Guest Opinion: The two percent dissolution
Once again, Greece is in the headlines, with leaders in Europe conferring and meeting with a new Greek government. Greece only accounts for 2 percent of the European Union's GDP and so many market observers remain calm. With so little at stake, w...
Once again, Greece is in the headlines, with leaders in Europe conferring and meeting with a new Greek government. Greece only accounts for 2 percent of the European Union's GDP and so many market observers remain calm. With so little at stake, why should we be concerned? So, Europe grows a little more slowly, so we have another year of persistent unemployment.
What is not appreciated is that Europe has had several years to address the problems in Greece and it has made little progress. Some observers note that Greece was not built in a day; we need time to address this problem, at least five to ten years. Tell that to the Greeks! They have spoken and austerity has been tried and has failed to bring the needed light, the relief needed by the man and woman in the street.
And Europe? To call Europe a bureaucratic morass would be kind; we have seen the squabbling, the arguing and the backbiting of trying to find the right person, the right country to blame. The only game in Europe, and to some extent as in the United States, is the central bank, and that only because its tools are so well understood. Understood that is in terms of measurement of what is done, but absolutely not in terms of their effect. In the face of abject failure on fiscal policy, politicians, economists and the public in general turn to the central banks for remedies. As though there were only one tool, one way to guide an economy! Years of low interest rates have not delivered yet, and there is no evidence that they will in the near future. Yet, central banks can turn the spigots, they can buy, and they can sell. So they should be able to solve this problem.
Now the European Central Bank turns back to the one thing that is absolutely certain about central banking, discipline, and warns that it will apply discipline to Greece, so no matter what the people of Greece have voted. So, Greece will have to exit, with the jingo of the pundits, the grexit. So 2 percent will drop out.
But wait, this 2 percent is leveraged and can well bring Europe into a deeper turmoil. Faced with little confidence, and faced with challenges from Russia and the problems in Ukraine, European countries do not show any signs of the leadership needed to pull together to solve these challenges. Once one starts to think of the complex interrelationships of the 25 or so members of the European Union, it should become clear that the chaos will only increase. Perhaps, in slow motion, but the dissolution is coming! The 2 percent dissolution.
Andrew T. Hook