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Europe is Failing

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Europe, as you already know or suspect, is not like the United States. First of all, it is not united, even though there is a common currency to which you can get your country to subscribe, if it wants. Second, half of Europe is about 20 years old—the eastern half—having emerged from captive servitude to the USSR less than a generation ago. Young means inexperienced and poorly capitalized. So, what happened was that western European banks lent money to eastern European borrowers, and they borrowed like twenty-year-olds. Now that the eastern countries are running out of credit to spend on lifestyle and keep up with westerners, now that these immature economies are on the rocks, so are the western European banks.

A stock analyst (Mauldin) puts it this way:
On the 11th February the Daily Telegraph's Brussels correspondent Bruno Waterfield wrote an article under the header: "European banks may need £16.3 trillion bail out, EC document warns." In the article, the reporter revealed that he has seen a secret document produced by the EU Commission which briefed the union's finance ministers on the true extent of the banking crisis. Less than 24 hours later, the article's header was changed to "European bank bail-out could push EU into crisis" and two paragraphs had mysteriously disappeared. Here they are:

"European Commission officials have estimated that "impaired assets" may amount to 44pc of EU bank balance sheets. The Commission estimates that so-called financial instruments in the 'trading book' total £12.3 trillion (13.7 trillion euros), equivalent to about 33pc of EU bank balance sheets.

In addition, so-called 'available for sale instruments' worth £4trillion (4.5 trillion euros), or 11pc of balance sheets, are also added by the Commission to arrive at the headline figure of £16.3 trillion."

Do yourself a favour - read those two paragraphs again. Newspaper editors do not change content light-heartedly. Did the Telegraph editor receive a call from Downing Street? Or Brussels? Did he have second thoughts about the avalanche that he could possibly instigate? I don't know and I probably never will. But one thing is certain. If the EU Commission's estimate of £16.3 trillion of impaired assets is correct, then the crisis is far worse than any of us could ever imagine. Not only would we have to get used to the prospects of a systemic meltdown of our banking system, but entire nations may go down as well.


Do yourself a further favor and read that last phrase again. Yes entire nations may go down!

So far the GDII (Great Depression II) has been a game of seeing how long you can keep insulated from the ravages of lay-offs and bank failures. Most Americans are trundling along with 401K's worth half or less of what they were last September. The impact is more whether the kids get to go to college, than whether they are going to become homeless or starve. This is not the case in eastern Europe. This is why the Latvian and Icelandic governments have already failed.

Great depressions bring with them great stresses on the populations. It takes some time for the stress to accumulate on some sectors of society, but the stress is there, just not manifest yet. The current Republican retreat into the posturings of Rush Limbaugh is a recognizable element of the increase of stress as Republican owned businesses begin to realize that they are going to fail and Republican white-collar workers realize that their jobs are going down with these businesses, and Republican blue-collar workers realize that their allegiance to white collar Republicanism is going to get them nothing. It is anger-the first stage.

The world economic crisis will devolve downward in a spiral or just a straight line until a solution to the east European situation is evolved. This is to say that the east European situation cannot be bartered off as "some price the world pays" for its various retched excesses. These are real nations with real people in them. Yes, the answer is to restore the strength of the large banks in the U.S. and in western Europe first, but that cannot be done without built in commitments to eastern Europe. Lacking the commitments, eastern Europe will fall into various kinds of NorthKoreanism and pose intractable problems for the west for many generations, most assuredly involving military solutions.

JB

 

James R. Brett, Ph.D. taught Russian History before (and during) long stint as an academic administrator in faculty research administration. His academic interests are the modern period of Russian History since Peter the Great, Chinese History, (more...)
 
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To underrate what is happening here is a mistake. ... by Starla Immak on Friday, Mar 6, 2009 at 4:42:32 PM
Well, the point is that government is trying despe... by James Brett on Friday, Mar 6, 2009 at 5:09:00 PM
Americans need to wake up...Turn off the televisio... by Jim Calderwood on Saturday, Mar 7, 2009 at 5:06:16 AM
I attended an NFL playoff game at Dolphin Stadium ... by Jim Calderwood on Saturday, Mar 7, 2009 at 5:20:18 AM
your take would be to STOP borrowing like 20 year ... by steve scheetz on Friday, Mar 6, 2009 at 6:58:26 PM
The borrowers referred to were the newly freed nat... by James Brett on Friday, Mar 6, 2009 at 8:28:12 PM
Understanding that this article is now out of the ... by James Brett on Monday, Mar 9, 2009 at 12:47:44 PM