Yea! Europe’s Problems Solved (Again)

Analysis: Euro zone advancing through obstacle course | Reuters.

This is typical mainstream media analysis of the eurocrisis. It is long on spin and short on facts and numbers.

The actions recently taken by Europe are mere window dressing. Dramatic reforms are necessary. The writer at least gets that much,

…Europe has yet to find a strategy to revive economic growth that would enable highly indebted states to reduce debt burdens and put the jobless back to work.

This is the whole problem in a nutshell. Europe cannot afford its present lifestyle. The failing states need to make dramatic budget cuts, and they need to remove all of the red tape that profits a few at the expense of the many.

Whenever a government starts makings these changes, it gets voted out of office. Since the onset of the eurocrisis, not one government has succeeded in winning elections. The opposition has taken power in each case. It doesn’t matter if the country is basket case Greece or supposedly rich France.

The article points out that Ireland is inching its way back to the capital markets and Portugal has continued to implement a ruinous austerity program. So what? Each country is still in the midst of a depression with unemployment touching 15%.

The article then uses a couple of quotes from the Finnish finance minister to show that things are looking up. The Finnish finance minister is a politician, and politicians love to spin things and take the credit.

What was he going to say? Could you imagine,

The Finnish Finance Minister was quoted as saying that with demographic pressures and uncompetitive economies, it looks like the rich, Northern countries are entering a de facto fiscal union with the poorer Southern one.

During a recent interview, he said, “It looks like Finnish taxpayers will be footing the bill for the PIIGS indefinitely. Please make sure you vote Stubbs in the next election.”

Then, good news is made of the fact that Rajoy is maybe sort of considering a bailout. How is it good news that the fourth largest Eurozone economy needs to be bailed out? Spain is in a lot of trouble. Its bailout has the potential of sopping up the resources of the ECB and ESM all by itself:

This is my favorite line from the article:

Enthusiastic market reaction after the German ruling, with Spanish and Italian bonds rallying, shares rising and the euro hitting a four-month high, showed many investors believe the euro zone is finally starting to get on top of the crisis.

The conclusion of market euphoria is incorrect. It does not show that many investors believe that the eurozone is finally starting to get on top of the crisis. It means that investors think that they can make money buying stuff and selling it later. That’s it.

The problem with all of these articles that talk about saving the euro is that the euro is the problem for the PIIGS. A country with its own currency would have been well on the way to a sustained recovery by now. Check out what happened in Iceland and Argentina over the last few years.

Once you make the assumption that the euro should be saved, your analysis is already incorrect. The politicians of Spain, Italy, Portugal, Greece and Ireland should stop trying to save the euro and start trying to save their own countries. A good start would be readopting a national currency.


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