Colin Ferguson | SciFi, Toronto and other rants on

European Debt Crisis

Tuesday, October 25th, 2011

I’m somewhat surprised that Europe isn’t doing more to boot out members of the Eurozone who never should have been there.

Much of Europe is set up on the fudge – rules are agreed, voted on by national parliaments and then ignored if it doesn’t fit what governments want to do.  Many countries struggled to meet the EU targets even before the financial crisis in 2008.  The EUropean Commission, (the real power in Europe) sent notes privately saying “bad boys!” to those who were above 3%, then when the Commission was ignored, they went nuclear – they sent notes publicly saying “bad boys”.  The writing was on the wall for the Euro at that time — if governments couldn’t hit the targets when times were good then what could they do when they were bad?

I recall at the launch of the Euro, I was living in Europe.  BBC interviewed me to see if the UK should join the Euro.  I answered not a chance!  I like Europe and thought it was a great place to live, but there is no reason in some countries with finances, and that can bring everyone down.

And lo and behold I was right.

Since 2008 public deficits have rocketed across the continent. Greece’s public deficit in 2009 stood at 12.7 per cent of GDP.  Since the Euro went live, France hasn’t once hit the target for deficit – always over 3%.

So the fudging of politicans a decade ago is being paid for by all of us.  German taxpayers, along with everyone else, has to be prepared to bail out countries that never bothered to build a civil society where you can trust government to (broadly) do the right thing.  They could trust government to do the wrong thing, the selfish and corrupt thing.  So everyone else did, ensuring they took what they could and paid as little as possible.  Eventually those chickens came home to roost.

It’s a matter of trust. If you can’t trust your fellow citizens you’re better off not building a real society.  Go the libertarian way and do the minimal.  Government only works if the society works.

If I can figure this out, that Greek and French debt is riskier than Dutch and German debt than you’d figure out banks could too.   The problem is they couldn’t, or at least it was profitable for them not to.  Now their gambles are coming in poorly and they are so big they want the governments to step in and bail them out.

The governments shouldn’t be bailing out Greece they should be making it default and if a bank has too much exposure then the governments should take them over, and ensure that any remaining banks have double digit reserves.  Without, of course, loopholes.  If that can’t be done, then reducing the size of banks is the only option.

So in the end, what do you think the odds are the Germans are going to see that money back?  I’m advising any German friends to take their income tax just “invest” it in online gambling that’s legal there.  It’s the better return than saving accounts.

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