What's Next for the EuroZone?
11/19/2014 12:01 am EST
MoneyShow's Jim Jubak shares his thoughts on how the unsolved EuroZone crisis is again coming to the forefront and what might be done to resolve this crisis.
Ever since we've had a euro crisis, I have been harping on the fact that it's a political crisis, that more than anything else, what's going on here is a real battle over austerity, how much populations will take and what that all means for the euro. Well, I think we're seeing a resurgence of that. When we say we have fixed the euro and it wasn't going to fall apart, it was largely a technical and financial fix. The political fix has not taken place and it's still out there and what we're seeing now is that we're seeing populations in France, Italy, Spain, Greece, and the UK say, “Hey, we've had enough of austerity, we don't see the stuff you promised us, the good things that were supposed to happen, we don't see the job growth, we don't see the economic growth, and, now, you're asking us to do another round of austerity cuts?”
The French government has already refused to meet the EuroZone 3% ratio of debt to GDP ratio. People in the UK are looking at it and going, “Well, we really don't want it. We see another $100 billion or $120 billion worth of cuts that should be made and we're not going to do it.”
You're seeing the rise of, sort of, 'euro skeptic parties' we can call them in the United Kingdom, anti-euro parties in Greece, Portugal, France. All this means that it's going to get harder and harder to find some kind of common ground politically for where the euro goes from here.
What we've really got is the race, as we've always had, between these politics that are going in a negative direction and whether Mario Draghi and the European Central Bank can find some way to buy more time. They really don't have a way to fix this using monetary policy, rate cuts are done with. There's simply not enough stuff for them to buy.
The German Central Bank, the Bundesbank, doesn't really want to go into the business of buying sovereign debt so that's probably not going to happen so it's unlikely that, by itself, the European Central Bank can fix the euro. What it can do is buy time, as it thought it did before, for the politicians to do the political fixes that need to be made. The problem is the fixes weren't made, or at least they weren't big enough and, now, we're going back to another round where it looks like the European Central Bank has pretty much shot its wad, it doesn't have a whole lot more left to do that it can do so it can't buy a whole lot more time, and the politics are just getting worse.