Euros Get Smart
The Euros should just cut to the chase and rebrand themselves as the United States of Germany and let the burghers run the place. They are smarter and better at it than most. They also have most of the money and the need to keep their neighbors, who are customers, financially whole.
The world's financial cliffhangers are getting pretty tiresome, and routine, to those of us sitting here in the bleaches, or Canada. We are just out here making money, spending more than we make and paying in taxes. We don't have any exciting Tea Party types who balk at paying their bills. We don't even have the European version of the Tea Party, Germany, which doesn't want to honor its joint and several arrangement otherwise known as the Eurozone.
Soros Is Smart
But I like to outsource my thinking to people like George Soros, that Hungarian-born investment genius worth an estimated $30 billion. He's got a track record and isn't just another middle-class press blowhard who doesn't know a default swap from a lottery ticket. He thinks like an economist but has the moves of a stock market smoothie. He's also a European, with an American passport, so he thinks biculturally, and that's important.
The Euro crisis is the knock-on effect of the 2008 financial meltdown caused by the Wall Street casinos, he said. The Americans at least took quick action, which, ironically, says Soros, complied with the suggestion made at a memorable meeting of European finance ministers in November 2008. They said back then that they would guarantee that no other financial institution, important to the workings of the financial system, would be allowed to fail.
Unfortunately, they haven't followed their own advice, which is the nub of the problem. Then this:
Angela Merkel then declared that the guarantee should be exercised by each European state individually, not by the European Union or the eurozone acting as a whole. This sowed the seeds of the euro crisis because it revealed and activated a hidden weakness in the construction of the euro: the lack of a common treasury. The crisis itself erupted more than a year later, in 2010.
Germany Not Smart
In other words, Merkel made a suggestion that would have been equivalent to asking each of the 50 states, including the basket cases in the sunbelt, to voluntarily comply by doing the tough stuff that had to be done. Obviously, they would still be debating the issue, which is what's going on in Europe currently.
The Americans backstopped everyone but forced banks to merge, bailed them out and then required them to raise large amounts of capital. The pulse returned, and the country has at least limped forward.
Europeans have done little of this, and it's all worse as a result. Their banks haven't recapitalized, so they must be constantly bailed out to prevent them from pulling the plug on their struggling sovereign clients.
Worse than refusing to take their own medicine, Soros says there is no clearly visible solution, and leaders are now just buying time. This is chilling because "no clearly visible solution" in Euro-speak means we're all sitting in the bleachers, and our seats are guaranteed but the whole structure is about to completely collapse, and nobody knows how to shore it up.
Much ink is being spilled on the mechanisms by which the Euro, and indirectly the European Union project, can be salvaged. But frankly, my first impression about letting Germany take over is probably what's going to happen. And should.
The European Union should shred Eurozone treaties. Germany should be put in charge of the workout. There should be one central bank, and it should be in Frankfurt. This bank, and an oversight body run by the Germans, should have authority to approve, amend or veto the budgets and debts of each member country.
The workout could be temporary until the Euro-ship rights itself or breaks up into pieces. That's when our bleachers fall down, too.
So this is not about capitalism, socialism, mixed economies, politics or anything else. It's strictly business, and Germany is in charge, whether it realizes this or not.
This piece originally appeared on the Financial Post.
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