It’s like a marriage gone badly.
Only this time the groom has 16 wives, none of whom likes or trusts the others, but they have one thing in common. They hate their husband more.
For opera fans, it is more as if Puccini and Wagner had gotten together to write an stage an epic; only they decided to let the audience fend for itself by leaving the libretto in their respective mother tongues. Try to imagine Madame Butterfly meets the Valkyries.
It doesn’t matter who conducts the orchestra or which overpainted diva sings the lead. It’s still going to sound like cat claws on a chalkboard.
Welcome to the European Union – 16 nations in search of a reason to stay together.
It seemed like a good concept at the time. That’s precisely what the inventors of the inflatable dartboard and ejection seats for helicopters thought.
A Good Idea at the Time
In 1996, when debt-swamped Italy persuaded Germany to allow it to join the EU, the notion of ready-made markets for German goods and another backer for an amalgamated currency that could compete head-to-head with the U.S. dollar on the world economic stage, appeared to be a brilliant gambit.
To further sway Germans, Romano Prodi, Italy’s prime minister at the time, pitched the idea of a milk pipeline between Bavaria and Milan. The lira had just seen a three-year 40 percent plunge that was hurting German dairy sales.
Surprisingly, the normally sober and generally conservative Germans thought that it seemed like a reasonable proposition. They gave the Italians the nod to join Club Euro. The only explanation for this temporary lapse in judgment is that Italians must have courted the Germans during height of Oktoberfest when every gal with pigtails and a cow-horned helmet looks like Gina Lollobrigida.
Now, German taxpayers are footing the bill for that permissiveness as Europe bails out divergent economies lashed to a single currency with little control over national taxes and spending. The consequences are an 860 billion-euro ($1 trillion) bill for a debt binge led by Greece, sagging confidence in the European Central Bank’s independence and mounting speculation that a currency designed to last forever might break apart.
A Mite of Inflation
Last Monday, after marathon meetings in Brussels, EU finance ministers unveiled a record 750-billion-euro rescue package designed to protect the 16-nation euro zone from potential disaster in the wake of the Greek crisis. This unprecedented aid program, amounts to more than 70 times the overall assistance provided for post-war recovery in Europe under the U.S. Marshall Plan between 1948 and 1951.
At the time the announcement was made, the euro currency was coming off 14-month lows, and stock markets from Paris to London and Tokyo to New York were reeling from record selloffs. Following the EU aid announcement, the euro sharply rebounded and stock markets rallied.
Today, the euro slid to its lowest point in 19 months since the aftermath of Lehman Brothers Holdings Inc.’s bankruptcy. At the same time, stocks tumbled on concern the sovereign debt crisis will stifle economic growth and lead to a breakup of the European currency. Oil fell for a fourth day in a row.
Despite their brave and apparent unified front, rumors persist that one or more of the EU’s troubled economies, like Greece or Portugal, will be asked to turn in their keycards. Although his aides vehemently deny it, things have gotten so bad that French President Nicolas Sarkozy apparently threatened to pull his nation out of the euro compact. If the French are ready to throw in the towel, the credits must already be up on the screen.
As the cigar-chomping and usually understated former Fed Chair Paul Volker commented yesterday in London, “You have the great problem of a potential disintegration of the euro. The essential element of discipline in economic policy and in fiscal policy that was hoped for” has “so far not been rewarded in some countries.”
Marriage among the 16-member union may have been hell. Unless they figure out how to resurrect their co-nuptial bliss, their divorce is going to be a nightmare of epic dimensions.
John Cohn is a senior partner in the Globe West Financial Group based in West Los Angeles. He may be contacted at www.globewestfinancial.com
