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New Plans to Save the European Union

June 11, 2012

Germany floated a proposal to the EU.  More likely it was the Spanish banks who prodded the EU folks in Brussels to ask if Germany would take the bait.  Anyway, someone proposed that Germany pay the debts that Greece, Spain, France and Italy owe to their overextended banks.  In return, the debtors will accept fiscal reforms to their welfare and tax schemes.  This is not going to work for a very simple reason.  The debtor nations want cash now and they promise to be good later.  Much later.  Like good for 20 years kind of later.

The obvious problem is that the debtors have no incentive to be good either now or later.  The debtors have the same budget restrictions they had before, except after the bailout they will have the German lenders to blame rather than their own banks.  The debtors also have the means to repudiate the debt since they might out-vote the Germans in Brussels.  What they don’t have is time.  New lenders are already shunning Spanish debt.

Ha! I have this great idea. Let’s go have a party and we can vote to see who pays.

… (crickets)

What?  No takers?

There is an obvious political and economic solution that will solve the fundamental problem.  The voters in the debtor nations asked for more than they earned and their bankers lent them the money.  Get the debtors out of the European monetary union and let them destroy their currency to pay their debts.  That leaves the solution in the hands of the people who created the problem in the first place, and how far they will go is up to them.  The unsustainable pensions and loans in the debtor nations will be wiped out and then they can start to rebuild their economies, or not, as they choose.

Unfortunately, that solution isn’t palatable to the politicians in the debtor nations, so I don’t think the debtors will simply walk out of the EU.  Like the drunken house guest who crashed your party and doesn’t know when to leave, they need to be pushed out the door.

This is another bit of irony.  America’s president Barack Hussein Obama proposed that the United States should become more like Europe.  He certainly has done his part to make it so.  That plan sounded fine as a distant abstraction but Obama may lose the next elections when American voters see what European government is really like.

~_~_

Robert the German

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