Shoot the Dog and Sell the Farm
By John Mauldin
Jun 27, 2015
The Greek situation is presently caught in those two bubbles on the bottom.
European leaders held summit meetings this week to consider new breakthrough concessions offered by Greek Prime Minister Alexis Tsipras. Let the champagne flow.
That’s going to be a tall order.
- Europe (not unlike the US) will go to great lengths to avoid dealing with a structural problem and actually making changes. That means the crisis that Italy, Spain, and France will turn out to be may be a long time in coming. We are going to be dealing with the “European problem” for quite some time. A few years ago, I thought that we would see a resolution at least by the middle of the last half of this decade. I am now not so sure.
- The problem is the current system substantially inhibits growth and encourages mal-investment and creates frustrations on both sides of the political aisle. It is not just the left. There are significant right-wing (from conservative to National Socialists) movements being formed all over Europe. The largest is in France, where Marine Le Pen has moved her father’s party, the National Front Party, from an afterthought and an outlier to a significant force. They are winning elections and are very likely to contest the next presidential election, which could see the center-left and/or center-right coalitions becoming also-rans. Read what Marine Le Pen said this week on Bloomberg TV:
- This goes to the heart of the problem. The euro is not the solution to the problems of Europe, as many thought at the beginning. It is the current cause of the problems. You cannot have a monetary union without having a fiscal union, and a fiscal union is incompatible with the notions of sovereignty in nearly every European country, especially the larger ones. There has never been a monetary union that was successful without fiscal union. Never. Not at any point in history. Ever. The euro will not be any different. The only question is the timing. Or whether some compromise can be reached on the overall debt that will allow for a fiscal union.
- And this is where I agree with my friend David Zervos. I think this is part and parcel of the German strategy. If Greece had left five years ago when I (and many others) first suggested it, Greece could now be a vibrant, growing country. European banking institutions would have been devastated and governments would have lost hundreds of billions of euros in recapitalizing their banks. Today Greece can leave, and it will be an annoyance, but Europe and the rest of the world will survive quite nicely.
- There are no winners in this standoff. It is actually quite sad, but the current impasse is a consequence of trying to secure a one-size-fits-all straitjacket monetary policy onto a very disparate group of countries and economies. Large developed economies can last longer and go further into what is seemingly an intractable situation than smaller economies can; but they, too, eventually reach an impasse.
That would make it the first meaningful convention since 1976. (I have been a delegate, and it’s mostly rah-rah and fun.) After the third roll call vote, when I think all delegates will be released (at least that was the rule in the past), it could get very interesting and go in any number of directions.