What Comes Around Goes Around...And Around

There is a good WSJ article today that wraps up the final days of the Berlusconi administration chronicling the role of Angela Merkel. ‘Deepening Crisis Over Euro Pits Leader Against Leader.’ If you have not read it yet, or heard this story, it is good reading. But in replacing Berlusconi Italy has not yet solved its problems and then there is the ongoing trouble in Greece and the matter of Spain and Portugal (above). Ah, yes, the euro-crisis has so many moving parts and they all are moving; none will stay still. What remain unchanging are the views of the participants, views that continue to push policies that fail to bear fruit. And the parts that move are deteriorating as they move they are not, sadly, progressing.

The retail sales trends in Spain and Portugal are predictable and worrisome. Austerity is hard to pull off if its goal is to rein in run-away budget deficits when that stoppage portends recession. In most modern economies recessions set the automatic stabilizers to work which is economist-code for making the deficits bigger. So when austerity flips the tables on growth, growth flips the tables on austerity,

And so it goes.

There is little in the Euro-Area that is working right now. Italy’s borrowing costs are high again. How could they be otherwise? But since Italy will not engage in pension reform (either with or without the bunga-bunga man) it is still falling short when it comes to the reassurance of markets. (So what has Angela’s gambit really achieved?)

And so... we are on the brink of a new year with the same old problems. Is it to be Ground-hogs year? That’s right, not ‘day’ but ‘year?’

New Years do not wipe out old debts. They do not bring a new sense of enlightenment. They do not banish old rigidities. They do not lift the haze and myopia of unenlightened self-interest.

It is just another string of 365 days grouped into the familiar months. So make of it what you will. The WSJ article makes it clear that Europe is worried and does not have any real plan. It has lurched from crisis to crises. And neither Germany nor other members seem to have a grasp on the situation. The plan is to ride the bucking bronco and try to survive it. There is no longer plan to tame it. Each side in this Euro game of chicken continues to pretend that it can endure.

My parting thoughts in 2011 in their simplest and most complex terms are theses.

The long and the short of the Euro-Area and of 2012
The euro-Zone: Until the ‘euro’ in ‘euro-Zone’ stands for ‘Europe’ instead of the currency ‘the euro’ it cannot prevail. No combination of countries dedicated to a single currency can prevail. But a group of countries dedicated to their mutual self-interests using a single currency might have a chance. It is matter of where the priorities are placed. The ‘euro’ ‘experiment has failed but it has brought some key lessons forward so it can be reformed. Can anyone in Europe embrace that? If not, it will be a long and possibly bleak 2012.