It is awful to realize that the very same European governments that tax the bulk of the continent’s private-sector GDP, and have sunk the whole region into a mire of debt, appear both impotent and incompetent in mobilizing to save the economic fabric they are so utterly reliant on.
The rest of the world is looking on in horror as a slow-motion, economic train wreck unfurls.
Greece’s problems are now old news. The country is broken and has defaulted in all but full legality and now has an emergency government of national solidarity.
The scrawny hand of crisis is now writing the next chapter, and it is about Italy. The European Central Bank, International Monetary Fund, French President Nicolas Sarkozy and German Chancellor Angela Merkel may as well forget their Greek problems as small fry now, as Italy and Spain are on the cliff top and about to tip into the abyss. And if they do, France will likely follow.
If France were to fall, then a global sovereign lending strike could hit, tipping the world economy into uncharted territory in what would amount to a total global economic malfunction.
It is no wonder that the United States and the United Kingdom had more than a hint of panic in their responses at recent global economic summits.
Germany cannot stomach the thought of the ECB fueling inflation to dissolve overbearing European state debt and is refusing to let the European Union go on a course of resetting out-of-control debts. They refuse to risk a repeat of the 1920s and, by implication, the 1930s.
Yet, the ECB is all that stands between Italy and Spain and a bond market terrified by a Greek-style debt ‘haircut.’ Simply, unless Germany relents and lets the central bank print huge sums of money, the euro will collapse.
The U.S. has followed that course since 2008 and has no qualms about running the money printing presses of Quantitive Easing to keep financial oxygen flowing over its economy. As a member of the Federal Reserve recently asked, is 5 percent inflation less desirable than 10 percent unemployment? Germany says it is and it holds the veto on the euro and thus, by default, European finances.
It is striking just how much desperate hope there is in the market. Despite the fact those in charge made a clear statement of their ability to fix things and were proved almost immediately unable to do so, a new crash has not happened.
People in difficult financial straits often say that something will happen to rescue them “because it must.” They convince themselves that cosmic forces are on their side and that wishing ferociously for rescue will deliver it.
The market is praying that armies of financial bureaucrats are grinding away to build the final economic offensive that will stem the tide of crisis. Yet every summit highlights that no one is in fact in charge in Europe and no one has a mandate to do what is necessary to prevent the failure of the euro.
If the euro does go into terminal meltdown, the resultant financial collapse will create fabulous buying opportunities. Unlike governments that redistribute wealth, companies create it. Good companies therefore survive such meltdowns. That is not to say their share prices do not collapse alongside the economies they power, but they nonetheless prevail.
Thus, a Europe-wide meltdown will present the careful investor a huge buying opportunity. I’d like to say it will be a once-in-a-lifetime buying opportunity, but there already have been two such opportunities in the last decade: the credit crunch and the pit of the dotcom crash.
This is the sole consolation to be had, that in chaos there is opportunity. Meanwhile we stand and look on in horror and hope that actually there is someone in charge who will save the day. •
Clem Chambers is the CEO of financial website ADVFN.com as well as a contributor to Forbes, CNBC and Fox News.
Beyond Cash Donations: How New Forms of Giving Are Transforming Not-for-Profit Accounting
Evolving Funding Landscape for Not-for-Profits Not-for-profit organizations are being asked to do more with less,…
Learn More
