Imagine that relative no one likes to talk about. You know the one. Its the undisciplined but lovable one that always thought that succeeding in life was not about hard work, but a crap shoot. There’s always that scheme, that upstart, that’s going to a make a million if only the funds are available. At first it looks good superficially. There seems to be comfort, and some luxury – some early returns – but always the need for more money. You want them to succeed, and eventually, you need for them to succeed. And suddenly you find yourself caught up in it, providing funds, and then assets. Then somehow, your very mortgage is used to under write the scheme, and it goes belly up. Its no longer about the relative’s lack of discipline. Its about your own survival.
Somewhere in the next few weeks to months, Europe’s unruly relative Greece is going to go belly up on its debts, and Europe’s, if not the world’s economy is going to shudder. Europe, fused at Greece’s hip through the Euro, over looked Greece’s undisciplined governmental structure, its profligate self directed spending to secure all its citizens a cushy supported existence, and its progressive balancing of the cost on Greece’s ever more puny private sector. It overlooked all that , and took in Greece anyway into the shared economic structure of the Euro, thereby making all of the European community at risk for Greece’s inevitable bill. Now the bill is coming due and Europe’s biggest banks are panicking at the mounds of worthless Greek bonds they will hold. Despite several ‘bailouts”, the circumstances of Greece’s internal economy have not significantly changed and the default is surely coming. Of course that’s not all the bad news. Europe doesn’t have just one wayward cousin. Most of Europe is in the same boat due to decades of voting in socialist parties that progressively padded the ‘security net’ for its citizens. Falling in behind Greece are Portugal, Ireland, and ominously, Spain and the biggest indigestible enchilada of all, Italy.
The plans feverishly being put forth to avert the crisis lerch from bad to completely unpalatable. The United States’ ugly experience with TARP (Troubled Assets Relief Program) in 2008 that most of the country feels bailed out the old boy network at the cost of the taxpayer, without applying the market punishments that prevent bad behavior, is being considered on a scale in Europe that defies belief – after all its entire countries this time that are teetering on default. The healthier countries of Europe, left with little option are considering just such a plan, and it is predictable that the fallout to the governments that will put the burden on its citizens to pay for their wayward relatives will be magnified tenfold to the United States experience.
The lessons to the United States in this mess will be both directly and indirectly laid out. The direct effect of fractional governmental default, severe continental bank strain, and huge bills to the European taxpayer is bound to create the elements of a double dip world wide recession, or worse. The indirect effects of a Europe where the traditional powers become disgusted with their less disciplined smaller neighbors, and start to look inward and protect their own economies, is a recipe for the kind of conflict that has convulsed Europe for 500 years. No one, not the United States, not anybody, wants to go back to that. The sad truth for the United States is despite the unfolding lesson of Europe’s lack of capacity to control its internal spending on itself, the U.S. is on a headlong path to undergo the same inevitable trap. The current administration is like the relative shooting craps and hoping the money trough holds out long enough to catch a winner and fund all the nonsense.
As surely as the sun rises in the East, the European economic crisis and what it says about the future of the western ideal of democratic debate and action to address crises in a peaceful and equitable way is about to play out. There are some serious thinkers out there that are not convinced we are equipped to solve this mess. Unfortunately, for both the pessimist and the optimist reviewing the high arc of western civilization’s day in the sun, its going to be a very stormy night.