Europe's sweaty palms moment

I would argue that while the EU's problems are potentially much worse than those of Americas, there is greater scope for action while the intransigence of the Tea Party refusing to raise the debt ceiling could end the dollar's status as the global reserve currency and that really could be catastrophic for America. Hence sweaty palms rather than pooey pants

Sauce for goose is sauce for gander so here is an excellent article regarding Europe's debt problems. While the short term solution to the EU's problems aren't quite so simple as just raising an arbitrary cap on borrowing it would seem the self interest of German elites and to an extent German voters could badly harm the EU just as Tea Party self interest could badly harm the US.

The article also highlights the growing sense of lacking economic agency most citizens of Europe have. The flip side of the coin is the assertion of the elites and their lickspittles that essentially democracy works and thus it is everyone's fault and everyone has to face the consequences of that. The contrast of the self congratulation elites chorused when things were going well to this egalitarian approach to blame is probably the most crass case of "socialise the risk, privatise the reward" I have yet to see. Still the way things are going I doubt this is the most egregious case we're going to see.

One complaint I have about the article (and something I hope Tony will comment on) is that it fails to mention the nature of the Euro as a currency peg rather than an actual currency. There is no central control mechanism for borrowing (or at least there wasn't, I don't think this has changed but it might've) so countries like Greece could use the value of the Euro as imbued by big economies like France and Germany to borrow on much more favourable terms than their own economies would allow. That is to say Greece could borrow with Euros but was only able to pay back in (metaphorical) Drachma.

I really hope there is a reason other than cynical self interests that such a glaring oversight was made in the creation of the single currency.

Tony's Response
"For the most part you're correct, but it's important to note that while there is a single currency, the mechanism by which sovereign debt is accrued varies by state and unlike the US there isn't a single entity who can reign it in.

The question the Euro sought to answer was "can a unified currency work with a bunch of different entities essentially managing the back end?" As France and Germany will likely find out, they're going to be footing the bill for every country that doesn't have enough cash to meet its obligations. Either they do it or the currency itself gets weakened in ways that no one can really predict. Right now things aren't so bad, but if Italy goes or Spain, well, that's going to be the test because at a certain point the Germans aren't going to be able to keep up with large but faltering economies.

Within a country, sovereign wealth generally has to support the weaker, depressed parts of the country. That's just the way it has to be. In the Eurozone it's difficult to see how that's going to fly when the wealthier countries aren't responsible for and don't answer to the weaker countries but still have to act in a way that primarily funnels money to the countries that need it in order to support the entire system.

This is uncharted territory, really. There isn't any historical data on how this will play out to my knowledge, but my guess is that France and Germany won't be able to shoulder the burden for long and something will have to give either politically or economically. It's worth watching.

(FWIW Europe isn't worse off than the US economically, but the political realities involved will likely create a crisis in Europe before the US. The US has the benefit of simply being able to falter on it's own rather than having disparate parties who could precipitate collapse by actions that they might not be able to avoid. Europe's situation is definitely better overall when looking at the numbers and they're willing to address the actual balance sheet problems whereas the US simply never will, but the uncertainty over how Europe will play out makes it riskier now than it is in the US.)"