Europe Teetering

Smoky Lake Signal Article No. 196 (November 9, 2011)

Whispering in the Wind

Euro-Europe Teetering on a Cliff!
From my perspective, what’s going on in Europe is without question a disaster and to say that Europe is now in financial (political) turmoil is an understatement – for the moment, Greece has become the convenient whipping boy but the real question is: can and will the insolvency that is so obvious in Greece spill over to other parts of Europe and yes, spill over into other parts of the world?

A Good European Experiment Gone Sour!
In modern times the idea of having a single, mega European market was first envisioned and crystallized some 50 years ago when six nations (Belgium, France, West Germany, Italy, Luxembourg and Netherlands) agreed to a common market concept in 1958 and institutionalized what was then called the European Economic Community. From that year onward the common market concept grew and matured: membership in the European club grew to significant levels; a European parliament was established and disciplined economic cooperation flourished, all accomplished without any suggestion of political or cultural integration. About 12 years ago something quite dramatic happened and is now proving to be disastrous to the original concept of economic cooperation without political integration – in 1999, 17 member states agreed to a basic monetary policy including the use of a single “euro” currency – for me, 1999 was a clear deviation from the community of economic interest strategy and clearly pointed toward more and eventual political integration. Today the European Union is made up of 27 sovereign nations with 17 of those nations operating under what is now known as the euro zone – truly a fractured formulae and in my mind an indicator of financial confusion and political disaster.

Greece, Tip of the Iceberg!
From what I have read about Greece’s population and their political attitudes, it is no wonder that they are in such a financial state, as they are – my understanding is that in the past 10 years the Greek government racked up huge debts that aren’t being addressed through Greece’s taxation system. Added to the confusion is the apparent mindset of many Greeks who feel that taxes are an irritant and should be avoided, after all they are a part of the euro zone and therefore their spending habits, no matter how reckless, will be paid for by others in the euro zone (i.e. France or Germany). Actually Greece is not the “real” problem for the euro zone elite, the problem is that a bailout for Greece means likely bailouts for other euro zone members, most notably Italy (Europe’s third largest economy), Spain, Portugal and possibly others. So how is this Greek, no, European situation to be contained; can the mess be sorted out and can the European Union be saved??? A number of ideas have been put out by the media for discussion – about a month or so back it was suggested that the bonds supporting Greece’s debt be devalued by 50 percent (the banks and other bond holders say no to this, not so much as it relates to the Greek situation but what is likely to happen in other countries such as Italy); another suggestion was to have Greece leave the euro zone and return to their former currency, the Drachma (Greece says no, its their financial comfort zone); a third suggestion is to dissolve the euro zone itself and have each member country of the zone revert back to their past currencies – that is not a bad idea if Europeans want to save their European Union. No matter what strategy is undertaken a key component must include the reining in of their banks so that they truly become national banks that act in the best interest of their “home” authorities.

Any Parallels in Canada?
As Europe struggles with financial chaos and what appears to be an unmanageable debt; Canadian leaders are cautiously patting themselves on their backs and suggesting that Canada’s debt is miniscule when comparing Canada’s strong financial position to the financial weakness what is going on in Europe and the United States. I do agree that Canada’s national debt, as reported in the country’s national accounts, is small but that does not mean Canada is in good financial shape. For a good description of how precarious Canada’s financial situation is, I refer you to the October 24, 2011 issue of MACLEAN’S magazine and its editorial article entitled “Why Ontario is poised to become Canada’s Greece”. Following is the concluding paragraph:
“The sobering truth is that Canada’s largest province is now facing the country’s most troubling debt problem. And the effects of Ontario’s debt will soon be felt right across the country, regardless of how prudently other provinces have managed their finances. Fair or not, we’re all in this together.”