Thursday, October 27, 2011

Why Europe Matters

Lots of eyes on Europe the last few days with people waiting for a "deal" or a "no deal."  Markets are up and down depending on the news which seems to indicate a deal has been struck as of this morning.  The Euros have decided private investors will take a 50% haircut on Greek debt!!!  Yeah, that will work out for them when they need to sell more debt in the near future.

While those of us in America are somewhat insulated from what is happening in the Eurozone, it's important to pay attention.  Here's why....

European Socialism
Inherent unsustainability.  That's all anyone needs to know about European Socialism.  The only reason this economic and social system has lasted this long is because the United States has been paying to keep Europe free and safe.  Had Europe paid WWII reparations/war debts along with the costs of keeping Europe free during the Cold War, she would not have had the resources to create massive government/social programs.  This huge amount of US spending gave Europe a false sense of economic security which has lead to unsustainable and insolvent government.

They are now broke and I believe the EU is done.  The media will tell you otherwise, but there is no practical way European nations can stay solvent without isolating the risk (bankruptcy) which is imposed by the Euro.  These nations also cannot keep their promises to their people with massive government and sky high taxes imposed on what is left of the private economy.  All peoples of Europe are heading for severe "austerity" which will create a massive social and political shift.  I suspect some nations will move further to the left (Communism) while others will wise up and adopt Free Market solutions.

The reason this is important is because we have heard for years from American Liberals that we should be more like Europe.  We should create more social programs and engineer our society to create more social and economic justice.  Had we listened, we would be in worse shape than we are currently.  Ironically, we would have also put those in need in a worse position as the programs to help them failed.  We currently have this problem with Medicare and Social Security--imagine this problem multiplied to effect nearly everyone.  Can we learn from European failure and misery?

The other lesson Europe provides us is an example of what happens when nation/states, with different cultural and social values, come together to create a large union.  The United States was made possible because we had a consistent values system--we don't anymore.  Europe doesn't either.  The only unifying force in the EU was the economy and that is now questionable.  The values rift between Germany and Greece is a great example.  Not just the work ethic, but the expectations.  Germany has been bailing out the Eurozone for two years and the moment they put their hands up to say "enough" they are called Nazis.  That's right, refusing to give someone your peoples' property/labor now makes one a Nazi!

European Socialism has failed, just as forced collectivism has always failed.  It is time the US, and the world, acknowledge that Capitalism, having fed, clothed, and housed more people than Socialism ever could, is a vastly superior system in spite of its flaws.

We've also heard from American Liberals that we must be on equal footing with the EU.  Not anymore.  Conservatives have known for some time that the bill was coming due in Europe--one can't look at the tax rates and come to any other conclusion.  As Europe continues to fail we realize that we are not on equal footing at all.

This failure will also mean the fracturing of European power, at the global level, as each nation begins to focus on her own interests.  No more will the US be subject to European hand-wringing or bureaucracy on global issues.

As Europe turns inward to deal with its crisis, we should also see less interest in controlling the US.  Everything from environmental regulations, food and agriculture, to gun ownership has been the subject of European interest at the UN.  Europe should be too busy dealing with its own problems to care that Americans have a Second Amendment or that we are "consuming too much."

I would also hope that anti-American sentiment declines in Europe, but I may be wrong.  Elections in Europe have been decided on the level of such rhetoric and I fear the people of Europe will look for a scapegoat instead of admitting failure.  We're already seeing this in Greece where the mantra is "eat the rich."

Monetary Policy
Unfortunately, a weaker Euro will give the Fed more room to inflate the dollar.  We will also see a lot of political pressure on American leadership to keep the dollar low which should create demand for European labor/products.  This is why is it critical that we not elect a "global citizen" in 2012, but rather someone who puts the US first.  Our goal shouldn't be devastate the former EU, but rather to elevate ourselves by repairing our economy and fractured society.

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