Europe: The Final Countdown?

 Imagine you and five of your friends start a combined checking account where each is free to withdraw based on their needs but must make deposits on occasion. The details could be worked out later as to how often one must put money in the account and how much they could draw out; the main point is no one is penalized for taking out more than putting in and everyone contributes different amounts. Not everyone makes the same salary after all. How many of your friends would withdraw more than deposit? At least a few right? How long would the savers be willing to cover the spenders? Does it sound crazy and kind-of a terrible idea?

It is an oversimplification to explain the European Union and its banking problems this way—but not much. The EU requires nations with different interests, histories and cultures to tie their economic interests' together. Germany is the linchpin with its high value manufacturing and frugal citizens keeping business afloat for the continent. Greece, Portugal and Ireland are the spenders who rely on ‘soft’ money from tourism and agriculture. Commerce hums right along until tourism suffers, or bad weather wipes out crops and suddenly yields are low. Farmers still get paid though, they have a right to withdraw remember. Government officials get paid as well, they can also withdraw. Students still get education for free, they also withdraw. Germany, Belgium and France still make deposits but by year three are getting a little tired of it.

Greece is the most egregious example of withdrawing from the ‘combined account’. Their finances were managed poorly; they bought a flat screen TV and installed a pool just after getting fired. The rest of the Union covered the losses with a bailout package and a restructuring of debt, and then another, and still another. Actually I’ve lost track of how many bailouts and ‘do-overs’ the Greeks have had, but like an addict promising to clean up they’re always found the next morning bleary eyed and remorseful in an alley. Old habits are hard to break and asking governments to, legitimately, cut spending is a monumental task—The US is no different.

The ‘help’ from the savers (Germans) involves higher taxes and greater limits for spenders (Greece). Their businesses have suffered under the crippling taxes, low wages, cost of living increases and lack of investment. Ireland, Portugal, Spain and Greece all required bailouts after 2008 for various reasons. The European Union had expanded too much. It was now paying for deadbeat relatives of account holders as well as the account holders because--someone has to.

Those of us who didn’t live through World War II or even the decades that followed can’t understand what a watershed it was for the continent. The displacement of peoples, the rebuilding of cities from scratch and the determination to prevent another disaster all led to the creation of the EU. Cooperation was the only real option in hopes of avoiding another catastrophic fight. The Marshall Plan, the North Atlantic Treaty Organization (NATO), the European Atomic Energy Community (EAEC) and European Coal and Steel Community (ECSC) are all cooperative organizations that followed WWII.

The idea to link countries through their industrial and military strengths worked well because of the cultural similarities of Northern European nations. Once the Union started to integrate countries with looser controls on banking and business, it got messy. Britain’s decision to leave the EU is a positive development for national sovereignty in Europe. Rich member states like Sweden and the Netherlands may also decide to stop depositing and just drop the whole deal, finding their lost national identity instead.   

Fair or unfair, countries hurting from unemployment blame the EU with its quotas on immigration, subsidies to farmers and everything related to commerce. It has kept peace among European nations by creating a market economy for its members through freedom of movement for people and goods. But the laggard countries have drained the account putting pressure on the savers to add more money every year. Wealthy countries in Europe will probably opt for a different deal than the current one which has them covering loses in the Euro zone.

The United Kingdom never joined the currency zone but didn't like where it was headed either. They made a wise choice to leave.