Bernanke has bent over backwards trying to keep the U.S. economy growing since the collapse of 2008.  Sarkozy and Merkel pushed for a trillion-plus-euro bailout fund to finance the Eurozone’s struggling economies, now buried in debt, unable to pay bills and begging the Frankfurt-based European Central bank for more cash.  Without a common tax base, or vehicle for collective repayment of debts, the ECB has been reluctant to print euros to pay admittedly trillions in unrecoverable debt.  ECB officials want prosperous Eurozone countries like Germany and France to carry the weight of struggling economies, currently running in the red and unable to cover debts.  “Strains in global financial markets continue to pose significant downside risks to the economic outlook,” said Bernanke, referring to Eurozone’s debt problems.

            Eurozone’s sovereign debt problems stem from many factors but related to the difficulty of sovereign nations borrowing—as opposed to printing—their own currency from a foreign central bank.  All Eurozone members are beholden to the ECB for extra cash needed to keep the lights on.  No Eurozone country can do what sovereign nations do when they need more cash:  Print and circulate currency to financial institutions.  When the U.S. Fed supplies liquidity to the U.S. banking system, it passes the tab on to the U.S. taxpayers in the way of the National Debt.  European Central Bankers don’t have the same luxury, charging each Eurozone country different interest rates based on a country’s credit worthiness.  Countries running in the red naturally pay higher interest, creating an insoluble dilemma:  How can a struggling economies possibly afford to pay debts with exorbitant interest rates?

            Merkel and Sarkozy’s attempt to change the European Union constitution to impose harsh economic sanctions on Eurozone countries is preposterously.  British Prime Minister David Cameron got it right vetoing the proposal that would have added insult to injury to already struggling Eurozone countries, so buried in debt and beholden to the ECB that they can’t meet current social welfare, health care and pension obligations to their citizens.  “They are certainly ready to lean against the wind should the economy falter,” said Cary Leahey, Managing director of New York’s Decision Economics.  For Merket and Sarkozy’s proposal to work they would have to get all 27 members of the EU to end national sovereignty, dissolve individual countries, create a common tax base and join a truly common union as states, not sovereign nations.  Only then would continuing the euro make any sense.

            Current attempts to save the euro are like rearranging the deck chairs on the Titanic.  Creating harsher sanctions won’t reverse the adverse effect of the euro on Europe’s struggling economies.  Europe’s economic woes prevent the U.S. stock market from long-term growth, fearing future major sell-offs.  Germany and France cling to the euro to suppress the possible increased value of the Deutsche mark and franc, something that could hurt exports.  When the Eurozone faces the music and realizes its time to call its quits on the euro, it will create more long-term stability in global stock markets.  Whatever the initial sell off, global markets lived without the euro and will eventually readjust.  Cameron is right to call out Germany and France, threatening to quit the EU if the Eurozone does something crazy.  Sarkozy and Merkel must stop tap dancing and accept reality.

John M. Curtis writes politically neutral commentary analyzing spin in national and global news.  He's editor of OnlineColumnist.com.and author of Dodging the Bullet and Operation Charisma.

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