The Cost of Inaction – Southern Edition

Returning to a theme of an earlier post, I remain at a loss as to why Euro leaders in France and especially Germany seem so timid about pursuing financial stability programs or what almost seem like inevitable steps towards greater economic integration among EU members states. Merkel has remained firm even though the costs of letting certain members of the community slide into default and/or leaving the Euro to collapse would leave Germany with far more of a burden than even a flat bailout of Greece, Ireland and Portugal – much, much more, it seems.

“One thing UBS notes is that it would be much, much cheaper for Germany to simply bail out Greece, Ireland, and Portugal outright (that would cost about 1,000 euros for every German man, woman and child in one swoop) than it would be for Germany to exit the euro zone (which would cost the average German 8,000 euros the first year and 4,500 euros thereafter).” -Washington Post

The actions called for seem like inevitable steps towards an EU economic integration so why beat around the bush as the markets continue to punish countries already struggling? Furthermore, as the punishing and insecurity spread to normally stable financial situations, what exactly is causing the delay?

Still, the inaction in this equation is hardly one-sided, though I am starting to see a strong narrative emerging to suggest otherwise in Spain, Italy and Greece. ‘Europe wants to shove reforms down our throats’, the story goes. ‘Look how they’ve installed new leadership in Athens and Rome’ or ‘Look how they’ve wiped the slate clear of left of center heads of state in favor of right wing politicians who are sure to be more obedient to the demands of an over-bearing Europe’. Leaving aside the political leanings of the outgoing Berlusconi and likelihood that France’s right of center Sarkozy faces a substantial challenge in next year’s election (my take is that anyone caught holding the bag come election time is sure to face as much), I am not sure I understand the argument here. Countries need funds to stay afloat due to a wider economic slowdown but more so because of irresponsible or outdated borrowing and spending practices. So, the idea that those entities asked to put forth said funds would ask for some behavioral change seems like a logical next step, both because they are the lenders and what responsible lenders in the world would distribute funds without some sense of where the money was going or how it was going to be spent and because its the next logical step in Europe’s planned economic integration. This was the plan, wasn’t it? Getting everyone on the same page economically? That sort of operation requires much from all those taking part, including the richer countries helping to stabilize those less fortunate and those with antiquated or unsustainable systems adjusting their practices to better reflect the system they had chosen to take part in. So if this was the plan and these were the changes needed, why are figures on all sides fighting so hard against it? Is it  theater, pride or are some deciding they’d no longer like to be on board this particular train?

To be clear,despite his obvious and public distaste for the EU,  Silvio Berlusconi was not tossed aside because he ran afoul of Merkel and Sarkozy as he led a noble campaign to rescue his country from an economic collapse. He was tossed out because he did little to spur actual growth or help ready his country for participation in the continental and global community he had chosen to be a part of, made all the worse by the fact that he kept being caught with his attention elsewhere as Rome burned. And to be clear, Merkel’s grandstanding is not for the benefit of the country as I believe deep down that she understands the real costs of letting this European experiment dissolve with her at the helm. Both sides need to put pride and worries about political futures aside and realize the wave is coming whether they act or not – its how they prepare for its arrival that will matter.

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