This Time, Europe...
Santa Claus may be visiting Paris this Christmas, but it looks as though he’ll be dropping a lump of coal in President Sarkozy’s stocking, as reports are now widely circulating that Standard & Poors may issue a credit downgrade for the government of France in time for Christmas. In truth, this is no laughing matter, and it certainly portends ill tidings for the season, as the financial markets, already in turmoil over sovereign debt issues, and the imminent collapse of the Euro are on the verge of panic. Much like the downgrade that was issued for US government credit-worthiness, this seems to be bound to the failure to create a workable solution to the budgetary woes and general unsoundness of the fiscal policy of Eurozone member states.
In a report in the American Thinker on Friday, the details of the failure to attain a workable agreement for consolidation of fiscal policy among member states is outlined. According to that report, the rating agency Fitch is now considering downgrading Germany and other Eurozone members as they look at the increasing probability that no fiscal order will be brought into this situation.
This sets the stage for a new phase of the Eurozone crisis, where we may see the beginning of one-wide collapse. As I have reported in recent weeks, the looming catastrophe will have been due to two primary causes, and they are nearly impossible to overcome at this late date: The nations of Europe that created the single currency overstated the value of some of the previous currencies to an outrageous extent, meaning that the Euro was destined from the outset for failure. At the same time, there was no consolidation or enforcement of a unified fiscal policy for member states, so that those countries with already high debt ratios and generous welfare state benefits as well as remorselessly unconscionable retirement programs for government employees virtually guaranteed that there would be a collapse in some form. As with all such situations, government officials always seek one more postponement of the inevitable, but such a piper will not go unpaid.
What makes any and all of this relevant to we Americans is that our government and our Federal Reserve have tied us to the Euro to an extent that threatens to take us down with them. If the Euro goes, we will face some sort of financial calamity, and because some Euro derivatives have now been backed by FDIC, it places the American taxpayer on the hook should this all go belly-up. Add to this the trillions of dollars already loaned under the auspices of TARP and other bail-out programs administered by the Fed, and what you have is a scenario by which we are dragged down, cannibalized on behalf of our friends in Europe.
Our other increasing similarity to debt-ridden Europe is our debt-to-GDP ratio, all in the furtherance of the growing welfare state. During Barack Obama’s thirty-five months in office, we have added to our cumulative National Debt by something in the neighborhood of $4.5 trillion. For the first time in our nation’s history, debt now exceeds GDP. At this rate, we will soon exceed the likes of Italy, that has now a debt of more than 120% of GDP. At this point, the Obama administration in concert with the Federal Reserve is fighting the same sort of delaying tactic that the Eurozone is now employing: Prop everything up through just one more election. This is ever the tactic of politicians, who seek to maintain power in the face of calamities they have created. None of these heads of state are telling their people the truth, or preparing them for hardships that now loom in a very uncertain future. In part, they will offer that they do not wish to create undue panic, but in truth, they do not want to face their electorates’ anger.
Governments ought to have some responsibility to tell their people the truth, even when that truth is terrible and threatening. The actions of the Eurozone leaders are despicable to me for precisely this reason, because they are telling their people that it will be worked out, somehow, but by now, I think most people have begun to catch on, both in Europe and here at home. What politicians fear most is having to tell their electorate “no,” or worse, “no more.” Politicians rightly understand that through their relentless building of massive welfare states, they have created monsters that will soon threaten their creators. There’s a history of reprisals in Europe, and one can only hope it doesn’t come to that.
