In november of 2009 Newsweek was telling Americans to be prepared: the financial crisis could leave Europe even stronger than America. Ah, those good old times when Greece was only a vacation country with little white houses and naked old people lying on the beach.
But now the good old Socialist System is showing its true colors. The Financial Times now tell us that instead of watching the rise of a new dominant power, we are experiencing the death of the European dream.
And you are sadly mistaken if you think this is just about the PIGS of Europe: France is also in trouble with its huge debt and the UK debt is actually higher than Greece’s as a percent of GDP. Germany seems to only somewhat sustainable exception but let’s not forget that its economy depends big time on exports. And who are Germany’s biggest trade partners?
•France … US$99 billion (10.2% of total German exports)
•U.S. … $85.5 billion (8.8%)
•U.K. … $76.7 billion (7.9%)
•Italy … $67 billion (6.9%)
So I really can’t see how they can pull this off for too long.
Everything indicates that both the US and Europe will need to enter an “era of austerity“. As always, the main challenge is political. On the US, big spending cuts will be needed and taxes will probably go up. I see the case of Europe being much worse because taxes are already so high and you can see what happens to people when you say you will cut life long entitlements.
At the end, this is the closest we can get to the death of socialism. It won’t be pretty.