An old Chinese curse, “May you live in interesting times”, has become a bromide. I suspect those old Chinese savants were smarter: Confucius [and his St. Paul, Mencius] codified rules and ceremonies for all princes for all eternity, undoubtedly suspecting, rightfully, all eras would have many if not most of the same difficulties. [What would the old boy have thought of Beijing leaders using his dogma, once trashed when they were Marxists, now in the service of Chinese “soft power” and espionage “institutes” around the world?]
These are, indeed, “interesting times”. Although our media and intellectuals increasingly try to entice us into believing the digital revolution has made all things knowable [after all we have google, Wikipedia and algorithms!], the world political economy is fraught with unpredictability. Wherefore, we resort to an even more ancient Indian piece of wisdom: “Arise, awake, and learn by approaching the exalted ones, for that path is sharp as a razor’s edge, impassable, and hard to go by, say the wise.” [Katha Upanishad – 1.3.14.]
Nowhere are ambiguities so manifest as in the current European geopolitical scramble. Furthermore, unlike earlier post-World War II European crises, the current debacle completely stymies Washington. While the U.S. is still the major world power looked to for leadership — if no more than for new fads – it has no remedies. It was all very well for Pres. Barack Obama to reassure the Europeans [and ourselves] they have the wherewithal if only they had the political will, but it was more than a little bit of hypocrisy. Not only is Washington not able to present a model of its own efficacy in solving debt problems, but quietly, the Fed joined other central banks a few weeks ago to extend short-term dollar loans to European banks virtually cut off from dollar credit — and not by those Occupy Wall Streeters.
The Fed moved because it is hard to exaggerate implications of any breakdown in the U.S.-EU economic relationship. In effect, North Atlantic trade represents virtual integration. Even with the economic downturn, more than a trillion dollars worth of goods traversed the Ocean in 2010; another $250 billion in services. Last year Europe invested another $100 billion in the U.S.; Americans put another $70 billion in Europe. A staggering $2.7 trillion was swapped in our markets.
Furthermore, Mr. Obama’s prescription is easier said than effected in societies increasingly dependent on nanny governments to sort their problems. European private initiative, never of the American intensity, has atrophied. [The European Union Commission at the moment is in hot pursuit of highly debated standards for bottled water!]
Nor will a pampered electorate go quietly to new temporary consumption restraints. Even now opposition to ending the French 35-hour work week could well become a major issue in next year’s presidential campaign. Firing some of every third Greek who works for government [and who notoriously does not pay his taxes] reawakened old postwar Communist-rightist confrontation. Even the recent boost given German exports, Berlin’s economic deus ex machina, was, ironically, the cheaper Euro. But a depreciating Euro hardly seems adequate for Europe’s legendary powerhouse as Germany’s population declines and ages rapidly, its labor force narrows, and there is more and more questioning of integration of four million Turkish Muslim “guest workers” who came in the 1960s — and stayed.
From day-to-day, it becomes increasingly clear the reserves of Euro governments and the banking system cannot cover the growing sovereign and commercial deficits of 17 members of the common currency. Credit has evaporated as lenders perceive their exposure more endangered by the moment, not only to whopping “haircuts” – “voluntary” discounts of outstanding debt — but by a growing possibility the debtors may not be able to amortize even those discounted tabs as their economies spiral downward under the eight of severe austerity and social disintegration. Nor is it certain “technocratic” governments in Greece and Italy can manage essentially political decisions.
For Americans, the question of the hour – carefully not asked by our talking heads — is whether this European financial “malaise”, with a continuing failure of the Europeans to address it more than sequentially, will spread to the U.S.? Do our bankers with all their handheld devices really know what their actual exposure is – or will we be treated to new surprises as we were in 2007-08?
That Atlantic bridge could be in for even heavier if snarled traffic.