The European Debt Crisis
We have an interesting scenario unfolding in Europe. In order to understand the situation there, one must understand political speak. Political speak is bowing to the demands of vocal parts of the voting population, while at the same time pursuing economic goals and controls that are consistent with the needs of a society.
What politicians say, is usually different than what they intend. So it is in Europe currently. There are great shows of solidarity, and movements for the benefit of all countries in Europe. Yet behind the scenes there is a real power struggle on the part of the richer nations to make the lesser nations govern themselves in accordance with the common aims, and to move towards a common control of the economies of Europe. Whether this is possible still remains an open question.
Consider Other Examples of Common Currency and Common Control
One of the best examples in recent times to use as an example is the reunification of East and West Germany. When Ronald Reagan said in his speech “…Tear Down This Wall”, it was the start of an economic revolution in Europe. In due course the wall separating the two Germanys came down, and the depressed East was rejoined to the prosperous West. The Airlift was ended. The military standoff was ended.
But the reunification was done by having one government over the entire area. What that meant was that economic policies were universal. The territories formerly comprising the East remain economically depressed, but over time more and more equalization is happening.
Today, in spite of this tremendous burden of half of the country being backward and out of touch with the world just a few years ago, Germany has become the economic powerhouse of Europe and the rest of the Common Market is pulled forward on the strength of Germany. No longer does anyone even mention East Germany or West Germany. Now it is Germany.
Greece
Greece, Italy, Portugal, France and all of the other countries were reluctant to surrender sovereignty and political power, but they wanted economic advancement. Hence THE GREAT COMPROMISE. We will all agree to a common currency, and to ending of border tariffs and restrictions, and we will all agree to a standard set of ideals that we should all adhere to.
But no one surrendered their power to spend money, or to keep their internal politics internal. Now we see the effect. Each country, while extolling the ideals, spends whatever it wants to spend. Politicians get elected by spending money they don’t have, and the general prosperity of the region masked everything.
The Effect
Tremendously different standards of living in different regions, and enormous economic strains on each country.
The Solution
The hope by European leaders that economic circumstances will force some sort of unanimity of the members of the EU, may yet still be realized. These matters have to play themselves out.
But rest assured. Even if the individual countries rise or fall in their own prosperity, this is a very advanced part of the world, and will not fall to the roadside. The members of the EU represent a large and powerful economic community. Even if the EU falls apart, which I doubt, Europe remains and will remain a very significant economic force.
England
While the UK has its own problems, at this point in time, the English are pleased that they didn’t adopt the common currency. It was more good fortune than an ability to foresee the future, yet the UK is not subject to the problems of having the Euro as the common currency.
The Future is Unknown
A few blogs ago, I wrote about how a ‘buy and hold’ strategy for investing was outdated and to be avoided. The reason was that in this world of instant communications and fast paced change, no-one knows what is around the corner.
So it is with the EU. There will be changes, that is for sure. What we cannot know is what the various dynamics at the table will bring as the final result.
But thing is sure. The EU will continue and the economic powerhouse that is Western Europe will remain a powerhouse economically, and the demand for goods and services among its people will only grow. The weak sisters will remain weak until they adopt some of the policies of the stronger nations and of Iceland, but they will all be there for decades to come.
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