15 May I Know what is Wrong with Europe
Had the European collectivists and centrists who have done such a fantastic job running that continent gotten together and come back with a “small package” last weekend, the market response would have been worse, not better. So they went to the next big number once you have exhausted $15 billion, $100 billion, $350 billion, and all those other puny words with a mere “b” handle – they hit the $1 trillion mark. The American TARP package laid low at $700 billion, and the stimulus package of a few months later found $787 billion to be the sweet spot for restoring American employment (which has gotten 30% worse since the passage of the stimulus). Yes, even big government types in American were afraid of the “trillion” dollar mark – but not our friends across the Atlantic. Go big, or go home. They went big.
Of the nearly 500 pages of material on this bailout package that I have read this week it is truly remarkable to me how little is understood by those analyzing it. The eternal Keynesian fallacy is to assume that all economic catastrophes are liquidity problems, and even more so than the financial mess of 2008, this is absolutely, most definitely, NOT a liquidity problem. It is a solvency problem, pure and simple. We can talk until we are blue in the face as to what caused it, and even what ought to be done to fix it, but we have to identify the problem correctly. A handful of countries – most notably, Greece – have run their fiscal houses atrociously. They lack the ability to grow their way out of their huge debt (because their economy doesn’t grow). And because of their 1999 uniting with the EU-bloc in the ill-fated EURO currency mess, they lack the ability to print their way out of the debt. So they don’t have the money to pay their bills, and any serious attempt to remedy the source of the problem (the fact that 40% of their population works for their nanny-state inept government, and that public employee pensions and benefits have decimated their budget) is met with savagery and anarchy. Okay. Pretty simple.
The reason for the Euro-TARP is not Greece. It is the other countries that are owed money by Greece (79% of it). It is the forecast for debt default with other Euro-member countries (Spain, Portgual, Italy, and Ireland). The size of this package is overwhelmingly sufficient (and then some) to cover the debt of all three of these countries for several years, even apart from the severe austerity measures they will have to be taking now. With that kind of time on their hands, why don’t the European authorities assume that some degree of economic growth will surface so as to improve the debt-to-GDP ratio organically?
The answer, my friends, is not blowing in the wind, but rather taking a stroll down the maternity wards of European hospitals. The European economy can not grow its way out of the current mess they are in because they stopped having kids a couple decades ago, and they most certainly are not having kids now. John Mauldin points out this week that the only two possible ways to grow an economy in the entire world are via population growth and productivity growth. Since Spain requires one month of severance for every year an employee worked for a company (yes, fifteen years of employment means that, by law, your employer has to give you fifteen months of full pay), you can see the unlikelihood of growing productivity (if I ran a company in Spain, I would be firing my employees every three weeks or so). So how about that population growth idea? Read America Alone by Mark Steyn and check out the birth rates of various Euro countries (or read my review here). The great contribution of secularized humanism as the official state religion in Europe has been: a total lack of children. It is almost surreal. For over a decade the great countries of Europe averaged slightly less than one child per household, and now a decade or so later they wonder where their economic growth will come from. And these are not your run-of-the-mill atheist countries either (the kind where you expect them to hate Puritanical institutions like “family”). No, these are countries like Spain, where 78% of the people claim to be “Roman Catholic”, yet 63% say that they, in reality, “have no religious practice or affiliation whatsoever”. The other 37% probably did not understand the question.
I am prepared to be amused as the Euro works its way to parity with the dollar and European authorities claim shock and awe. “Huh? What is happening here? We are a strong-currency continent. We are not trying to pay off our bills with a weaker currency. Of course not!” How are those “dollar is dead” people looking now? (Currencies are always and forever, by definition, relative; remember that, and it will sterilize you from the pain that ignoramus newsletter-writers can inflict upon you). But a $1 trillion package to assist monetarily challenged Euro countries is a band-aid. I do not hold out hope that legitimate pro-growth policies are likely to happen any time soon. What is a shame, though, is that I also do not hold out hope that a return to the ultimate productivity strategy is pending – the pro-values, pro-growth, pro-family concept of having a family.
Who would have ever thought the most obvious consequence of rejecting the concept of God in the core of Western Europe would be the infertility of their continent? And who would have ever thought that this infertility would render their economic challenges insurmountable.