EUROPE and the USA are desperately in debt. The crisis that began when the USA “sub prime” real estate bubble burst in 2007 has wrecked government finances here and there, could destroy the euro and spark a second worldwide recession.
Yet the world lacks the necessary political leadership to stop it.
To rescue their over-indebted banks, Western governments nationalised them and borrowed huge amounts.
The USA’s temporarily sorted its own debt problems while, in Europe, northern governments are unwilling to write off those of the struggling Mediterranean ones.
Indeed, the eurozone’s sovereign debt woes recently returned to crisis point as Spain’s and Italy’s borrowing costs touched levels that triggered the Greek, Irish and Portuguese bailouts.
Worries that these two periphery countries would join Greece in requiring bail-outs, coupled with concerns about the capacity of the EFSF, the euro rescue facility, caused markets to convulse.
The West is in the midst of a crisis that is threatening the political futures of its biggest political leaders.
President Obama has managed neither to implement his “Yes, we can” American dream-style rhetoric nor to outsmart the Republican Tea Party rebels.
In Europe, too, it’s become increasingly clear with each EU summit that German Chancellor Angela Merkel, rather than being in the driver’s seat to deal with each succeeding crisis, is opting for the back seat instead.
Add to this the fact there are increasing concerns in the USA that the debt problems could trigger inflation to new record levels and that, in Europe, the euro has reached the next tipping point.
Germany’s Chancellor is faced with the unpalatable decision: either the eurozone is turned into a tight fiscal union with everybody issuing eurobonds guaranteed by Germany, or Europe’s most indebted countries have to leave it – with unpredictable outcomes for the remaining members whose banks are already heavily exposed to their debt.
Yet, moves toward much closer fiscal union – realistically the only hope for the euro’s long-term future – seem no nearer today than a week or a month ago, given the evident lack of political will. In the midst of a deep recession, with stock markets crashing, the euro in trouble and gold through the roof, Merkel remains defiantly, at the time of writing, on holiday.
STOP PRESS: News just in from Greece that there’s been a slump in sales of tzatziki and taramosalata. Experts there fear a double dip recession…
Nora Johnson’s novel, The De Clerambault Code (www.nora-johnson.com) available at Amazon in paperback and as eBook. Profits to Cudeca