The nice thing about a Las Vegas boxing match is that you always know what round it is. A woman walks around the ring holding up a large placard telling the audience what round it is. That’s just in case we lost track somehow. Have we lost track in the prize fight going on in Europe? And just what is the prize? Survival? Whose survival?
The fiscal fisticuffs between the challenger, Greece, in one corner, and that other guy --- the champion who goes by many names: European Commission, European Central Bank, European Financial Stability Facility, IMF, Germany, shall we go on? --- battle away, but we never know just where we are in the battle! Let’s give the undersized challenger credit: he sure knows how to hang in there, checkered past and all. A jab here, a jab there, and the fight moves into the next round, and the next, and the next. Just when the fight slows, things always pick up again.
The champion dropped his guard when French President Nikolas Sarkozy took one to the jaw and went down. That most likely invigorated Revolutionary Greece, knowing that its weakened austerity-demand opponent might have to re-strategize now that Greece itself has re-strategized into near-violent popular anti-austerity. The next round is whether or not the popular revolt produces a new government that refuses the bailout terms already agreed upon (kind of like punching yourself in the face; why wait for the other guy!). One never knows what round it is in this contest because the austerity approach is the only way to survival, and yet it is not a means of ultimate victory if jobs are cut and private spending is curtailed for too long.
The plan by opponent EU to duke it out by offering financial support with the stipulation that house-cleaning in the form of massive job and other cuts be put in place was a sure invitation to citizen revolt at some level inside Greece. And that is just what happened. A little noise from the crowd was to be expected in the beginning. But the latest round has removed Greece’s defensively-postured government of compliance agreeing to EU opponent demands for hard-punch austerity. It remains to be seen what stance a new Greek government will take. It may not be time for anyone to hit the canvas yet, but it is time for someone to get a nose bleed.
If austerity isn’t the long-term answer, but only a necessary means of conserving strength in order to let the other guy provide an opening by pumping in new life bailout after bailout, then Greece has just dropped its guard and moved in with arms swinging wildly against the other guy. On the other hand, maybe this isn’t a knock-out round after all, given the results of the recent French election. A return to French socialism is like getting a broken bone in your hand---not good in a fight! Taxing French millionaires at 75% would provide minimal effect on public revenue, and in the end only drive French businesses and high earners elsewhere. When the retirement age drops to 60 from 62 it’s going to exacerbate the revenue problem even further. That’s just some of what is going to happen. It is going to drain France. Of course the solution will be to print more money. France is in for some challenging days of its own. Germany may end up standing pretty much alone in Europe’s battle for survival. Poor Angela Merkel: Can anyone say “F-R-A-N-C-E”? or “G-R-E-E-C-E”?
Yes, all of this is scaring markets again. But so what…it’s only a momentary thing. And besides, what seems so earth-shattering may not be so at all. Most multinational companies are doing quite well. Investment in the markets has produced annualized returns of 11-12%, if staying out of Europe since the beginning of their crisis which started in January 2010.
Just what round is it again?