Its been a wacky winter in Europe: snow in Naples, people freezing to death across Poland, Russia and Ukraine, and the daffodils and crocuses are in full bloom in Britain.The economy is just as confusing. Anybody who bet on Europe made tons of money in the last couple of months; yields on Italian bonds dropped dramatically and stock prices rose. The bulls made out like bandits; the bears would have done better if they had hibernated through the winter.But if the markets are up, confidence in Europe is down. It’s very hard to find any sign that European leaders have found a way to come to grips with the forces that are ripping their monetary union to shreds.European rescue policy is like a clown car that bounces and crashes into the walls of a circus tent. From the Irish referendum to the magically expanding Spanish budget deficit, from the continuing implosion in Greece to the deteriorating picture in Portugal, Europe’s remedies aren’t working and its lesions aren’t healing.Europe’s politicians have less and less margin for error. Germany’s highest court overruled Chancellor Merkel’s efforts to push decisions on EU spending commitments onto a small and fast-moving Bundestag committee; instead full, and no doubt slow and cumbersome, parliamentary votes and debates will be required for each disbursement decision.The leading French contender for the presidency has vowed to reopen negotiations on the fiscal treaty that in theory is the foundation for European reform. The ECB policy of extending almost unlimited cheap credit to shaky European banks has broken new ground in the theory of moral hazard. Unemployment continues to rise even as the American expansion gathers force.The outlook continues to darken: according to Reuters,
Many economists say Lisbon is likely to require increased aid, and the chairman of euro zone finance ministers, Jean-Claude Juncker, has acknowledged that Athens may also need further assistance at a later stage [and] there are concerns too about Spain, which announced on Monday that its 2011 public deficit was 8.51 percent of gross domestic product, far higher than the 6 percent target set by the European Union and above a preliminary estimate of 8.2 percent from the new centre-right government.
We have our own problems here in the United States, but we have one advantage the Europeans don’t: Alexander Hamilton. Hamilton’s contribution to the federal Constitution and his brilliant financial policy in George Washington’s administration put our national finances on a foundation that has lasted for more than 200 years.The European Union is what a complex political organization looks like when its founders don’t understand constitution making. Even simple decisions are hard; when life gets complex and truly difficult problems like monetary union come along, the European political system is unable to cope.Europe is rich and Europeans are smart; Via Meadia hopes they will somehow find a way out of this mess. Americans need a strong and prosperous Europe. But at this stage in the long running monetary crisis, it is painfully clear that Europe’s institutional framework and political processes are simply not up to the task.