Friday, April 6, 2012

The Eurozone Slips Back into Recession

No big surprise. Austerity and the absence of reform are not a good mix. Meanwhile, sovereign debt levels soar off into the stratosphere.

There will be a lot of finger-pointing and the blame-game in the future when the current European trajectory ends in disaster. All of this was easily avoidable.

Had Greece been permitted, just two short years ago, to do a default workout with its creditors, the Eurozone economy would probably be motoring along today. But, no.

The Geithner-Merkel-Sarcozy strategy, which is really just blindly putting one's head in the sand, has been adopted. The result: economic contraction and growing political chaos. As for reform, that is out the window, as recent developments in both Spain and Italy can attest.

Whenever economic conditions seem to be faltering, there is an outcry for politicians to "solve" the problem. Inevitably, politicians take a relatively minor problem and turn it into an economic disaster. This has happened over and over again in the history of modern, developed economies. Only when politicians did not have enough clout to interfere (19th century America, for example) were economic problems left to right themselves and economic growth permitted to triumph over foolish policy prescriptions.

Economies can heal themselves. People can learn. But, what never works is direct action by the government to "solve" the problem.

Piling debt upon debt and attempting to force austerity on Europe won't work and will end in disaster. By the time disaster strikes, Geither, Sarcozy, and Merkel will no longer be in power. So, they will be sitting on the sidelines pointing fingers at others. But, the coming disaster for Europe will be a direct result of the foolishness that now passes for policy.

The only way to deal with too much debt is to reduce it. The only way to achieve economic growth is to break the stranglehold of too much government and too much regulation. The Merkel-Sarcozy-Geithner policies take us in exactly the opposite direction.

The future for Europe is perfectly predictable.