Tuesday, December 13, 2011

"The Euro is dead, and like Keynes it should be buried"

The decision by British Prime Minister David Cameron to veto the 'Merkozy' Eurozone plan continues to cause angry recriminations not only in Britain by the Opposition, but also from members of the European Council who are promising retaliatory steps against Britain and her interests.

Despite the bluster, however, it remains pretty clear to the investment community that the solution being enacted on by 26 nations of the European Union is not going to address or solve the root problems that are plaguing the region.  The conflict that faces the EU is not that of the 26 nations versus the non-participant, Britain, but the divide that exists between the more fiscally responsible (and productive) Northern European countries and the more fiscally irresponsible (and less productive) Southern European countries.  Or to put it another way, the conflict remains based around how long and to what level will the Northern European countries continue to subsidize and provide for the Southern European nations.

This is not dissimilar to the fight that is taking place in the United States between the visions of the Obama Administration and Progressives as articulated by the President in last week's major economic address in Kansas.  The President trebled down on his belief that the solution to the challenges comes from a far bigger and more powerful central government whose role is to ensure 'social justice' and the equality of results.  This is diametrically opposed by the vision of Conservatives who believe in limited government, personal accountability and responsibility when it comes to one's actions and conditions, and that equality in opportunity is the driver for strong economic performance.  To a Conservative, the 'nanny state' is not the solution - and many of us look at Spain, Greece, Portugal, Italy, France, and even Germany as examples of a 'nanny state'.

In an interview with Real Clear Markets, legendary trader, Victor Sperande, also known as 'Trader Vic', opined on the Euro crisis and the Merkel / Sarkozy (Merkozy) solution being enacted on by 26 countries of the European Union...
The best way to understand the Euro Crisis is to get a DVD of "Animal House" starring John Belushi. There is no hope for this chaos. They cannot come together on fiscal policy; it is impossible.

Things happen within a country; politicians do not control the people. Brussels can use all the smoke and mirrors it wishes. Ultimately, if the people get into a situation where they are suffering, they vote the leader out and the new leader will break the agreement. However the hot air gives markets the perception that change is possible, or even underway. It's all ethereal, and will dissipate in a moment's notice.

This is a sucker bet of the highest order. The Euro is dead, and like Keynes it should be buried. Also remember Merkel and Sarkozy will not win their next elections, just as Obama will not...these are not leaders but rather losers, as they are not for the people but for personal power via politics.
The proposed solution is a sucker's bet.  The reason the Euro as a currency is in trouble, why many European banks are in trouble, and why countries like Greece, Italy, Spain, Portugal, Ireland, and soon to be France are in trouble is because of the progressive / big government nanny state policies that they have embraced over decades.  French President Nicholas Sarkozy is already working to downplay the likely case that France will lose it's AAA rating as a result of the failure of the European community to develop and effective solution.

As British Prime Minister Margaret Thatcher once noted, the problem with socialism is that eventually one runs out of someone else's money.  The progressive / socialistic government policies of these nations can no longer tax enough or borrow enough to pay for the obligations on their promises.  The effects of these promises have so destroyed productivity that those who can / will produce see no value in doing so. Why should one exert oneself to pay for someone who declines to exert themselves and is content to take?

As Jacques Delors noted in an interview I that I covered in another blog post, the fault for the economic problems in Europe, in the minds of the progressives is not because of the failure of the architecture of their progressive economic policies, but in the implementation of these policies.  As long as this remains the mindset - both in Europe and the United States regarding the intellectual, social, and fiscal bankruptcy of this architecture, the solution to the problem will not be achieved unless there is a fundamental shift in power via the electoral process.

The 2012 US Presidential election will be one such decision point - will there be a fundamental shift in power from the failed Obama / Progressive policies in the United States to policies more based on the traditional American values and Conservative agenda?  In France, Sarkozy is facing his own election.  Sarkozy is part of the problem despite his 'conservative' bonafides.  He faces challenges from the left, in Martine Aubry and Francois Hollande, the hard right in Marine Le Pen, and now from his rival, former French Prime Minister (and still a weasel), Dominique de Villepin.  Based on current polling, it looks like France will lurch to the left in their April / May 2012 elections.

Europe's problems are not going to disappear anytime soon...and they are likely to get far worse in 2012.

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