If you believe the French and Germans, what Europe really needs to become more competitive is a new treaty. If you believe Standard and Poor’s, which just put most of Europe on “creditwatch negative”, Europe needs to sort out its underlying monetary problems before it’s too late. Who are you going to believe?
As a sidenote, it will be interesting to see if we’re still writing about S&P, Fitch, and Moody’s this time next year. How long will the ratings agencies be allowed to communicate negative information about sovereign bonds to the market? When will they be accused of financial terrorism and shut down by the authorities? Hmmm.
In the meantime, S&P has finally dragged Germany into Europe’s debt mess in a formal way. The announcement on Tuesday said that Austria, Belgium, Finland, Germany, the Netherlands, and Luxembourg could all lose their AAA credit rating. We knew the rest of Europe was in trouble. But now the credit core of the continent has been questioned, too.
Of course this Friday’s big European Union summit should solve everything. That’s what credulous, unthinking, and merely stupid people are hoping for. Stock markets love the idea of Paris and Berlin having veto power over the rest of Europe’s sovereign finances. The S&P 500 is up over 8% since the Fed and five other central banks announced dollar funding for Europe’s banks.
But what a bunch of bureaucratic hogwash! Don’t these centralising Eurocrats know that their entire experiment in building a social welfare super state is failing before their eyes? It’s a testament to their own hubris that they have taken a business-as-usual approach to this crisis.
“What’s that, you say? The Welfare State is collapsing under a debt mountain because we cannot all live at each other’s expense? No problem! We’ll just make a bigger State that can borrow more and control private live even more minutely!”
Our prediction is that a new treaty will not make Europe more competitive, especially if the cold dead hand of the State remains firmly placed on the neck of ordinary people and businesses. Europe needs sound money and political liberty, not a bigger, more powerful government.
for Markets and Money