[[Once again a political post]]
While the U.S. are involved in serious political fights right now, so is Europe. Interestingly, the European media cover the U.S. debt crisis only a bit, and the U.S. media almost completely ignore the European debt crisis.
What's also very interesting is that most articles in the U.S. say that Europe is clearly in decline right now. And most articles in Europe say that U.S. is clearly in decline right now.
Since quite some readers of this blog live in the U.S. I decided to make a post on the European situation. Of course, I'm just an interested non-professional. Remember that before you invest your retirement provisions. :)
Debt crises are only partly about facts; they are mostly about trust. In fact, trust is a fact. In 2010 the EU had a public debt of 85% and a running deficit of 6.4% of GDP. This is much, much better than the U.S., because EU revenue is 44% of GDP. Thus, only about 12% of the public spending is debt-financed, whereas 40% of U.S. public spending is debt-financed. Also, the EU has exported about 1.350 trillion € and imported 1.500 trillion € in 2010 which is way more balanced than in the U.S. (link)
Europe's problem is trust. And it is trust that makes the European crisis more dangerous than the U.S. crisis right now. Also, the European debt crisis is much more difficult to understand than the U.S. one - even for Europeans. But just like in the U.S. there are two basic positions. (Humanity is all about dualisms, isn't it?).
1) Just let the states go broke and save the banks when necessary.
2) Just introduce Euro-bonds so that all states pay for each other indefinitely.
Both positions are no solutions: they are ideologies.
If Europe allowed states to go broke, there is a high chance that the world would drown in flames for a decade and more as more and more banks and then nations needed to be saved while stopping the chain-reaction.
And for a nation to put the trust back into the banking system, it needs to be financially stable. Neither the U.S. nor the EU are anywhere financially stable enough to save a few hundred more banks right now.
On the other hand, while introduction of Euro-bonds would instantly solve the immediate problem, it would also bring along gigantic moral hazards. Greece could suddenly spend money that German tax-payers would need to pay - indefinitely. And the German taxpayers wouldn't be able to (de-)elect the Greece politicians that spend their money!
Moreover, while transfer of wealth is part of every nation, it requires an understanding of 'togetherness'; a common bond. The common bond is not sufficiently strong right now in Europe; mostly because we speak different languages and don't have visible political leaders.
What European and German leaders do right now is a middle course. A very dirty middle course! And I support that. If anything, you can blame politicians for not communicating their strategies to the constituency. But this very communication might actually make it harder or even impossible to go the middle course! Muddling through is what has to be done right now - unfortunately.
Europe will not fall apart due to this crisis. Just like the U.S. will not fall apart due to the tea party. Europe will eventually finish muddling through. Only then comes the really dangerous part! The European Union will have to become more resistant against debt crises. There are two ways to do that:
1) More integration: German taxpayers can elect the politicians that spend money in Greece and vice versa.
2) Separation: A northern EU and a southern EU.
I like (1) more. In the 21st century I want to be able to elect politicians that have global power. Unfortunately, (1) is also the less probable option. A lot depends on the next German and French elections! Major parts of the German opposition prefer (1) as well.
However, more likely is (2) and we can only hope that this process will be peaceful - especially in southern Europe that would suffer a drastic drop in wealth.
Of course, this is just the known unknown. Any revolution in China, war in the middle east (oil price shocks) or major terror attack can change the course of history and violently push us into the unknown unknown. It is going to become an interesting century! - just like the last one.