Euro Deal Is But a Facade
12/23/2011 6:30 am EST
MoneyShow’s Jim Jubak shares his analysis of the most recent Euro debt deal, and gives his reasons why he thinks that it really lacks any substance.
Potemkin Villages. It’s a myth, probably, and the historians say it never really happened, but Potemkin was the chief minister to Catherine the Great of Russia.
The story goes that she was on a tour to examine the new areas in the Crimea that she had just spent a lot of money conquering, and he was kind of worried that she was going to look at this and go, "Well, we’ve conquered a lot of peasant villages and ruined areas."
So basically what he did is he went out and put false fronts up, so that when she drove by in her sled—well, probably a sled—she would see the false fronts and she would think the villages were really important. And she’d go back to Leningrad feeling that her conquest had been worthwhile because she had conquered a prosperous area. This is sort of where the myth comes from.
So, if you’re looking at current Potemkin villages, the European Summit recently concluded on December 9 with all these leaders, I think, was another attempt to create a Potemkin Village. What we’re going to do is we’re going to plaster over, we’re going to create a false façade of unity and progress all around some kind of treaty or agreement to bring the Eurozone nations together in some kind of fiscal compact of tighter integration.
So, we had an announcement of a treaty and there was a big hoo-hah when the UK decided they weren’t going to go along but everybody else did. Twenty six out of 27 nations said they were going to do this treaty, and it was going to solve the euro’s long-term problems.
We still had all the sense of well, what’s going to happen in the next six months, and do we have enough money, and all of that. But there was an attempt to create a sense of progress.
Well, what’s happened in the days after that announcement is that the politics of this have come apart in very, very predictable ways. You’ve had a lot of countries where the opposition parties have said "Hey, wait a minute, we think this is a really bad idea."
You’ve had countries where the opposition has said "Well, you know to do this we’ve got to have a referendum." In Ireland, for example, the opposition says they can’t do this kind of commitment to the Eurozone without a vote.
Ireland has a history of turning down increased integration in the European Union in votes. It took two tries for them to get into the euro the first time, and a vote probably would fail this time because the Irish are not feeling really, really good about the euro. (They’ve got 15% unemployment. Why would you?)
So suddenly we’ve got this four nations outside the Eurozone—not quite members, sort of in the UK’s position—who said they were going to join last Friday, and now are saying they’re not so sure. You’ve also now got doubts inside countries that are part of the Eurozone. So, the Netherlands for example, where the opposition said "Hey, we think this is a really lousy deal."
So, suddenly this is all coming apart…and this is not even getting down to the issue of what this contract would be, what the agreement would be, or whether they can legally use European community institutions to enforce this.
All this sort of makes it seem like the façade, which was the only thing that really came out of this meeting of any kind of lasting import, has been exposed for just what it is—a façade—and it hasn’t even lasted until Catherine got back to her capital.