Leadership, oh leadership, where are you?
For anyone who thinks that America’s politicians are the most incompetent in the free world, think again.
The hopeful side of human nature is that we learn from our mistakes. The realistic side of human nature is that this rarely happens in public life. Europe is on the verge of meltdown because leaders (read: Angela Merkel) are taking the shortsighted route and refusing to sacrifice national interest for the good of the European Monetary Union…and ultimately the good of the world economy.
At the height of the 2008 financial crisis in the U.S., political leaders on both sides of the aisle swallowed a bitter pill and passed a stimulus package that likely saved Americans from even higher unemployment rates than we are experiencing today. In today’s political environment, of course, it is impossible to envision a scenario that would bring Barack Obama and the tea party together to pass a stimulus measure.
On the bright side, Italy, Greece, and Spain now have new governments (or incoming governments) that should be inspiring confidence in markets that necessary austerity measures will be duly implemented. But bond rates continue to rise. Italian bonds are now at a record 8%. Belgium’s sovereign rating has been downgraded.
Why?
In part because investors have continued to see the bad decisions that led to today’s tipping point play out over and over again during the past three years. The painful irony of the looming eurozone collapse is that the severity of the crisis was entirely avoidable. Ireland and Portugal have already been bailed out. European policymakers have models for ascertaining what factors can contribute to a sovereign debt mess and what steps can be taken to restore liquidity and ensure market stability.
counting on change or collapse?
As the Economist points out, the single currency is on the brink of collapse unless Germans and the ECB yield to pressure to provide a fiscal backstop for sovereigns in crisis. The Economist also makes clear that even if positive steps are taken now, the possibility of avoiding a recession or dissolution of the euro becomes less likely as time marches on.
It if is too much to ask for bold, decisive leadership in a time of acute crisis, then what can citizens reasonably expect from their leaders to help ease the shock of a fiscal and economic nightmare? Perhaps it is the knowledge that leaders are still making their best efforts to mitigate against the most disastrous of consequences, despite the long odds of success.
In the current situation, it seems that European leaders have been utterly without courage both in public and behind closed doors. The political posturing of people like Angela Merkel and the now-defunct Silvio Berlusconi speaks for itself, as do the weak assumptions underlying the stress testing of European banks.
Bottom line: where do we go from here?
Sadly, nowhere but down for the foreseeable future. The only question is the rate of economic decline that the world will experience as a result of the chaos in Europe. With any luck, elected officials and regulators will take a moment to seriously reflect on the indecisiveness and small thinking that contributed to today’s situation. Hopefully, mistakes can be learned from this time around. Apparently, the first global financial crisis in 2008 was not enough, so leaders have provided themselves with a second opportunity to dig the world out from financial collapse.
