Europe Facing Disintegration of Economic Integration: Thinking the Unthinkable

Because Europe is Making Everyone Think the Unthinkable



Not the Way You Want Stock Traders to Look



The bad news from Europe just keeps coming.  While the U. S. took Monday off to celebrate labor, European markets should have taken the day off.  They plunged sharply (think 500 to 600 one day drop in the Dow)because the bad news from Europe just keeps coming.

The FTSE 100 fell another 3.5% to close at 5102.58, down 189.45, while France's Cac and Italy's FTSE MIB both lost more than 4% and Germany's Dax dropped nearly 5% to its lowest level in more than 22 months. The euro touched a three-week low against the dollar.

So what is happening now.

1. The German ruling coalition lost another regional election.  Germany is the sole hope of Europe, it is the only country strong enough to pull Europe out of its economic crisis.  The problem, German taxpayers don’t see things that way.  They see the rest of Europe wanting to leech off the German economy.  A weak and ineffective German government will make things worse, much worse.

2. Christine Legadre, newly installed head of the International Monetary Fund has a nasty habit of speaking the truth.  The truth this time, she tells everyone Europe’s banks are undercapitalized.  Europe's undercapitalized banks are furious at her for giving away this not so secret info.

3. Only the purchases by the European Central Bank of Italian and Spanish debt is keeping interest rates on those countries from rising to unsustainable levels.

4. The austerity program in Greece is depressing the economy and will prevent the country from meeting its budget deficit goals. 

5. Political opposition to additional funding of a bailout fund for Greece is growing.  The sun may have set on the last day in which a bailout was politically possible.  All it takes is one country to vote no and the deal is dead. 

5. In England an index which measures service sector activity “has suffered its sharpest slowdown since the foot-and-mouth crisis of 2001, fuelling concerns that the dominant part of the UK economy is faltering.”  Yep, riots and austerity will do that to a country.



Think of Germany as Doing the Pushing,
Europe as the Car



So for the first time serious discussions need happen on how to break up the European monetary system.  The alternative of doing nothing has never been feasible.  

The New York Times does report that closer economic and fiscal unity are moving forward

And that is why, despite all the political obstacles, Europe appears to be inching closer to a more centralized fiscal union that would eventually turn the euro zone into something resembling a United States of Europe.

 but at this time the alternative of a complete European economic union is the stuff economist’s dreams are made of.  Unfortunately in the morning they have to wake up.  And given the performance of the U. S. in recent years, is the goal of a "United States of Europe" really a selling point?