Deadbeat Nations: Why so many owe in the Eurozone!
Greece, Italy, Romania, Ireland, Portugal, Latvia, Iceland, Bulgaria … no this is not a list of destinations for an exotic European cruise. It is a list of countries either in default or on the brink of financial collapse.
Excessive government debt has become the albatross of the European Union. Europe has long suffered from high levels of sovereign debt and outdated, uncompetitive economic systems. It is truly the Old World with a still Old World Economy replete with broad social programs, massive public debt, and tight government regulation of business and financial markets.
Out of the European Union’s 27 countries, 17 have signed onto the euro system of currency. While originally designed to bring trade and political unification to participating nations … it has become a system of shared misery and mutual rescue where wealthier countries carry the burden of poorer ones. Since the euro’s creation, the “Euro bailout” has been an infectious phenomenon starting with Greece and followed by Ireland, Portugal, Spain and Cyprus with still other countries teetering on the brink. Italy has deep seated economic problems that continue to inhibit its growth while France has targeted the rich with large tax increases in an attempt to close its growing deficits. While the UK did not adopt the Euro, it is clearly feeling the impact of its crisis and has significantly downgraded its own 2013 economic growth forecast.
Long-term deficits are dramatically increasing throughout Europe, and the old can is clearly being kicked further and further down the Old World Boulevard. The Eurozone has become an uneasy alliance, encumbered by bad fiscal decisions and chronic debt-driven rescues. The European Central Bank’s bailouts have come at a very high price and an even higher interest rate often worsening the predicament of the rescued nation. So, has the concept of a “common currency” proven to be an abject failure? Does the European network simply have too many moving parts and divergent cultures to be brought together into a functioning whole? Or is it simply a familiar scenario of overspending and over-borrowing?
The common denominators here should be familiar to us … soaring debt, high unemployment, declining tax receipts, and increased government regulation. To say that America is on a crash course to a European style crisis is no exaggeration. The universal language of over-borrowing is instant gratification and long-term pain. Upon this writing America’s National Debt stands at over $16.7 Trillion. That is higher than the debt of all of the nations that I have listed combined. As a matter of fact, our debt is higher than that of the entire Eurozone and the UK combined, and it’s growing at a faster rate.
The images of the citizens of Cyprus standing in line to retrieve their own money from empty ATM machines, is perhaps the most important take away for all of us. We must be prepared, and we must have access to liquid assets and universal money. Cyprus could very well be a mere preview of things to come and if the Berlin Wall was still standing … the writing would surely be on it.