Austerity – Europe – Its All the Rage

Over the past week, the highly enlightened journalists at the Economist have had a lot to say in regard to a possible encore presentation of the Deutsche Mark.  For those of you who are too young to remember 1999 – or were busy hanging out on the MTR at the time – the Deutsche Mark was the formerly powerful and important currency of Germany – and before that West Germany.  What is all the fuss about – after all isn’t the Euro working?  It is, after all, worth more than the allmighty Green Back!  But this strength does mask an underlying problem, one you have no doubt heard the symptoms of – That is unless you have been busy hiding under a rock.  (Need I list them:  Greece, now Ireland, and likely Spain, Portugal, Italy, and France.)

All of the aforementioned have been living high on the hog for the last 10 years, primarily in on the back of  their neighbour Germany – which until recently, their apathetic public – although largely distrustful of the Euro – hadn’t a clue as to what their “friends” were up to.  They were too busy, drunk off the fumes of a United Europe, with an central role in Global Politics to care that France, Italy, and many of the neighbours were busy eating their lunch!

All the while across the Ocean, the Americans (and even we can not be held harmless North of 49 our markets are rather integrated…) were busy implementing a new national housing strategy – Mansions for Everyone – perhaps one of the most prolific government programs in the history of such concoctions (If you read your Roman History, that is saying something)  - except it was not the United States Government that was paying for it – rather it was a combination of European and Chinese Banks gone to town on what looked like great investments, Derivatives they were called – and as long as they were continually repackaged and the paper markets remained liquid life went on.  But it clearly was not sustainable – How often do you walk into a store and see a sign that says, “Money on sale” ?

Suffice to say after the paper markets froze in late 07′ it was clear that the days of the mantra, Mansions for all – were numbered.  From there the situation came into the public consciousness with the grace of a tractor-trailer.  The whole situation has left Germany much less than impressed, not only do they – as the largest Economy in the Euro – get to pay to clean up the mess, their neighbours continue to stone wall attempts for them to pay their fair share.  As everyone is aware, France went into riots over such attempts – focused on raising their retirement age to the ghastly and unthinkable age of 62.  The reality is France, and the rest of the Euro zone need to get real, and shape up.  The consequences of not caving to Germany’s demands will make the situation thus fare look like a childhood game of Musical Chairs – Fun and somewhat amusing – as ultimately Germany will choose stability over the long term prospect of caring for their freeloading neighbours.  They’ll leave in such a case, leaving their neighbours in such economic ruins the French will be lucky if they can retire at 80 with half a pension.

And what about those now smarting Brits?  - In the short term they’ll be sorry they can’t just dump the mess on Germany – however, in the long run I get the feeling, they’ll be saying – “I Told You So!”  And what about America, and its miles of McMansions?  Well, they wrote off the whole mess as a bad investment, and are in the process of moving on.  And what of all the money they owe to the Chinese?  History would indicate if the debt becomes too arduous they’ll ultimately decide to default – which when you are still the only country with the military means to project force to any corner of the Globe – is always an option.