John Mauldin is a leading financial analyst, New York Times best-selling author and pioneering online commentator. George Friedman is an American political scientist, author and CEO of Stratfor, a private intelligence and forecasting company.
I recently saw a very good video on the European Crisis that gave a really simple overview of the root causes of the crisis. I would like to share the main points of the talk with you.
To start with it should be said that the two men have a different perspective on the subject. John is looking Europe from a financial and George from a geopolitical perspective.
John Mauldin states that the problem with Europe is that finance is not the driving force in decision making, politics is. So the world has turned upside down in a way. JM: “It is the end of the world as we know it, the operating word being “the way we know it”. And thank God, because that world sucks. Who knows what these politicians are going to do. I can pretty much tell you economically what should happen but politicians are not economically rational.”
When thinking about different nations and the economics and the structures within these: Italy and the national character of Italians is different than that of the Dutch, which is different than that of the English etc. We could say that the creation of the monetary union has been dysfunctional to begin with.
John Mauldin and George Friedman both agree that the Europeans have tried to abolish the nations. They have tried to argue with Karl Marx that capital has no country, but it does. Capital can be locked up by a country and in the end it comes to the fact that Spaniards are interested in how Spanish is doing and Germans are interested in how Germany is doing. And it is actually even deeper than that, it is frequently even local. When we think about European crisis we tend to think about the trade flows and financial flows and all of that whereas there is a more fundamental question: the Europeans are trying to bury hundreds of years of history. It seems as they wanted to abolish history but history keeps coming back and biting them.
John Mauldin admits that it is hard to forecast anything because it is a political decision in the end but the economic decision would be to go to a multi-tier Euro. Being economically rational, Germans should know that they would have to write a multi multi trillion € checks to save the Euro they way are trying to do it now.
Europe has got three different problems:
1) Sovereign debt, so there is too much debt
2) The banks have too much debt, so the banks are all technically bankrupt. It is not just Spanish, but French banks as well. But French can not save their banks, because they are three times the size of their GDP.
3) There is trade imbalance.
It is impossible to solve the problem of Europe without solving all three of those problems. The ECB at the moment is addressing the first two of those problems but are leaving out what is fundamentally the most important problem.
You can seethe full video at http://bcove.me/5v3etk12
Hope you got some new insight and thoughts on the ever-hot topic of European crisis.