Calling Europe

Long time readers of this blog know that I have been highlighting the economic challenges of Europe since the beginning.  As I surveyed the worldwide economic landscape I saw that Europe had at least equal problems with its housing bubble and debt loads as the United States.  However, Europe also always has had slower economic growth; deep, deep structural impediments to growth; and a confederate approach to economic policies.  This combination of structural problems as been the primary source of my continued assessment: Europe is in trouble.

More recently, I have talked about the possible dissolution of Europe as a united economic zone.  This possibility would have been considered an absurdity two years ago.  In fact, many of my competitor blogs were calling for deep investments in the Euro.  The depth of the assessment on the part of these folks making currency calls seemed to be:

1. The U.S. is in trouble, therefore the U.S. dollar is a bad investment.

2. What’s the next strongest, ergo safest, economy?

3. Europe!

4. Let’s invest in Europe.

Can I just say that this is ignorant.  In the face of the greatest economic crisis that the EU has ever faced, the Europeans have demonstrated that they cannot formulate a coherent response.  And as four of its economies (Portugal, Italy, Greece and Spain) crumble around them, individual European countries are refusing to bail out their European neighbors.  Largely this is because these nations’ own economies are already troubled.  Why should a German be asked to live on an austere budget so that he can bail out a Greek who has been living an irresponsible Mediterranean high life?

So to whom are the Europeans turning for an assist in bailing out their most troubled member, Greece?  The International Monetary Fund.  The IMF is a foreign policy tool of the United States.  Not surprisingly, the IMF is predominately funded by the United States.  So we have yet another European crisis where the Europeans have proven that they cannot wipe their own noses and the Europeans are again turning to the United States for help.  Whether it is World Wars I and II, the crisis in the former Yugoslavia, or the current economic crisis, the Europeans never seem to be able to take care of themselves when the going gets tough.  Why is the Euro crashing relative to the U.S. dollar?  It seems pretty obvious to me.  Why did I never make a call that folks in the U.S. should be looking to invest in currencies other than those in the U.S.?  It seems pretty obvious to me.

At this point the future of the EU is in serious jeopardy as the economic union has proven that it only works in good times and fails in bad times.  When crisis ensues the old European sectarian differences rear their ugly heads as member nations refuse to help out their fellow nations.  Instead the various members craft press releases of their ambiguous intentions rather than their specific actions.  But financial markets move very fast.  Credit ratings agencies move very fast.  Currencies move very fast.  Crisis spreads like wildfire.

Imagine if, in the United States, each of the fifty states had to approve national policy at the state level before it became law.  Further, now imagine that some of the state legislatures had to put policies to the people for a vote in a referendum.  How robust and with how much dexterity would the U.S. respond to economic crisis?  What kind of resentment would there be if California had to constantly bailout Texas, or visa versa?This is the situation in the EU.  But it’s even worse.

In the EU capital moves very slowly.  It’s difficult to start a business.  It’s difficult to find a job.  It’s difficult to raise money to put capital behind a new, great idea.  It’s difficult to deal with the labor unions.  It’s difficult to deal with local and national corrupt officials.  It’s difficult to trust official government economic statistics.  It’s difficult to trust your neighbor because they invaded you in the last generation.  Etc.

So as an investor I am calling Europe…is there anybody home?

Jason