We’re pretty sure we’re watching the death throes of the European Union played out just in time for Christmas as banana republic wannabes like Greece, Ireland, and Spain appear to be taking this grand currency experiment to the mat for a debt-laden choke hold. In the beginning, the euro looked like a lean, mean, fighting machine, stepping into the ring to bloody the American dollar’s pugilistic nose. Unfortunately, the stronger elements of the European Union forgot to keep an eye on the spend-crazy ways of their weak sisters.
We made reference to banana republic for a particular reason. Back in the 1970’s and 1980’s, Latin countries like Argentina, Uruguay, Chile, and Peru pegged their currencies to the dollar and then went on a wild spending spree. By the time they realized their indebtedness was unsustainable, it was too late. Turn out the lights. The party’s over. Their economies still haven’t recovered from that bit of irrational exuberance.
And just like those banana republics of yore, the aforementioned European Union countries have been spending like drunken sailors and now have reached the point of insolvency. But the albatross around the neck of the EU at large is the determination of European economists in Brussels to prop up these smaller, now destitute economies with bailout money. Bailout money is another word for a loan. The European Union brainiacs are modeling policy after that of an American community organizer, who decided to throw piles of cash at failing businesses. So the Euros are throwing piles of cash at spindly economies so they can pay off other loans. Issuing loans to pay other loans doesn’t work! The economies of Greece and Ireland were not allowed to default and restructure themselves, as a bankruptcy would force. Instead, they’ve been propped up and allowed to continue playing a game they’ve already proven they’re clueless about.
While the Greek, Irish, and Spanish economies swirl around the toilet bowl, their currency (the euro) stays artificially strong because it’s pegged to the larger European Union. Last spring’s bailout of Greece is already failing. The loans were intended to be paid off in 2015 but have already been pushed back to 2017. Same in Ireland. The Brussels brain trust should have allowed these failing countries to fail completely and either reorganize or get kick out of the Union, forging ahead with a smaller but stronger group of nations.
As it is, the weaklings might be the death of them all, and the euro merely an interesting historical aside.
The American Monetary Association
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