What did people expect, really? Of COURSE Hollande was going to be elected in France. Of COURSE the Greeks were going to throw off the yoke of austerity. Austerity SUCKS. Whooping it up on the credit card is much more fun and we'll just suffer later when the bill comes due. I've always likened the current situation to someone on heroin. Austerity is going straight...credit is the heroin. The politicians who pander to the drug-thirsty are the pushers. They don't care that the ship is going down -- they just want to be Captain and enjoy the good life as it sinks. They don't even care that they are part of the problem...no matter what happens, they aren't going to be affected, experience a minute of privation or desperation or hunger or loss.
So it only makes sense that the morons in France and Greece took the easy road. On the other hand, I've said all along that what Greece needs is to default. Now it appears certain that they will, officially. Unofficially they've been in default forever. Everyone recognizes it, they just studiously pay no attention to the man behind the curtain. Will France default also? Will the Euro break down? What will happen?
Well it seems likely that the smaller desperate countries will default and pull out of the Euro...Greece certainly will, and who wants them anyway -- they were corrupt mis-managers from the beginning. And they got a free airport, Olympic stadium, a giant tunnel, a nice bridge and lots of swell improvements to the Acropolis FOR FREE! Not just for free, but they got the Germans to pay for them! And now that the Germans want their money back the Greeks are saying, "Fuck you and the Panzer you rode in on!" You see, the Germans can't take back that bridge or tunnel or airport or stadium. They don't have alot of leverage and it's not like Greece is the most trustworthy country in the EU...in fact, they are probably among the scummiest crooks in Government in all of Europe. They'll default and laugh all the way to the bank -- whatever bank will still survive.
And it will be a great experiment to watch the fun. Greece defaults. Their banking system collapses. Germany has to bail out its banks. It's the end of EU bailouts. More European countries default, like Portugal and Spain. Greece goes back to the Drachma...they still have a budget way out of whack but no one lends them money. They print it like crazy. Inflation ensues. They devalue the currency -- but since they import EVERYTHING, people can't afford anything. The banking system collapses. They tie their currency to the dollar or the pound...or the ruble. Too late...unemployment increases, money flees, people flee, tourism crashes...train wreck all around.
But when you are at rock bottom -- the only place to go is UP. They will finally get growth and growth they must have.
What about France? What's a Gallic boy to do? They can't default. With the 5th or 6th largest economy in the world, the default of France would send ripples throughout the world. And what of Germany? Will they stand idly by as their erstwhile partners betray them left and right?
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And what is the lesson for America?
If France does not leave the EU then they must show a rational plan that cuts their federal budget just less rapidly than Sarkozy. They will still have to cut government benefits, increase the work week, make vacations shorter and so on. They will just do it slower. They may even request a bailout from....Russia. The Germans are most certainly going to turn to Russia now...Russia defaulted in the 1990s, went through hell,their country is still a wreck -- but they are running huge budget surpluses. Other than Finland and China, not too many countries in the world can say that.
It's too late for Spain and Portugal. They are fucked. Last week Holland collapsed and the Germans took over the financial system. They are on the train ride to hell. Does anyone really believe anymore you can "austerity" your way to growth? Is growth going to magically appear in a nation that spends nothing on infrastructure or invests in nothing? Because as the country makes the spiral down the drain, more is spent on welfare and less on building bridges...it HAS to...as more people become unemployed, tax receipts go down and payments to the indigent go up. Since they are cutting to balance the budget, that means less for bridges, schools, airports, etc. They crumble. Since people aren't building, aren't learning, aren't travelling...WHERE DOES THE GROWTH COME FROM?
In third world nations, they would get growth from doing things no one else wanted. Africa is dotted with chemical and radiological waste dumps. They trade their health for a pitiful few growth dollars and their children play in a miasma of chemical death. Europe won't do that. But nevertheless no one has been able to answer the question, "where does the magic growth come from under an austerity plan?"
And this is the lesson for America, primarily the Republicans. Greece is NOT like America. America CANNOT go the way of Greece. Unlike Greece, America has vast stores of wealth and resources. But America COULD look like Greece does now....just by following the Republican austerity plan. The Republicans think we can cut our way to prosperity. Did Greece? If there is no spending there can be little or no growth. How could there be? By cutting our trillion dollar deficit would mean cutting millions of jobs...again the death spiral as described above. The Republicans think they can cut that off at the pass by eliminating foodstamps and welfare. I can just see how that places in the poverty stricken South - 30 million starving American children on worldwide television.
For Europe, the long term solution is still Federalism. There must be a strong central government that controls monetary policy and the member states must not be allowed to run budget deficits - EVER. The Masstricht Treaty allows deficits of 2 - 3 percent per year but that assumes independent nations still have sovereign control of their currency, as if only the name "franc" changed to "euro". This is a fallacy. It MUST be more like the US where states are required to balance their budgets. Yes it will hurt alot and there will be depression. But once the money is fixed, everything else should follow...eventually.
The bigger question is what the Russians and Chinese will be doing in the meantime. I am sure they are looking at all of this with great glee.
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