STAFF NEWS & ANALYSIS
Europe Needs Rigor?
By Staff News & Analysis - March 13, 2013

Without coordinated leadership, Europe will falter … There is an increasing probability that financial markets will respond negatively to the unfolding economic and political drama unfolding across Europe. So far, the European Central Bank has pumped out cash and calmed the nerves of investors, but it needs to do more. A cut in interest rates by the ECB is crucial to contribute to a revival of growth across the euro zone. On its own, however, that is not enough. Europe's political authorities need to counter the increasingly widespread perception that they lack the will to confront the zone's economic ailments and promote a clear path to growth – austerity policies alone will not work. Reuters

Dominant Social Theme: Bold leadership is necessary in these trying times.

Free-Market Analysis: This editorial over at Reuters explains to us that leadership involves fixing the price and value of money. Also that Europe's political leaders must show "implacable rigor" (our term) in proving they have the "will" to salvage both the EU and the euro.

When articles refer to the possibility of the euro shattering or at least contracting they are not referring to the EU itself. Yet so fragile is the concept of both the EU and the euro that any diminishment of either will call the whole project into question.

The idea – as has been revealed by the top Brussels Eurocrats – is to create a modern day Charlemagne's empire of all of Europe. Shattering the euro diminishes this dream. And diminished empires inevitably fade. Empires – and the EU is a nascent empire – are enforced via fear and conquest. The conquest doesn't have to be overtly violent but certainly the threat of violence lurks whenever empire is engendered or expanded.

Central banks are part of empire. The ability to print money from nothing is an integral part of modern empire. And likewise the ability of "leaders" to make clear to subjects (as despots always do) that their implacable rigor guarantees that their vision will win out is also a necessary element of intimidation. Here's more from the editorial (our paragraphing):

The situation has become far more serious now that the crisis has moved from the zone's periphery to its major economies: Spain shows no signs of emerging from prolonged negative growth, Italy is now facing mounting difficulties and France is sliding into recession. Overall, looking across the euro zone, the jobless data best illustrates the pain of this crisis …

Despite such prospects – with the number of jobless expected to soon to exceed 20 million people – there is no sense that the political authorities are striving to formulate a "Brady Plan" of the kind that opened the way to sustained growth in Latin America, or take into account the lessons of past sovereign debt crises. We have seen this movie before. The crisis that started in Mexico in 1982 soon engulfed much of Latin America, and the failure of political leadership saw massive public demonstrations.

The public in most of the region's countries rejected authoritarian regimes and embraced democracy. Fortunately, a number of outstanding political leaders emerged who could promote democratic approaches while building support for difficult, yet essential and eventually successful, economic policies. Their efforts made it possible to design and implement the Brady Plan that paved the way to regional economic resurgence …

In addition to an ECB interest-rate cut, there needs to be a package of actions that includes a) an acceleration of plans along a firm timetable for a euro zone banking union; b) clear statements by the European Stability Mechanism's managers and the ECB that support the availability of finance to Italy and Spain and possibly other zone countries that go through periods of political instability; and c) a timetable to move toward a fiscal pact.

One can see in the above nostrums the almost palpable yearning for "strong man" leadership. This seems to be a dominant social theme of sorts as European leaders have taken to announcing that their previous actions should indicate to the larger market that the "Europe's" will is unfaltering.

One must bear in mind when scrutinizing this sort of counsel that the European crisis is not over because the precipitating factors have not been dealt with. The problem of Europe is one of banking bigness, bankruptcy and corruption. The solution, according to editorials such as this one, is to continue on the same course.

This editorial and others like it basically advocate for two things: printing as much money as necessary to monetize banks and sovereign nations (debase the money supply, in other words, to decrease outstanding debts) and "leaders" that will make it clear that these policies will continue until European solvency is achieved.

But boil it down further. The idea is simply to make it clear that Europe will debase its currency until the necessary goal of "stability" is achieved. This is to be done on the backs of European savers, investors and retirees.

Of course, there is a chance such a policy may be achieved. But we have seen too often in the era of central banking that a successful reflation merely stores up trouble for further cyclical disruptions.

After Thoughts

What Europe really needs to do is discard the euro and then work on discarding its central banks. That would be real leadership.

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