- - Sunday, November 20, 2011

ANALYSIS/OPINION:

That old Chinese curse “May you live in interesting times” has become a bromide. I suspect those old Chinese savants were smarter: Confucius (and his St. Paul, Mencius) codified rules and ceremonies for all princes for all eternity, rightfully suspecting that all eras would face many of the same difficulties. (What would the old boy have thought of Beijing’s current leaders using his dogma, which they once trashed when they were Marxists, in the service of Chinese “soft power” and espionage “institutes” around the world?)

These are, indeed, “interesting times.” Although our media and intellectuals increasingly try to entice us into believing the digital revolution has made all things knowable (after all, we have Google, Wikipedia and search algorithms), the world political economy remains fraught with unpredictability. Wherefore, we resort to an even more ancient Indian piece of wisdom, this one from the Katha Upanishad: “Arise, awake and learn by approaching the exalted ones, for that path is sharp as a razor’s edge, impassable, and hard to go by, say the wise.”

Nowhere are the ambiguities so manifest as in the European geopolitical scramble. And unlike earlier European crises, the current debacle completely stymies Washington. While the U.S. is still the major world power looked to for leadership — if only for the latest fads — it has no remedies this time. It was all very well for President Obama to reassure the Europeans (and ourselves) that they have the wherewithal to deal with the crisis if only they have the political will, but it was more than a little bit hypocritical. Not only is Washington not able to present a model of efficacy in solving its own debt problems, but quietly, the Federal Reserve joined other central banks a few weeks ago to extend short-term loans to European banks virtually cut off from dollar credit — and not by those Wall Street Occupiers.

The Fed moved because it is hard to exaggerate the implications of a breakdown in the U.S.-EU economic relationship. In effect, North Atlantic trade represents virtual integration. Even with the economic downturn, more than $1 trillion worth of goods traversed the ocean in 2010; another $250 billion in services. Last year, Europe invested another $100 billion in the U.S.; Americans put another $70 billion into Europe. A staggering $2.7 trillion was swapped in our markets.

Furthermore, Mr. Obama’s prescription is easier said than effected in societies increasingly dependent on nanny governments to sort out their problems. European private initiative, never of the American intensity, has atrophied. (The European Union bureaucracy at the moment is in hot pursuit of highly debated standards for bottled water!)

Nor will pampered electorates quietly accept new consumption restraints. Even now, opposition to ending the French 35-hour workweek could well become a major issue in next year’s presidential campaign. The prospect of layoffs among the one-third of the Greek labor force employed by government (and who notoriously do not pay their taxes) has reawakened old communist-rightist confrontations. Even the recent boost given German exports, Berlin’s economic deus ex machina, was, ironically, the product of a cheaper euro. But a depreciating euro hardly seems adequate for Europe’s legendary powerhouse, as Germany’s population declines and ages rapidly, its labor force narrows, and there is more and more questioning of the integration of 4 million Turkish Muslim “guest workers” who came in the 1960s — and stayed.

From day to day, it becomes increasingly clear that the reserves of the eurozone governments and the banking system cannot cover the growing sovereign and commercial deficits of the 17 members of the common currency. Credit has evaporated as lenders perceive their exposure more endangered by the moment, not only to whopping “haircuts” — “voluntary” discounts of outstanding debt — but by a growing possibility that the debtors may not be able to amortize even those discounted tabs as their economies spiral downward under the weight of severe austerity and social disintegration. Nor is it certain that new “technocratic” governments in Greece and Italy can manage essentially political decisions.

For Americans, the question of the hour — carefully not asked by our talking heads — is whether this European financial malaise, given the continuing failure of Continental leaders to address it more than sequentially, will spread to the U.S.? Do our bankers, with all their fancy handheld devices, really know what their actual exposure is, or will we be treated to new surprises as we were in 2007-08?

That Atlantic bridge could be in for some even heavier traffic.

• Sol Sanders, a veteran international correspondent, writes weekly on the intersection of politics, business and economics. He can be reached at solsanders@cox.net and blogs at www.yeoldecrabb.wordpress.com.

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