There is too much faith in the role of individuals, or changes in governments to solve the problems. Recently from Euro:
“And make no mistake – that, in essence, is where the European crisis stands. The Germans -- and the ECB along with them -- believe (perhaps hope is the better word) that two new technocratic prime ministers, former EU commissioner Mario Monti in Italy and MIT-trained economist Lucas Papademos in Greece, will cast politics aside and force angry populations in both countries to take their medicine, whether they like it or not. Because it's for their own good, you understand. And besides, "we have them by the balls. They have to do what we say."
This faith shows a fundamental lack of understanding about economic systems. More from CNN:
“ The Germans, he said, understood how beneficial to them membership in the euro zone has been. Without it, the gentleman said, the value of the Deutschemark would be 50% or 75% higher than it is under the euro. "German industry would be wiped off the map."”
Which is precisely why the Euro as presently constituted won’t work. Quoting myself:
“While it is true that the ECB could of been following a looser policy, the value of the Euro is basically based on Germany's
productivity which means that its equilibrium value, short of a massive inflationary policy by the ECB, will be too high for the competitiveness of the PIIGS. Only prolonged deflation, currently being prevented by the bailouts in the case of Greece, can bring these countries into international competitiveness.
What's more, these countries have to deal with the fact that the low wage manufacturing jobs that went to China and
other developing countries and are not coming back. Germany is positioned in the high value added manufacturing sector and it will not be easy for these countries to carve out a competitive niche without some sort of sustained program of economic development akin to that which Jeffrey Sachs is advocating for the United Sates. Given these realities, it will simply be easier
to dissolve the Eurozone, float your own currency, and impose trade sanctions to establish jobs for the lower skilled
So stop thinking things are going to get better after we get past a rough spot. That rough “spot” can and probably will be a lot rougher than most are imagining and may last for the balance of the decade. The pressures are mounting.
Some are placing their faith in the ECB that through a massive devaluation, a beggar thy neighbour policy, the type of which as I pointed out in an earlier post reinforced the great depression. Good luck with that. It doesn’t change the competitive balance within Europe that caused the problem in the first place. Furthermore, China and the US are not going to stand idly by and allow their terms of trade to deteriorate. China has already shown this by holding its currency fixed in the face of quantitative easing.
The latest "good news" announcement was that Portugal was downgraded. Genesis sums up my feelings in this post:
I must've dreamed a thousand dreams
Been haunted by a million screams
But I can hear the marching feet
They're moving into the street
Now did you read the news today
They say the danger's gone away
But I can see the fire's still alight
There burning into the night
There's too many men, too many people
Making too many problems
And not much love to go round
Can't you see this is a land of confusion?
Well this is the world we live in
And these are the hands we're given
Use them and let's start trying
To make it a place worth living in
Ooh, Superman where are you now
When everything's gone wrong somehow?
The men of steel, the men of power
Are losing control by the hour
This is the time, this is the place
So we look for the future
But there's not much love to go round
Tell me why, this is a land of confusion