Where is The European Economic Crisis Going?

Where is The European Economic Crisis Going? I wish I knew the answer to this question. It would permit me to speculate, and perhaps become rich. The central issue is no longer the Greek economy, or Greece's inability to control its debt and budget deficit. Greece is now merely the light with which the overall crisis is being illuminated. The core issue may be the fact that, given our level of knowledge about the crisis, no one has the slightest idea what the euro is worth. The daily valuations of the euro on world currency markets amount to blind wanderings, and will continue thus until the markets are satisfied that the true depth and breadth of the crisis are known.

Here's a very little history. In the beginning, entry into the European common currency zone was to be restricted to those countries that could keep their annual budget deficits under three percent of GDP. This, plus a lick and a prayer, would be enough to bind together such disparate economies and cultures as Italy and Germany. Italy, where paying taxes is approached with good natured humor, and little compliance; Germany, where taxes are paid, and inflation is considered the ultimate enemy. There seemed to be no question that all EU members would be welcome in the eurozone, even before any had complied with the deficit requirement. We can't, at this point, prove that any eurozone countries weren't in compliance when they adopted the euro. However, we can prove that very few of these countries have kept their deficits under three percent of GDP for more than a year since adoption. It's a similar smoke and mirror routine to that employed in the United States, to disguise the size of the annual budget deficit.

Here's a little current reality. Every time the EU lifts its skirt to show a bit more of the truth, we see just a little more than we were supposed to see. Have Spain and Portugal really “fixed” their deficit problems quite so easily, with so much less unrest than Greece has, and is suffering? We will eventually have to know.

Want a little reinforcement? On 16 May, German Chancellor Angela Merkel stated that (with the bail out fund) “we have done nothing more than to buy time until we have brought order to these competitive differences and to the budget deficits of individual euro countries.” Competitive differences, eh? Who knew that there were competitive differences between the German and Greek economies. I'd like to hear the barest outline of a plan to “bring order” to that.

Until the full extent of he eurozone sovereign debt crisis is understood, there is no way to value the euro. If the crisis, and information deficit, persist for much more than a month, the euro could easily reach parity with the dollar. That would be quite a fall. In fact, it could become a free fall.

Peace and love.