I’m quite certain that I am not the only one that is tired of hearing about another “solution” from the umpteenth Summit in Brussels. The fact stands, and is obvious that there is no solution to the deepening crisis that has engulfed Europe and looms over the U.S. Markets, with every non-event that takes place when President Jean Sarkozy of France and Angela Merkel, Prime Minister of Germany, the ECB head and the IMF meet and smile for the cameras, shake hands and proclaim the problem is well under control. I think they all need a reality check. They have lost credibility and the public has been deceived in their manipulated half-truth statements.
The problem originated approximately 18 months ago with Greece stating that without assistance they would be forced to default on its obligations, and leave the Euro. With that being said, the brilliant minds of the leaders of the countries in the EU have embarked on their campaign of kicking the can down the road, instead of allowing Greece to leave the Euro and dealing with the ensuing default by propping up their insolvent banks, and possibly figuring out a way to back any new debt offerings that Greece would issue.
It may sound simple, and while I know there would be pain born out of the capitulation, in the end it would give a more clear understanding to a very murky problem. Instead, what we have is more than a year’s worth of painful wrangling with still no end in sight. The problem remains murky precisely, because the creation of the problem was a forty year pattern of politicians promising the populace everything in order to get elected, and in most Euro area countries many of the bureaucrats can retire at fifty-five with full pensions, health care and many other perks that keep the perpetration of the problem in full swing.
The people of these countries are basically good people, but they have been entitled for so long, that the very thought of hardship sends them to the streets to protest, riot and strike which is counter-productive to addressing the problems at hand any more than the people they have elected to address the problems. The problems remain so deeply engrained that the cycle has had no end in sight, could they deal with their problems, it would take great resolve, it would not be easy, but it can happen.
While most countries have imposed austerity measures they have been slow to implement, and again, the problems start with their politicians and fan out below their leadership which has been weak and hampered by their own problems, think Silvio Berlusconi, and then fan out to the unions that use the same politicians to make their case for more, more and still more.
The banks are decimated in these countries and badly undercapitalized almost $160 Billion at last count, and it seems no amount of printing Euros over the last year plus has offered any relief, and in fact, Mr. Bernanke has had to come to the rescue and help with the liquidity problem further burying the U.S. in their problems. There needs to be a combined effort between the public and private sectors, European private equity groups and Hedge funds and the ECB, IMF and of course, Mr. Bernanke to backstop the institutions with liquidity while new money comes in from the private sector looking for the ability to make a profit, and you know that there is money on the sidelines that will not enter the marketplace, but will when someone figures out a strategy for these groups to cooperate.
I do not believe it will happen until the Euro area is forced to the precipice of capitulation. Another thought is to let Greece, Portugal, Spain and even Italy strategically leave the Euro and work through their problems and re-enter once they can prove they have re-adjusted their budgets, and controlled their spending, dealt with their banks capital shortfalls, and even possibly have strengthened their balance sheets. Unfortunately, my feeling is they will take the easy way out, more pointless Summits, more good money after bad, and more debt created that in the end will all be essentially worthless. This scenario that is playing out and holding the World hostage is not going to end well, but the argument that if they face the issues with action instead of hollow promises made by people looking to retain votes for personal gain, and kick the can down the road, it will only become a much larger problem for everyone involved.