The prudent thing to do when a major storm with potentially cataclysmic destructive power is heading your way, if you have sufficient warning, is to prepare by boarding up the windows, gathering supplies, and make plans for the aftermath. It is clear that the countries and organizations that are oases of financial stability in Europe are seeing the gathering storm clouds and preparing for a very rocky night. The crushing weight of bond obligations are beginning to violently shake the southern foundation of the Euro zone and the painful efforts at austerity by the countries at risk and the financial shoring up by the European economic giant Germany may be reaching its limits. The aggressive efforts at trying to sufficiently underwrite Greece to allow it to stay in the Euro is cracking the will of both Greece and the underwriters, and the prime minister of Greece has declared the end of June as a point of bankruptcy and default, unless further funding is made available. German patience and financial wherewithal is, as German Foreign Minister Hans-Peter Friedrich has declared, limited, with Germany “unwilling to just pour money in a bottomless pit.” DeutscheBank Co-CEO Juergen Fitschen described Greece as a “failed state run by corrupt politicians.” When your major lender has such opinions of your credit rating, the future is dark indeed.
The inevitable Greek default on their financial obligations, and resultant exit from the Euro now appears – inevitable. The countries outside the Euro are preparing. Switzerland, with its rock stable Swiss Franc looking Olympian compared to the Euro, fears the inevitable over valuing of the swiss currency as billions of euros pour into the safe haven of the Franc, and is contemplating a minimum rate for the Euro against the Franc to protect its export economy if default occurs. Lloyds of London is reviewing the capacity to switch to multi-currency underwriting to protect its exposure on the continent. The overt effect upon Europe and in a global economy, the world at large, is return to deep recession, and to Greece, a catastrophic default with dramatic reduction in economic value, loss of savings, lack of supplies, and blackouts, as creditors cut off the lifeblood of the country.
Other than that, things might just get worse.
Spain’s major banks are reeling under the strain of increased interest rates, and the credit ratings for the massive economies of Italy and potentially France are due a significant downgrade in their credit rating, resulting in borrowing costs that may prove unsustainable in the continent inflexibly on a single currency. Defaulting by Too Big To Fail countries like Spain, Italy and France would likely plunge the world into a depression.
The sixty year experiment of buying European peace and stability by assuring cradle to grave security for its citizens is coming to an end, and it is not yet clear its citizens have grasped their role in precipitating their impending crisis. France, faced with limited, peripheral reductions in its welfare state under Sarkozy, determined with its recent election of the Socialist Hollande to throw its fortunes to whims of destiny. The United States, a debt behemoth that dwarfs any European obligations, is heading toward its own election in which the current socialist president who blithely expanded the national outlays by 22% over the last three years with no means of paying for it, stands a reasonable chance of being re-elected.
The concept of democracy is an old idea, but the inherent instabilities of this old idea are very modern. Can a citizen recognize the difference between promises of security and the responsibilities of personal freedom? Can a citizen be their own country, recognize their responsibilities and obligations, contribute where they can contribute and start being part of the solution, rather than the nexus of the problem. The world is going to find out and it looks like 2012 is as good a year as any for some real self realization.