Monday, May 10, 2010

Pass The Feta

One reads various pundits arguing all ways on the subject of the European Union and the survival of their currency. For some observers the chaos in Greece presents Germany with an opportunity to enjoy a lower valued currency which will help with exports and improve Germany's balance of payments while decreasing their debt load. For other observers the Euro's plunge in value against the dollar spells the end of the currency and perhaps the end of the unification of Europe. The Euro's problem dealing with disparate economies wasn't apparent when it came into being in the middle of a boom. They made no provision for the possibility that debts in one country would grow so large as to create a disincentive for other countries to support the debtor. No one figured that if Greece were to go down the toilet Germany may not want to save them from default.

Whether or not the Euro survives will remain a matter of speculation as no one is yet suggesting the currency's demise right now. Rather, the speculation goes, it will most likely fade as more and more countries get into debt difficulties. That being the case it will take a few more years (and a few more crises) to see if indeed the Euro and the European Union will get past this mess intact. Up next: Portugal a relatively well run country that has found itself insolvent through over-spending and Spain a poorly run speculative enterprise has also found that living beyond one's means is a dicey proposition. Italy and Britain are not far behind and the weight of all this may be more than France and Germany want to sustain or are able to sustain. And Britain never even joined the Euro so theirs will be a private crisis of the pound all by itself.

What has occurred to me is to wonder if the European ideal of cradle-to-grave public welfare support will survive this economic crisis. For someone like me who grew up in the post-World War II Europe, the idea of no more public health care system would be inconceivable. The notion that pensions, as modest as they may be, will be pushed back, perhaps for decades, to accommodate the needs of bankers, seems utterly out of place to your average European. Yet numbers don't lie and the numbers are absolutely dreadful. The suggestions I have read require European public spending to be cut on the order of around seven percent over a period of years to restore balance in public treasuries. These kinds of cuts represent a severe retrenchment in living standrds and huge reductions in expectations. How they will play out will be something to watch.There are those who argue endlessly in favor of public spending cuts, but when we get down to it, cutting spending is horrendously difficult, and politically impossible, as we are seeing on the streets of Athens.

The bad news from this side of the Atlantic is wondering how we will escape a similar fate. Perhaps the fact that we print the world's reserve currency will help, perhaps the fact that we have low welfare expectations will help. On the other hand we have created a lifestyle in the US that is largely dependent on oil for mobility and we have a population that for the most part hasn't even heard of Peak Oil, never mind figured out how to deal with it. I suppose it's all a matter of degrees, now we have to get used to doing with less, just as Greeks will have to also, except their less is a good deal less than our less. Germans will have to do with less but their less is perhaps as much as ours perhaps more. I wish I were Norwegian, a country with no debt and a massive bank account filled with oil money earned from the North Sea and stashed as a rainy day fund to keep their system of national welfare healthy and strong. We could have taken a leaf out of Norway's book and saved our oil pennies instead of trying to run the world and have military bases in 700 different places. Oh well, now is how we learn to do with less, and at least we never had a National Health Service so we won't miss not having that anymore. And maybe feta cheese will get cheaper by way of consolation, as we find Greeks bearing the gift of a new uncertainty to a world not too keen to get involved.


Danette said...

I suppose you've been reading Krugman's blogging. Interesting stuff. He has a good article today too- not on the financial stuff but on BP and the Mineral Management Service ( Robert Kennedy Jr. has a similar article on the Huffpost calles "Sex, Lies & oil spills" There's no point in pushing Washington in any direction until they show some inclination to break their ties with the corporations (sometimes I wonder what our real beef with Germany was in WWII- we didn't care that much about the jews- it really had to be about financial gain I suppose. We clearly don't have any objection to a corporate state.) I see now that fingers are pointing at Halliburton. Shocking!

(yup, bitter)

Conchscooter said...

It's an interesting point about Germany in WWII because many US coiprorations were actually profiting from the Nazi regime. I think, and perhpas I am naive, there really was an ideological drive to do what was right. Perhaps it was just fear of bing conquered, though today it's hard to picture government forcing ford to give up german profits by going to war with germany.

Anonymous said...

The bottom line, as always is money.
Any currency in a storm to paraphrase.

And however the money comes, it too shall go, down the tube, or in the case of BP, down the oil well.
Sadly, the world as you knew it Mike and I know it now may well not survive another fifty or one hundred years. Something will break, and of course the country in which you currently dwell sticking its nose in to all too many places where it is not welcome may well survive the longest, by dint of it's large spread around the world.

However the small countries that depend on others to survive, well, they may be in greater difficulty.

Then again this peak oil bit...where's the liquid bubbly up through the bottom of the Gulf of Mexico originating from, eh?

And how many other drillers are out there looking for their own barrels of oil?

Peak Oil? Maybe the word oil is too specific, let's call it peak energy, because whatever is below our feet can be changed once we obtain same, into myriad liquids and solids.