Monday, October 1, 2012

This is the Crisis that never ends

This is the crisis that never ends;
It goes on and on my friend;
We just started slipping into it;
Not knowing what it was;
Then we just kept on sinking into it just because... 

Lamb chop grows up to find a dark and depressing world.

The European recession is the crisis that never ends. Every few months, the media declares that it is over with because the Europeans found themselves staring into the abyss and then found enough resolve to not agree not to go down that dark alley together. They sign a deal that does just enough to postpone the trip for another day. The market rejoices! Everyone pats each other on the back. That is, until the clouds darken once more, because the celebration has begun before the ink was dry.

Each nation of the Eurozone has their own national interests. When unemployment was 5 percent, it was easy for these countries to put petty concerns aside and focus on the European project. Politicians were going to get reelected as long as the economy was growing. It was a time for higher ideals. Then the recession happened. Unemployment spiked to 10 percent. The feel good days were over. All of a sudden, nations found themselves bound to a deal of another era. The sweetness of the deal had turned sour. Like a homeowner who bought their condo at the peak of the bubble, a country that agreed to a US military base during the Cold War, and a town that accepts a prison into their community for the jobs. Decisions that at one time made sense, but have since turned into regret.

At least Europe found a new way to resolve its differences that didn't end up with Germany occupying Poland .

There is no choice but for these nations to find an agreement that they can all live with because the alternative is so much worse. Since, they have national interests.. they play chicken to force concessions with the other side. The media rejoices whenever they reach the outline of an agreement, but the devil is always in the details. This past time the Germany agreed to move forward discussions about a banking union and possibly inflationary monetary policy that would end the crisis once for all, but then negotiations got stuck on the preconditions that Germany set forward. Mainly that, Germany wants countries to go through crippling austerity programs to balance their budgets so that they never have to bail them out again. Failure to do so would mean that other European countries would have to hand over authority of their national budgets to a central government in Brussels (which Germany will have a hearty influence on).

This is like how states and cities in the US are not allowed to run budget deficits. When they don't abide by those rules, then there is outrage whenever a more centralized government takes over control from a decentralized government after they have run their ship aground. But instead of a small localized economy hanging in the balance, it is 1/3 of the global economy that hangs in the balance.

As the crisis continues to worsen, new agreements will continue to be announced which will push the day of reckoning off just a bit longer.  Details will be sticking points. The roller-coaster ride will continue. When those issues are resolved, another big announcement will be made. The cycle will start a new. Over and over again.... 



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