Euro Fix Is Still Only Temporary

12/12/2011 6:30 am EST


Jim Jubak

Founder and Editor,

The diverse nature of the countries in the Eurozone makes a lasting solution doubtful at this time, says MoneyShow’s Jim Jubak, and he’s looking for the crisis to flare up again in 2012.

For the week ahead, the Euro crisis is dead, long live the Euro crisis…so really, when is the next one?

Nothing that was put forward as the solution to the crisis out of the European summit meeting on December 9, really solved the crisis. It’s all stuff designed to make the financial markets feel better for a while, but we’ve still got the underlying problems.

I don’t think necessarily that the German solution to this, which is to focus on the structure of the union and rewriting the compact that governs the Euro union, really gets to the problem either. The problem is something that I don’t think you can solve by saying everybody has to run a 3% deficit, and if not you get fined by some European body.

The problem is, you’ve got really efficient export economies, like Germany, in the same union as pretty inefficient economies like Greece or Portugal, and sort of strangely fluctuating economies like Italy. Trying to put all those things together in some kind of union, which isn’t really a union, doesn’t work.

People keep talking about, well, this is like the United States of Europe. Well, it’s not. In the American system, if you’ve got a state like Alabama and a state like New York, money flows back and forth between those two. They have one currency, but it’s not equal taxation, it’s not equal taxes going back to the states, there is transfer of money back and forth…and it’s just the way things are, it’s all one country.

What the Germans and the Finns, and all the other sort of hard-currency people in Europe are saying basically is, they don’t want this kind of transfer. Every country should follow the rules, but every country should also stay within its own boundary, so there isn’t going to be any big transfer from Germany to Italy if that’s what the industrial efficiency argues.

That’s not going to get solved, and we’re going to go down the road and we’re going to come up against this problem again. If you look at it, it’s not even a question of ten years down the road.

We’re going to get a situation like we’ve getting in Ireland right now, where austerity is biting. Ireland is probably the best example of a country that’s done everything right and is getting some good kind of growth. But as the rest of the European Union—as the rest of the Eurozone—contracts their economies through this austerity plan, the Irish are finding that no matter how much they cut the budget, it’s still really in deficit, and the amount they have to pay to service that debt is insupportable.

At some point in 2013—I would guess, oh, maybe about two quarters in—we’re going to see another wave of these problems. It’s going to become like the annual ritual. We had it in the spring and summer of 2010, the spring, summer, and fall of 2011, and I think we’re going to see it again in the summer of 2012.

I think, in fact, you could probably take your euros to the bank on that.

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