Europe’s Only Recovery Option

Now's the time to create a eurobond to refinance all eurozone debt

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Like a spoiled child that can’t have his own way, Greece and its fiscal calamity have captured the attention of global markets because of the perceived systemic impact a Greek euro exit could have.

Greece may have an economy that’s only about the size of Delaware, but its likely default is testing the nerve of investors around the globe. An already heightened state of anxiety about future support for other troubled euro-based nations, such as Spain, is spreading wildly.

And aren’t those fears justified? As the current situation plays out, there’s only one winner: Germany.

Germany stands to benefit from record-low lending rates to its corporate clients. It will enjoy stronger exports for German goods. And it will dictate how tough love is applied to European Union member nations.

What’s interesting, though, is that in the formation of the eurozone and a single currency, one of the underlying goals was to regain the trust of European nations ravaged by German invasion and occupation during both World Wars. Of course, that point doesn’t get a lot of press, but it was one of the original tenets of Helmut Schmidt, Angela Merkel’s predecessor and political mentor.

Schmidt is the puppet master behind the “one Europe led by a benevolent Germany” model. And that’s why it’s a paramount goal of Merkel’s to diffuse the impression that Germany is the only winner by default of current circumstances, even if unintended. Otherwise, years of fence-mending will be torn apart like a wet paper bag.

Merkel definitely has her work cut out for her. Recent elections in France, Italy, Spain and the upcoming vote scheduled for June 17 in Greece to appoint new leadership squarely put Germany’s heavy-handed approach — which demands balanced budgets within a two-year time frame — at the risk of touching off further unrest and retaliation against all-or-nothing austerity.

There needs to be European Central Bank-sponsored growth tied to fiscal discipline in order to accomplish genuine economic recovery. Without real growth to offset widespread spending cuts, a deep and protracted recession in the eurozone is unavoidable.

The balancing act of curtailing public spending while infusing stimulus in the private sector rubs against the socialist model that permeates France, Spain, Italy, Portugal and Greece. But all parties are beginning to comprehend the severity of the fallout if capital flees the markets, which then would trigger a run on the major banks. That scenario isn’t out of the question if a decisive action plan isn’t enacted.

 
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Article printed from InvestorPlace Media, http://investorplace.com/2012/05/europes-only-recovery-option/.

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