The Euro is a currency that represents seventeen independent countries.
Unlike the USA which is a federation of 50 states, where the Federal law is the same for everyone, the European Union is a group of independent countries, and laws differ in each country. This primary difference makes the common currency weak.
Since many of the independent countries have debts that they can never pay, investors are discovering that the Euro is not the same in all countries. The Euro in Greece for example may be an I.O.U. note which will never be repaid. The same applies for owners of bonds in Italy, Spain, Portugal and Ireland.
However, since European and American banks have bought these bonds, all the other countries of the EU will be affected by any default by the weaker countries. This includes the USA, and indirectly, the rest of the world.
For this reason we see commodity prices reacting to all the news emanating from Europe. If a slowdown is perceived, commodity prices drop, if a hope of recovery is in the air, the commodities rise in price.
The fundamental question is: Can the Western Financial System support the poor countries of Europe? Can the USA through the IMF, and the strong European countries pay off the debts of the weak countries?
These debts amount to trillions of Euros. There is no consensus as to their exact amount.
In addition, the weak countries, due to their “Austerity Measures” have been thrown into economic depression. Unemployment in the weak nations is shooting above fifteen percent and will soon be above 20 percent.
The weak countries are obligated by their laws to support the unemployed and to provide them with all the social benefits of their welfare states. That means, pensions, health care, disability care, food and housing.
Companies in all the weak countries are failing and laying off more personnel. No more vacations, long lunches and long holidays. The situation has gone from bad to worse and will continue downwards.
In Greece there is already a run on the banks. Bank account holders believe their Euros will soon become worthless and/or the banks will fail. Desperation is everywhere.
The European political leaders are only worried about their own banks. They apparently think that if they shuffle money around the problem can be solved.
But, in my opinion, it cannot be solved.
BORROWING MUST LOWER LIVING STANDARDS
The majority of workers in Europe, like the majority of workers in the USA, produce little to nothing that can be exported. Only exports bring in cash to pay off debts.
Internal capital is used for maintaining living standards. Debt, requires capital above that which is used for living. The total GDP is used by the population to pay for their current needs.
The interest and principal of debt requires a source of capital extraneous to that needed for living. If that capital were available there would be no need to borrow. Every person who borrows does so because he does not have the cash to buy what he wants. In the future he must either lower his living standard to repay the borrowed money or simply not repay it.
EUROPE CANNOT REPAY ITS DEBTS
We will see that Europe cannot repay its debt, unless Europe lowers its living standards.
European employees are almost entirely “Service Employees” who manage resorts, restaurants, financial institutions. Or they are part of the huge Civil Service cadre which lives off the taxes of the workers of their countries.
In the few Northern countries such as Germany and the Netherlands where factories and farms still exist, money from exports is still coming in.
But the money coming into these countries is insufficient to support the weak countries who have swollen populations created by the influx of migrants who were desired when the economies were strong.
It is well known that the native Europeans have gone into a steep decline in terms of their birth rate.
However, to compensate, the European countries have imported tens of millions of people from surrounding countries. Since these people are now integrated into the European Union they must be supported. This added population is made up mostly of service workers. Only in the Northern countries like Germany do they work in factories.
We have, therefore, a native population and a migrant population, all of whom need financial support.
In the past the difference in financial requirements was made up by the printing and selling of bonds. That avenue is closed due to the fact that exports are almost totally eradicated.
Southern Europe used to export food. But in the 1980′s Europeans refused to work in the farms. The work was considered demeaning and the pay was too low. In Spain and Italy, Latin Americans were imported to do farm work. They were also used in the resort industry for cleaning and cooking. Spaniards and Italians considered these jobs too “low” and they found work in the commercial and financial industry when those industries were expanding due to the rampant lending of money.
The European banks and the European population both need financial assistance.
They need that assistance now and into the extended future.
It is possible that by scraping together funds from all the rich countries, from the USA and even perhaps from Asia that the banks might be saved temporarily.
But in the future Europe must provide for a population of half a billion people who need energy, since they do not have their own; food, since their farms are gone; and, house hold products, since their factories are now in China.
Who will pay the price for all these necessities? No one!
Living standards in Europe are now dropping and will continue to drop. It is very likely that Europeans will seek a different form of government in order to solve their problems.
Historically, changing governments has never solved basic problems. Any human or other animal who does not work does not eat.