So... the EU seems to be slowly collapsing like a cake in the oven...

 

Spanish unemployment is over 20%. If you're between 16 and 25, that rate is over 45% (Compulsory education in Spain ends at 16, unlike the United States where it ends at 18.). In both categories, that's the highest rate of any industrialized nation.

 

At the same time as the housing bubble blew up in the States, the same happened in several EU countries, most notably Ireland and Spain.

 

Greece's government is in absolute crisis but, understandably, doesn't like the particular conditions that lender nations want to put on them by perspective creditor nations. It's a nasty no-win situation in that country right now.

 

European banks are slowly beginning to tighten up credit and a lot of money has already left Europe via the bond markets and money markets. This week saw what was the first of what could be many runs on European banks, when depositors flooded Latvia's Krajbanka to get their money out of the expected-to-fail bank.

 

Technocrats have taken over in Italy, where incompetent government and strange dealings on the bond markets have left Italy with the sudden necessity for a bail-out that might mirror Greece's or Portugal's.

 

Germany, with its predictably austere finances and responsible governance, has effectively turned into the EU's life-raft, which, while helpful to many, leaves many more with some feeling of discomfort of a German-led EU, as exemplified this week by a British member of the European Parliament:

 

Fear of a German Europe

 

So what happens now? Can the EU survive what appears to be domination by a few creditor nations? Can it survive while keeping afloat other nations that can't seem to carry their own weight? This thing seems to be getting worse all the time and the most recent round of talks to get some kind of solution fell apart.

Without some unified policy of spending in each member nation this was bound to happen at some point. If Germany weren't more or less forced into it as a requirement in order to be allowed to reunite then I doubt they would have gone along with it. The socialized systems of Europe might see some trimming back in the near future if they want to be financially viable.

I suggest reading "Boomerang" by Michael Lewis to get some good background into what helped create problems in each of the countries.

I'd take a German-dominated EU over a Chinese and Russian.

This is the video that constitutes part of the article I linked to above. I'm endlessly fascinated by the way Europe has integrated since the middle of the 20th century. It's the most boring fascinating thing I can think of. In this video however, a British MPE rails against the technocrats within EU governance, which was very necessary, but also goes so far as to evoke fears of the Nazis when discussing Germany's role within the EU... which is perhaps not-so-necessary. British people are somewhat more subtle in their insults... but they don't shy away from explaining their criticisms outloud, often with the subjects of that criticism being right in front of them, as is the case here.

 

It's funny how so much of the old debates about a unified Europe have resurfaced with this new crisis. But, I do think the individual states are going to have to move toward ceding some power to a centralized policy-making organization, whether it be the current Council and parliament or a new institution. It's untenable to have some countries like Greece and Italy making such reckless policies with collectivized ramifications. As much as the EU is vilified by many of its members, I still think all of them would rather have it than not, so I'm not sure they would let it collapse.

 

The Greek debacle has been fascinating to watch, though. It would be comedic if it weren't so serious.

^ In a move toward increased centralization, is there a risk that certain states may begin to opt out? I can't imagine the Brits --among others -- signing on for much more in the way of central planning.

^ In a move toward increased centralization, is there a risk that certain states may begin to opt out? I can't imagine the Brits --among others -- signing on for much more in the way of central planning.

 

I'm sure they wouldn't either, but I think it might happen more gradually. I think the EU has more power than it was originally intended to and if it had been proposed the way it is now it wouldn't have been agreed to. I think crises like this one provide an impetus for changes that, over time, end up having a much larger effect than initially thought. Whether or not that's a good idea is separate question and one I don't have a solid answer to.

What's your opinion on Sarkozy's notion of a "Two-Speed Europe" where the 17 EuroZone countries would go in for even more integration while the 10 members not using the Euro would not but would remain in the EU?

What's your opinion on Sarkozy's notion of a "Two-Speed Europe" where the 17 EuroZone countries would go in for even more integration while the 10 members not using the Euro would not but would remain in the EU?

 

I’m not sure. I think he’s correct about the perils of a single currency with diverging economic policies among its member states. Apparently the fear is that a “two speed Europe” would hasten the union’s dissolution, but it doesn’t seem much different than current reality, with Britain and others already resisting. So, I’m not sure how it would significantly change things or help alleviate future crises unless the increased integration of the EZ countries would pressure the rest to follow. Perhaps if such a thing were geared toward the PIIGS or future entrants to the union and required them to adopt sustainable economic policies in conjunction with their bailouts or membership it would be more useful. Here's my question: is there a response to the crisis that would save the euro and wouldn't lead to increased integration or more centralized authority?

Scary stuff.

I think this poll helps explains what's been behind Merkel's somewhat blase response - Germans are overwhelmingly opposed to "eurobonds."

A sign that they might actually figure this one out? Federal Reserve Bank, Bank of England, Bank of Japan, Bank of Canada and the European Central Bank have announced a coordinated effort to make it cheaper to borrow dollars. A lot of the problem in Europe has been how expensive it's gotten simply to operate as a bank and right now this is what might be needed. The so-called "backdoor run" on banks that has come as bond investors have pulled out of Greece, France, Italy, Spain, et cetera, might be stopped if lending becomes cheaper and easier.

 

All this still seems like just a stop-gap. The underlying problem is the debt crisis. Increased spending isn't an option and austerity measures seem to be choking some economies. What is the answer here?

A sign that they might actually figure this one out? Federal Reserve Bank, Bank of England, Bank of Japan, Bank of Canada and the European Central Bank have announced a coordinated effort to make it cheaper to borrow dollars. A lot of the problem in Europe has been how expensive it's gotten simply to operate as a bank and right now this is what might be needed. The so-called "backdoor run" on banks that has come as bond investors have pulled out of Greece, France, Italy, Spain, et cetera, might be stopped if lending becomes cheaper and easier.

 

All this still seems like just a stop-gap. The underlying problem is the debt crisis. Increased spending isn't an option and austerity measures seem to be choking some economies. What is the answer here?

 

The markets have seemed to respond well to this move, hopefully it's not just a bandade for bullet wound type of move.

I see the Euro breaking up within two years, possibly with the northern countries under one Euro, and the southern and service countries under another.

 

FWI: The US pays about 2.2% interest on loans, while Greece has to pay over 26.%! Add in that over 140% of their GDP goes to their debt, Greece will never get out of this trouble.

 

Italy has bonds of 8%, but will you want to take that risk on a 20 year bond?

 

I am also hearing that China will have major trouble within the next 1 to 2 years as they have been falsifying their numbers for awhile now.