Tag Archive | "Europe"

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On the Health Care System We Aspire To

Posted on 10 April 2011 by Editor

Originally posted 2009-06-24 12:22:44. Republished by Blog Post Promoter

Today I got a call from my Mom. She and my Dad both live in the city I was born in – Warsaw, Poland. They are both elderly and live off of a government pension akin to the US social security system. The reason she called was to let me know of an excruciating pain she has recently been suffering from, resulting from a progressively degenerative neurological condition in her wrist. As all Poles are, she is entitled to free medical care in government health care facilities under the country’s universal health care insurance program. Trying to get help for her condition, she has visited with several general practitioners covered under her free plan, all of whom admit she needs to see a specialist. The last one finally crafted a referral for her and she is now scheduled to see a neurologist … in three months. Ouch !

Her options now include continuing to suffer the intolerable pain for the next 3 months or pay out of pocket to see a private specialist. The fee for a consultation with a neurologist in private practice exceeds two months of her pension income, but under the circumstances she will have to do just that. The costs of any resulting treatments, if not covered under the government health care plan, may have a devastating financial effect on her and my dad’s retirement lifestyle.

My parents could have opted to purchase private health care insurance coverage which provides access to services in private hospitals and clinics with the most skilled specialists but, because the government program is so dominant and pervasive, the cost of the private alternative is beyond the reach of most middle-class Poles. As a result, it is accessible to only the most affluent (or motivated by dire circumstances and lacking other options) individuals.

Interestingly enough, in many European countries the Polish medical system as a whole is actually touted as one of the better and when compared with the British system in particular, it receives accolades for efficiency and quality of care. What is underscored is the diminishing role of the public plan option and the progressively increasing percentage of services being offered under private insurance. The availability and increasing popularity of the private health care option is viewed with envy. A good summary of these changes in the Polish medical system can be found in this article from CMAJ (Canadian Medical Association Journal). With this shift, as more competition is introduced in the private sector and the dominance of the government program is lessened (or eliminated), my mom might yet one day be able to afford a private insurance plan and access to the highly skilled medical professionals in Poland, heretofore not accessible to her under her existing plan and her present means.

But in the US exactly the opposite direction is being proposed. There can be very little doubt, and certainly countless examples of dysfunctional government programs across Europe and other countries serve as an example, that a private health care system necessarily offers superior services at a competitive price. As I have written in a prior Naked Liberty article on the Dangers of Comparative Effectiveness, instead of experimenting with proven failed systems, the US should adopt targeted approaches to improving those parts of our current system which offer opportunities for improvement, such as for example the implementation of a national electronic medical records system and tax incentives to support wellness and health awareness.

What’s being proposed is like trading in your comfortable and dependable SUV for a Yugo just because you happened to have gotten a flat tire. Let’s fix the tire and get on with our lives without any more government intervening in it.

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Quotation of the Day:

“We should manage our fortunes as we do our health – enjoy it when good, be patient when it is bad, and never apply violent remedies except in an extreme necessity.“

Francois de La Rochefoucauld (1613 – 1680)

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Are Volcanoes Subject to Cap-and-Trade

Posted on 10 April 2011 by Editor

Originally posted 2010-04-21 22:04:16. Republished by Blog Post Promoter

by Scott Spiegel
ScottSpiegel.com
April 20, 2010


As the Senate gears up to introduce its version of the House’s cap-and-trade global warming legislation next week, it’s instructive to consider the impact of myriad geological, meteorological, and astronomic effects on climate change, as exhaustively chronicled in Australian scientist Ian Plimer’s essential new book Heaven and Earth: Global Warming: The Missing Science.

Plimer’s book, published last year, boasts 2,000 footnotes from an array of sources including top peer-reviewed journals such as Nature, Science, and Geophysical Research Letters; journals on solar physics, hydrological science, and glaciology; books on climate change, environmentalism, and the history of science; and research by dozens of climate change skeptics. Plimer also dissects the various contradictory iterations of the United Nations’ Intergovernmental Panel on Climate Change’s reports.

His evaluation of the anthropogenic global warming hypothesis? Pure, unadulterated waffle.

If “agnostic” is to “atheist” what “skeptic” is to “denier,” then Plimer would happily plant himself in the denier camp.

Plimer demolishes AGW by broadening the scientific timeline under consideration to incorporate thousands, at times millions, of years to show how climate has been changing through hot and cold swings much wider than anything we’ve seen in recent centuries, and all in the absence of disposable Starbucks cups.

In graph after graph, Plimer depicts the cyclical effects of sunspots, glaciation, tilts in the earth’s orbit, ocean currents, CO2 reabsorption by the oceans, plate tectonics, clouds, and volcanic eruptions on global temperature. He covers the Medieval Warming period from 900 to 1300 AD, which was warmer than today, and points out the vastly higher concentration of CO2 in the atmosphere during previous Ice Ages. He details the beneficial effects that warmer periods historically have had on crop growth, species survival, and human longevity. He documents the inadequacy and inconsistency of land temperature measurements, relative to satellite measurements, the latter of which show global cooling. He notes the utter failure of any global warming model to correctly predict that the earth would start cooling in 1998.

Plimer mentions Al Gore’s camp classic An Inconvenient Truth, and cites a British court’s 2007 ruling that there are nine major factual errors in the movie, and that in order to be shown in public classrooms the film has to be accompanied by a written manual and teacher instruction to correct all of the alarmist falsehoods. One of the nine gaffes is the movie’s failure to note that CO2 emissions have not been shown to cause temperature increases, but rather have historically lagged behind temperature increases. That’s right—a British court actually ruled that there is no evidence that carbon dioxide emissions, human or otherwise, cause or even precede temperature increases—only that they lag slightly behind.

And Plimer’s book was published before last November’s Climategate, in which a whistleblower in the UK publicly exposed researchers from one of the three leading climate data collection centers in the world as having evaded Freedom of Information requests, colluded to keep skeptics’ research from being published, and failed to be able to reconstruct tortuous data manipulations they had applied in order to generate the conclusions they wanted.

Lest closed-minded warmists dismiss Plimer as a religious, right-wing knuckle-dragger, Plimer has also authored books deconstructing the scientific case for creationism, and has received criticism from conservatives for this line of work.

Plimer’s thesis also happens to be perfectly embodied by last week’s historic volcano eruption in Iceland. The eruption at Eyjafjallajkull, whose name is almost as long and complicated as the House’s cap-and-trade bill, left Europe covered in clouds of dark ash and shut down virtually all air transportation across the continent.

In his book, Plimer delineates the historic effects of volcanic activity on climate. For example, in just a few days, a major volcano can spew more CO2, dust, and sulfuric acid into the atmosphere than humans can in a year. Yet significant volcanic eruptions typically lead to years-long drops in temperature, due to the extra cloud cover and solar reflection they create, which means that skiing in St. Moritz should be lovely this winter.

Last year the Australian parliament considered and, in large part thanks to the efforts of Plimer and other skeptics, narrowly rejected a cap-and-trade scheme that would have crippled the continent’s energy production systems.

Due to U.S. Congressional Democrats’ politically suicidal stubbornness, cap-and-trade is evidently going to be this year’s health care reform.

To reiterate the point crystallized in Plimer’s book: if there’s so much uncertainty regarding whether human carbon dioxide emissions have any measurable influence on temperature increases, and a greater probability that temperature increases are beneficial than harmful, why are we rushing to shoot the world’s greatest economies in the foot?

Molecular biologist Henry Miller wrote in Forbes last week, “Every schoolchild these days seems to be a devoted environmentalist, able to spell ‘sustainable’ before ‘dog.’ However, much of the indoctrination about environmentalism—especially in schools—is of the passion-is-more-important-than-fact variety… Too often the objective of student projects seems to be ‘empowering’ the kids and giving them a feeling of accomplishment instead of getting the right answer and learning scientific principles.” In other words, the first step to “empowerment” in the natural world is learning what you can and can’t change through being empowered. It seems many adults have yet to learn that lesson.

Though I regret the disruption caused by Eyjafjallajkull to Western Europe’s economies (such as they are), I have to chuckle at the fact that terrible, wasteful, carbon dioxide-emitting air travel has been suspended throughout the sacred Continent of the Greens—and during the same week as Earth Day, at that. I only wish it had happened right before the Copenhagen summit.


Scott Spiegel is the editor of the ScottSpiegel.com blog.

Article published with the author’s permission.

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The Amish: Their Past and Present May Hold Our Future

Posted on 10 April 2011 by Editor

Originally posted 2010-01-26 23:16:57. Republished by Blog Post Promoter

American Soldierby Wenchypoo
Wenchwisdom.blogspot.com

If you ever wanted to see where we’re likely headed with the economy, oil use, work life, and self-sustainability, you should look to the Amish and their culture. Their past represents our possible future, and provides some wonderful clues about how to deal with it.

Some surprising and interesting facts about the Amish people:

  • A fine distinction has been made between ownership and use. They can ride in or hire combustion-powered vehicles (with non-Amish drivers) to travel in, as long as they don’t own or operate them without special permission of the church. Certain work crews (construction-related) have special permission to lease work vehicles, operate heavy equipment and electrically powered tools as necessary for their job, as long as they don’t tap into the power lines from outside, or the 110-volt power from outlets.
  • Most families have scaled back or abandoned farming completely, due to skyrocketing prices of land, equipment, and supplies. Population strains within communities have placed a high demand for farmland, right along with developers from the encroaching “outside” world. Being penned-in by land availability and affordability, church, and family constraints, most have turned to business for their livelihood. Amish micro-enterprises abound in large cultural homelands such as Lancaster, PA and others.
  • Education beyond 8th grade home schooling is forbidden. Training for a specific job or job component is allowed, as long as it isn’t formal (for a degree program), and is available by other means (OJT, apprenticeship, workshops/seminars, etc.), because it’s feared that a formal education would encourage leaving the farm and community. Any occupation requiring the use of force (military, police, etc.) is forbidden. Membership in unions and engaging in litigation is also forbidden; it is seen as a horrific waste of money and resources.
  • Amish workers and employers are exempt from Social Security and Medicare tax. Their culture does not allow for paying into or drawing from the system, because extended family and the church serve as their means of social support in times of need or disability/old age. They are also exempt from military service because they believe in non-resistance.
  • Most Amish micro-enterprises are home-based, providing for a family/culture/church woven network in their daily lives. Men and women are encouraged into business equally, but family and church must take priority over economic needs (time off for weddings/funerals/Amish holidays/barn-raisings, etc.). Business is considered a “sideline” to their traditional farming work, despite many families leaving farming as their mainstay.
  • If some component of business requires the use of electronics or combustion, they can contract it out to other firms—even non-Amish ones. They are also allowed to use “non-native” materials (not found on the farm) such as plastics, fiberglass, etc. with church permission. By outsourcing such things, the boss can work right alongside the employees–ensuring immediate access to production, staff, and customers throughout the day. If an electrically-powered item is absolutely essential to their business, an electrical source is created through the in-line use of a diesel engine, hydraulic and air generators, and an inverter—this cumbersome arrangement is called “Amish electricity” because it produces the power they need, albeit inefficiently, without tapping into the forbidden power lines or outlets of the outside world.
  • With the declining availability and outright extinction of some elements of their lives, such as buggy parts, horse plow equipment, etc., these people have made an ingenious bargain with the modern world: they can take modern equipment and “modify” it for their use, with church permission.
  • Since most work takes place during the light hours, industrious use of solar energy abounds in the form of skylights. A few Amish families have been given church permission to explore the modification, refinement, and creation of solar panels to use and sell. For the most part, sweat equity, propane, kerosene, natural gas, and firewood remain their energy sources.
  • Participation in local and regional business associations (Chamber of Commerce, Rotary, etc.) is looked down on, but not forbidden, if used solely as a networking vehicle. Political participation is also looked down on, except when the goal is to become familiar with and voice concerns about regulations and ordinances. Voting at national elections is permitted and voluntary. Lobbying is forbidden. Local craft guilds are the preferred way of communing, networking, and learning.

Clever ingenuity has been the by-product of a population kept small and relatively quiet by church laws and cultural taboos…ingenuity we can all benefit from. Swaying church permissions, meant to keep people and businesses “small”, have helped rather than hindered their usher into the modern world, all in the name of encouraging enterprise.

It would seem to the average reader that the Amish have it together in the modern world, even though their lifestyle harkens back to the Elizabethan Era in Europe (1600’s). We would do a lot for ourselves by taking heed of what these fine people have to offer in the way of possible solutions to our impending problems–if only we’d look back in time for innovation inspiration. What DID people do before the advent of 110-volt power, refined oil, the various social service systems, and disposable “stuff”?

Perhaps the Amish hold many answers to some of our future pressing problems, like questionable oil supplies, environmental poisoning, Social Security and Medicare deficits, skyrocketing education costs, corporate greed, and self-sufficiency in general. Perhaps we outsiders need to look to the past for our future needs…or maybe the past is slowly, cleverly building itself to accommodate bits of the future on limited terms. So much of their “restrictions” make a lot of sense, and for logical reasons (church aside).

It’s interesting how some things in their world mesh with things in our world. Problems that we have incurred in the outside world have also been incurred and “cured” inside, such as:

  • Corporate greed—when the Amish sense that they have too much (money, work, overhead), they either divide the business and sell divisions, turn divisions over to relatives, or sell off the entire business. The church lets them know when they’ve grown too big for their britches, but the church smiles upon success with humility. Unbridled growth is unsustainable, and only leads to waning demand and “Been-There-Done-That” Syndrome.
  • Clutter and excess—drawing a fine line between ownership and use, they tend to keep down the number of things they own and may not use every day, keeping farm clutter to a minimum (as well as liability). Merely getting to use something to get a job done, rather than keeping around “just in case they need it again” saves space, money, and headaches.
  • Over-education—in today’s world, more and more people spend more and more money to garner degrees for jobs that can be performed well without those pieces of paper…and then those jobs disappear, leading to yet more and different degrees. A basic education and hands-on training are sufficient for most jobs in this country, but it won’t make the kind of money we demand from the start for those jobs. A particular thorn in this area is the advent of women returning to the workplace…many women pursue expensive degrees, only to leave the workforce a few years later to raise children. At some point, we have to ask ourselves: is the return on education investment worth it in the end, or are we spending more for that degree than we wind up making in the workforce?
  • Over-work—the Amish have made this part of their lives, yet we haven’t really begun to benefit in large numbers from the flexible hours and access to family that a home-based business brings. We prefer to indenture ourselves to corporations on their terms, and merely hope for the best when it comes to leaving our kids in the daycare and public school systems. Work has become the center of our lives, rather than the home and family.
  • Insufficient government funds—we are currently facing a crisis of monumental proportion when it comes to the Boomer generation, retirement, and health care in regard to unfunded retirement and Medicare needs. Our current system is a pay-as-you-go one, meaning current workers pay taxes for current retirees and Medicare recipients to collect checks and benefits from. When the number of workers dwindles and the numbers of retirees and medically needy balloons, the payroll taxes will increase to accommodate their social service needs…and your paycheck decreases as a result. By relying less on others and more on our own resources, we can ease this burden somewhat, even though the money paid into the system already will be lost forever.
  • Declining natural resources—there is talk that the current global oil supply will last for another 30 years or so, that oil drillers are already having a hard time finding and getting oil out of the ground, and OPEC certainly cannot keep up with current and future demands. If this is the case, we need to find large-scale inexpensive viable alternatives now, and something other than the expensive substitutes we currently have available as options.

By modifying existing equipment, the Amish have made clever use of hydraulics and pneumatics to avoid using the one power source forbidden by the church. By employing the use of modified equipment, and working with the sun, we would save tons of generated energy from outside and personal energy from within.

  • Over-globalization–Rather than making contentious trade deals and questionable ad campaigns in pursuit of the almighty dollar, and succumbing to a 24-7 world in all its different time zones, perhaps we should be thinking about going back to work with nature and providing for ourselves what we really need right here at home. Over-technology, over-ownership, and unsustainability contribute to this need for global profit reach, and we need to ask ourselves what we’ll do with it all when the power goes out.

We need to get creative again, make ample use of what we already have, and satisfy demand here at home, rather than covering the globe with things nobody wants or needs (complete with culture-targeted slick marketing). Working efficiently within daylight hours and personal constraints leaves plenty of time to attend to other priorities, like family, home, and church, and working close to home insures easy access to family—the top priority.

  • Over-regulation—by recognizing that government only serves as an interfering body when it comes to daily work, spiritual and home life, the Amish seceded from the outside world into one where their church and service to God is the regulator…no vote, no committee. Since coming to America to escape religious persecution by both Catholics and Protestants, a compact has been struck with Uncle Sam: no interference, except where elements of the outside world come onto the farm or into the business (zoning, health inspections for food-related businesses, sales taxes, business sign sizing, and payroll taxes for non-Amish employees). The church takes care of the rest.

Persecuted in Europe…settled and thriving in America…the Amish have been with us since before the Declaration of Independence was signed. They will likely still be here when the rest of us burn out and move on. Who knows? They may be our only guiding force in the end for flipping the dependency switch on technology once and for all.

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Wenchypoo writes for the Wenchwisdom blog

Article has been published with permission

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Germany’s Choice

Posted on 12 February 2010 by Editor

Graphic for Geopolitical Intelligence Report

By Marko Papic and Peter Zeihan
Stratfor.com
February 8, 2010  

The situation in Europe is dire.After years of profligate spending, Greece is becoming overwhelmed. Barring some sort of large-scale bailout program, a Greek debt default at this point is highly likely. At this moment, European Central Bank liquidity efforts are probably the only thing holding back such a default. But these are a stopgap measure that can hold only until more important economies manage to find their feet. And Europe’s problems extend beyond Greece. Fundamentals are so poor across the board that any number of eurozone states quickly could follow Greece down.  

Related Links:
Germany: Ratings Threats and New Challenges
Germany: The Electoral Analysis  

And so the rest of the eurozone is watching and waiting nervously while casting occasional glances in the direction of Berlin in hopes the eurozone’s leader and economy-in-chief will do something to make it all go away. To truly understand the depth of the crisis the Europeans face, one must first understand Germany, the only country that can solve it.   

Germany’s Trap

The heart of Germany’s problem is that it is insecure and indefensible given its location in the middle of the North European Plain. No natural barriers separate Germany from the neighbors to its east and west, no mountains, deserts, oceans. Germany thus lacks strategic depth. The North European Plain is the Continent’s highway for commerce and conquest. Germany’s position in the center of the plain gives it plenty of commercial opportunities but also forces it to participate vigorously in conflict as both an instigator and victim.   

Germany’s exposure and vulnerability thus make it an extremely active power. It is always under the gun, and so its policies reflect a certain desperate hyperactivity. In times of peace, Germany is competing with everyone economically, while in times of war it is fighting everyone. Its only hope for survival lies in brutal efficiencies, which it achieves in industry and warfare.   

Pre-1945, Germany’s national goals were simple: Use diplomacy and economic heft to prevent multifront wars, and when those wars seem unavoidable, initiate them at a time and place of Berlin’s choosing.   

“Success” for Germany proved hard to come by, because challenges to Germany’s security do not “simply” end with the conquest of both France and Poland. An overstretched Germany must then occupy countries with populations in excess of its own while searching for a way to deal with Russia on land and the United Kingdom on the sea. A secure position has always proved impossible, and no matter how efficient, Germany always has fallen ultimately.   

During the early Cold War years, Germany’s neighbors tried a new approach. In part, the European Union and NATO are attempts by Germany’s neighbors to grant Germany security on the theory that if everyone in the immediate neighborhood is part of the same club, Germany won’t need a Wehrmacht.   

There are catches, of course — most notably that even a demilitarized Germany still is Germany. Even after its disastrous defeats in the first half of the 20th century, Germany remains Europe’s largest state in terms of population and economic size; the frantic mindset that drove the Germans so hard before 1948 didn’t simply disappear. Instead of German energies being split between growth and defense, a demilitarized Germany could — indeed, it had to — focus all its power on economic development. The result was modern Germany — one of the richest, most technologically and industrially advanced states in human history.   

Germany and Modern Europe

That gives Germany an entirely different sort of power from the kind it enjoyed via a potent Wehrmacht, and this was not a power that went unnoticed or unused.   

France under Charles de Gaulle realized it could not play at the Great Power table with the United States and Soviet Union. Even without the damage from the war and occupation, France simply lacked the population, economy and geographic placement to compete. But a divided Germany offered France an opportunity. Much of the economic dynamism of France’s rival remained, but under postwar arrangements, Germany essentially saw itself stripped of any opinion on matters of foreign policy. So de Gaulle’s plan was a simple one: use German economic strength as sort of a booster seat to enhance France’s global stature.   

This arrangement lasted for the next 60 years. The Germans paid for EU social stability throughout the Cold War, providing the bulk of payments into the EU system and never once being a net beneficiary of EU largesse. When the Cold War ended, Germany shouldered the entire cost of German reunification while maintaining its payments to the European Union. When the time came for the monetary union to form, the deutschemark formed the euro’s bedrock. Many a deutschmark was spent defending the weaker European currencies during the early days of European exchange-rate mechanisms in the early 1990s. Berlin was repaid for its efforts by many soon-to-be eurozone states that purposely enacted policies devaluing their currencies on the eve of admission so as to lock in a competitive advantage vis-à-vis Germany.   

But Germany is no longer a passive observer with an open checkbook.   

In 2003, the 10-year process of post-Cold War German reunification was completed, and in 2005 Angela Merkel became the first postwar German leader to run a Germany free from the burden of its past sins. Another election in 2009 ended an awkward left-right coalition, and now Germany has a foreign policy neither shackled by internal compromise nor imposed by Germany’s European “partners.”   

The Current Crisis

Simply put, Europe faces a financial meltdown.   

The crisis is rooted in Europe’s greatest success: the Maastricht Treaty and the monetary union the treaty spawned epitomized by the euro. Everyone participating in the euro won by merging their currencies. Germany received full, direct and currency-risk-free access to the markets of all its euro partners. In the years since, Germany’s brutal efficiency has permitted its exports to increase steadily both as a share of total European consumption and as a share of European exports to the wider world. Conversely, the eurozone’s smaller and/or poorer members gained access to Germany’s low interest rates and high credit rating.   

And the last bit is what spawned the current problem.   

Most investors assumed that all eurozone economies had the blessing — and if need be, the pocketbook — of the Bundesrepublik. It isn’t difficult to see why. Germany had written large checks for Europe repeatedly in recent memory, including directly intervening in currency markets to prop up its neighbors’ currencies before the euro’s adoption ended the need to coordinate exchange rates. Moreover, an economic union without Germany at its core would have been a pointless exercise.   

Investors took a look at the government bonds of Club Med states (a colloquialism for the four European states with a history of relatively spendthrift policies, namely, Portugal, Spain, Italy and Greece), and decided that they liked what they saw so long as those bonds enjoyed the implicit guarantees of the euro. The term in vogue with investors to discuss European states under stress is PIIGS, short for Portugal, Italy, Ireland, Greece and Spain. While Ireland does have a high budget deficit this year, STRATFOR prefers the term Club Med, as we do not see Ireland as part of the problem group. Unlike the other four states, Ireland repeatedly has demonstrated an ability to tame spending, rationalize its budget and grow its economy without financial skullduggery. In fact, the spread between Irish and German bonds narrowed in the early 1980s before Maastricht was even a gleam in the collective European eye, unlike Club Med, whose spreads did not narrow until Maastricht’s negotiation and ratification.   

Even though Europe’s troubled economies never actually obeyed Maastricht’s fiscal rules — Athens was even found out to have falsified statistics to qualify for euro membership — the price to these states of borrowing kept dropping. In fact, one could well argue that the reason Club Med never got its fiscal politics in order was precisely because issuing debt under the euro became cheaper. By 2002 the borrowing costs for Club Med had dropped to within a whisker of those of rock-solid Germany. Years of unmitigated credit binging followed.   

The 2008-2009 global recession tightened credit and made investors much more sensitive to national macroeconomic indicators, first in emerging markets of Europe and then in the eurozone. Some investors decided actually to read the EU treaty, where they learned that there is in fact no German bailout at the end of the rainbow, and that Article 104 of the Maastricht Treaty (and Article 21 of the Statute establishing the European Central Bank) actually forbids one explicitly. They further discovered that Greece now boasts a budget deficit and national debt that compares unfavorably with other defaulted states of the past such as Argentina.   

Investors now are (belatedly) applying due diligence to investment decisions, and the spread on European bonds — the difference between what German borrowers have to pay versus other borrowers — is widening for the first time since Maastricht’s ratification and doing so with a lethal rapidity. Meanwhile, the European Commission is working to reassure investors that panic is unwarranted, but Athens’ efforts to rein in spending do not inspire confidence. Strikes and other forms of political instability already are providing ample evidence that what weak austerity plans are in place may not be implemented, making additional credit downgrades a foregone conclusion.

Chart showing Govt bond yield minus German Bund yield

 

Germany’s Choice

As the EU’s largest economy and main architect of the European Central Bank, Germany is where the proverbial buck stops. Germany has a choice to make. 

The first option, letting the chips fall where they may, must be tempting to Berlin. After being treated as Europe’s slush fund for 60 years, the Germans must be itching simply to let Greece and others fail. Should the markets truly believe that Germany is not going to ride to the rescue, the spread on Greek debt would expand massively. Remember that despite all the problems in recent weeks, Greek debt currently trades at a spread that is only one-eighth the gap of what it was pre-Maastricht — meaning there is a lot of room for things to get worse. With Greece now facing a budget deficit of at least 9.1 percent in 2010 — and given Greek proclivity to fudge statistics the real figure is probably much worse — any sharp increase in debt servicing costs could push Athens over the brink. 

From the perspective of German finances, letting Greece fail would be the financially prudent thing to do. The shock of a Greek default undoubtedly would motivate other European states to get their acts together, budget for steeper borrowing costs and ultimately take their futures into their own hands. But Greece would not be the only default. The rest of Club Med is not all that far behind Greece, and budget deficits have exploded across the European Union. Macroeconomic indicators for France and especially Belgium are in only marginally better shape than those of Spain and Italy. 

At this point, one could very well say that by some measures the United States is not far behind the eurozone. The difference is the insatiable global appetite for the U.S. dollar, which despite all the conspiracy theories and conventional wisdom of recent years actually increased during the 2008-2009 global recession. Taken with the dollar’s status as the world’s reserve currency and the fact that the United States controls its own monetary policy, Washington has much more room to maneuver than Europe. 

Berlin could at this point very well ask why it should care if Greece and Portugal go under. Greece accounts for just 2.6 percent of eurozone gross domestic product. Furthermore, the crisis is not of Berlin’s making. These states all have been coasting on German largesse for years, if not decades, and isn’t it high time that they were forced to sink or swim? 

The problem with that logic is that this crisis also is about the future of Europe and Germany’s place in it. Germany knows that the geopolitical writing is on the wall: As powerful as it is, as an individual country (or even partnered with France), Germany does not approach the power of the United States or China and even that of Brazil or Russia further down the line. Berlin feels its relevance on the world stage slipping, something encapsulated by U.S. President Barack Obama’s recent refusal to meet for the traditional EU-U.S. summit. And it feels its economic weight burdened by the incoherence of the eurozone’s political unity and deepening demographic problems. 

The only way for Germany to matter is if Europe as a whole matters. If Germany does the economically prudent (and emotionally satisfying) thing and lets Greece fail, it could force some of the rest of the eurozone to shape up and maybe even make the eurozone better off economically in the long run. But this would come at a cost: It would scuttle the euro as a global currency and the European Union as a global player. 

Every state to date that has defaulted on its debt and eventually recovered has done so because it controlled its own monetary policy. These states could engage in various (often unorthodox) methods of stimulating their own recovery. Popular methods include, but are hardly limited to, currency devaluations in an attempt to boost exports and printing currency either to pay off debt or fund spending directly. But Greece and the others in the eurozone surrendered their monetary policy to the European Central Bank when they adopted the euro. Unless these states somehow can change decades of bad behavior in a day, the only way out of economic destitution would be for them to leave the eurozone. In essence, letting Greece fail risks hiving off EU states from the euro. Even if the euro — not to mention the EU — survived the shock and humiliation of monetary partition, the concept of a powerful Europe with a political center would vanish. This is especially so given that the strength of the European Union thus far has been measured by the successes of its rehabilitations — most notably of Portugal, Italy, Greece and Spain in the 1980s — where economic-basket case dictatorships and pseudo-democracies transitioned into modern economies. 

And this leaves option two: Berlin bails out Athens. 

There is no doubt Germany could afford such a bailout, as the Greek economy is only one-tenth of the size of the Germany’s. But the days of no-strings-attached financial assistance from Germany are over. If Germany is going to do this, there will no longer be anything “implied” or “assumed” about German control of the European Central Bank and the eurozone. The control will become reality, and that control will have consequences. For all intents and purposes, Germany will run the fiscal policies of peripheral member states that have proved they are not up to the task of doing so on their own. To accept anything less intrusive would end with Germany becoming responsible for bailing out everyone. After all, who wouldn’t want a condition-free bailout paid for by Germany? And since a euro-wide bailout is beyond Germany’s means, this scenario would end with Germany leading the EU hat-in-hand to the International Monetary Fund for an American/Chinese-funded assistance package. It is possible that the Germans could be gentle and risk such abject humiliation, but it is not likely. 

Taking a firmer tack would allow Germany to achieve via the pocketbook what it couldn’t achieve by the sword. But this policy has its own costs. The eurozone as a whole needs to borrow around 2.2 trillion euros in 2010, with Greece needing 53 billion euros simply to make it through the year. Not far behind Greece is Italy, which needs 393 billion euros, Belgium with needs of 89 billion euros and France with needs of yet another 454 billion euros. As such, the premium on Germany is to act — if it is going to act — fast. It needs to get Greece and most likely Portugal wrapped up before crisis of confidence spreads to the really serious countries, where even mighty German’s resources would be overwhelmed. 

That is the cost of making Europe “work.” It is also the cost to Germany of leadership that doesn’t come at the end of a gun. So if Germany wants its leadership to mean something outside of Western Europe, it will be forced to pay for that leadership — deeply, repeatedly and very, very soon. But unlike in years past, this time Berlin will want to hold the reins. 

. . . . . . . . . . . . . . . . . . . . . . . . . . . 

This report is republished with permission of STRATFOR 

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