Is the European Problem Unsolvable?

For YEARS now we have been haunted by Europe’s debt and deficit crisis. Starting with Greece, we have watched the “slow moving contagion” spread elsewhere in the region.

The seemingly constant flow of bad news and deterioration of several European economies has weighed on the portfolios and psyches of Wall Street and Main Street alike; but yet the leaders seem to be prolonging the inevitable and perhaps making matters worse. As a free-market proponent, I am naturally opposed to government, political or regulatory intervention; especially when it’s just not working. I’m not saying that I want to see any country enter into turmoil, but when I look at the majority of the economic numbers combined with the spotty programs that European leaders have used to combat the issues, it doesn’t add up. When you look at the 10year bonds of Spain, Italy, Portugal, Greece, they are all trending higher; Spain is now back above the 7% mark, which while psychological is still a lofty sum for any nation to pay for debt when much of the world is selling it for less than 2%. On average, economic activity has been on the downswing throughout the zone over the past 2 years. The bond markets don't lie... The recent rate cuts by the ECB are actually forcing money OUT OF money market funds and may even make banks less likely to lend to one another. Banks are hoarding cash to protect against further deterioration and Goldman, JP Morgan and several others have closed investments into their European money market funds due to possible negative returns. Of course there are other asset classes that will gain interest, but they will also be higher in risk. This popular investor safe haven is yet another casualty. Looking at the situation as a logical trader, not as an economist, I have not seen real positive change given the billions of dollars and energy thrown at this problem. Furthermore, we must remember that these countries are not completely united and the Politians from each country have very different views and re-election campaigns to support. There is also a growing disdain between the Euro-haves and have-nots, which creates separation between nations that are supposed to be working together. The ECB’s new role as outlined in last week’s summit in Brussels truly stretches the boundaries of the entity beyond many comfort levels; especially Germany who is in the best financial position. But even Germany is susceptible and they realize that their rainy day funds are dwindling as clouds continue to form. I guess at the end of the day, it’s impossible to have a currency union without universal monetary and fiscal controls at the high level. The EuroZone members look more like the Montagues and the Capulets than a union in my view. As the U.S. and other major market economies struggle to keep our heads above water, the complex and frustrating situation that looms across the pond makes it rather difficult for investors to get confident in the economy and the marketplace. From my vantage point, it seems a better idea to allow the weaker countries to falter, correct and perhaps lose their place in the union. The banks and investment houses that took risk will take a haircut, but it will also give weaker countries a chance to rebuild on their own terms, without dragging 17 countries into the fray and prolonging an already painful situation. Do you think the ECB (and other entities) will cure the problems or just drag them on? RELATED ARTICLES

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