Guest Post: The Europeans

Today we have a special treat – a guest post from David Lilienfeld, David is a physician with an MBA from Johns Hopkins University working in biotech.  He is also an historian and has an interesting take on what could happen should the Europeans get their acts together, which is  far from a certainty.  Enjoy! – Josh

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If the Europeans could get their act together, the crisis would quickly abate and we would have a fantastic stock market rally at the end of the year. I’m sure that the Europeans see the need to get their act together fast, though it may need to be faster than they can operate.  But here’s the big question:  Are the Europeans ready to give up sovereignty to Brussels? We know that the Articles of Confederation didn’t work for us any more than Maastricht worked in the EU–and for the same reasons, more or less. But there is absolutely no indication that Merkel, Sarkozy, et alia have any interest or willingness to step down from the international stage, as they would have to if there were a stronger federal approach to the EU than exists now.  Absent a stronger federal government for the EU, do Eurobonds have any credibility, any basis for bondholders to think they will be paid back? Before the German auction last week, I thought that a Eurobond would suffice.  I’m not so sure anymore.  There’s also the reality that the delay in dealing with the problem has inflated the cost of addressing it.

Much like our Democrats and Republicans on the debt ceiling (and just about everything else), there’s a lot of division in the EU, and that doesn’t auger well for solving the crisis, even as the solution is self-evident.

The next time you travel by air, take a look at the airport corridor.  I’ve noticed increasingly that everyone seems to be tuned into listen to their iPod/iPad/iPhone.  They don’t engage in civil discourse, even to pass the time, as they don’t have to–they can listen to exactly what they want to listen too.  Given that we can watch whomever we want on tv/cable–and most people want to watch things that validate their own way of thinking–there’s no longer any need for exposure to a viewpoint other than what one already believes.  That’s not a formula for compromise, and the result is the mess we have the US, where

If the Europeans could get their act together, the crisis would quickly abate and we would have a fantastic stock market rally at the end of the year. I’m sure that the Europeans see the need to get their act together fast, though it may need to be faster than they can operate.  But here’s the big question:  Are the Europeans ready to give up sovereignty to Brussels? We know that the Articles of Confederation didn’t work for us any more than Maastricht worked in the EU–and for the same reasons, more or less. But there is absolutely no indication that Merkel, Sarkozy, et alia have any interest or willingness to step down from the international stage, as they would have to if there were a stronger federal approach to the EU than exists now.  Absent a stronger federal government for the EU, do Eurobonds have any credibility, any basis for bondholders to think they will be paid back? Before the German auction last week, I thought that a Eurobond would suffice.  I’m not so sure anymore.  There’s also the reality that the delay in dealing with the problem has inflated the cost of addressing it.

Much like our Democrats and Republicans on the debt ceiling (and just about everything else), there’s a lot of division in the EU, and that doesn’t auger well for solving the crisis, even as the solution is self-evident.

The next time you travel by air, take a look at the airport corridor.  I’ve noticed increasingly that everyone seems to be tuned into listen to their iPod/iPad/iPhone.  They don’t engage in civil discourse, even to pass the time, as they don’t have to–they can listen to exactly what they want to listen too.  Given that we can watch whomever we want on tv/cable–and most people want to watch things that validate their own way of thinking–there’s no longer any need for exposure to a viewpoint other than what one already believes.  That’s not a formula for compromise, and the result is the mess we have the US, where we’re fast becoming ungovernable.  (Call this the iPod-iPhone phenomenon.)  I have to wonder if the same thing is happening in the EU, perhaps even moreso because of the striking regional/cultural differences present, which surpass our own by quite a bit.

It’s worth remembering that the 1931 banking debacle began in Austria at a Rothschild-owned bank that everyone thought was rock solid as a result. It didn’t start in London, Paris, New York, Berlin, etc.  Austria.  I have to wonder if we’re going to get a bank run in some place like Denmark Norway, or the Netherlands (perhaps the UK?) before the Europeans finally deal with this situation.  Unfortunately, by then it may be too late.

Those 1 month and 3 month LIBORs don’t lie.