The Eurozone Economic Cliff

Europe’s continual bailouts are a sign of continual problems that the bailouts will not solve


During the last several weeks there has been an intrusion into the daily news about an American “fiscal cliff” brought about by the federal government approaching its statutory debt ceiling, along with the expiration of tax rates enacted during the Bush administration and expected tax increases to take effect in 2013.  Democrat rhetoric concentrates on the wealthy “paying their fair share” while ignoring the fact that the wealthy are already presently paying the vast majority of taxes collected in America, while the middle and lower classes pay very little.  

Much less attention is paid to what is happening in Europe which is also approaching a fiscal or economic cliff of equal or perhaps greater severity.  The story begins in the post WWII era as the governments of western Europe generally adopted a variety of social welfare state models and proceeded to implement them without regard for the financial cost.  Over the intervening years their societies have become increasingly dependent on government instead of individual initiative and productivity.  Now, the bill for all this government spending has come due and the various governments have suddenly discovered that they have no source of funds out of which to pay.  It is Margaret Thatcher’s law, that sooner or later you run out of other people’s money, come to fruition.  

Unfortunately, the reality has not set in sufficiently.  Europe continues to engage in “bailouts” which amount to postponing the inevitable day of reckoning; the day when no one is either willing or able to continue providing money to an unproductive economy.  And as the unproductive “taker” economies consisting largely of Portugal, Italy, Ireland, Greece and Spain (sometimes suitably referred to as PIIGS) continue to beg for more from France and Germany, they do nothing to cut back the spending that has been the cause of their problem.  The result is that the bailout allows them to continue their self destructive behavior a few more weeks or months, but does nothing for the long term.  

If France and Germany continue to pour money into satisfying the PIIGS endless appetites, the toxic debt will gradually destroy their economies as more and more value is poured into unproductive activities.  If a government asserts that it is more important to fund social welfare programs than to promote productivity that funds itself and takes care of its own financial well-being, then it is effectively shooting its people in both feet and then cutting their collective throats by preventing economic growth.  This lack of growth and productivity is the result of decades of dependence on other people’s money.  Much of the population is now habituated to it and unwilling to work for a living.  

What has happened may well be the result of a lack of public knowledge of where government gets its money; that without a thriving business community to pay taxes government has no source of revenue and must resort to borrowing or “printing” money.  Borrowing means mortgaging the nation’s financial future.  Printing (which now consists largely of accounting entries) eventually results in significant inflation.  Doing either puts off the day of reckoning and makes the eventual consequences worse.  A failure to kick the spending habit means inevitable disaster economically, and as a consequence, politically as well.  And as the European economy implodes the spillover effects on other nations, including the US will be serious.  

It wasn’t that long ago that the Obama administration essentially advised Europe to spend as never before to deal with their present problem; that they should emulate his policies here.  Yet, America is also heading toward its own cliff, and it appears that no one will be around to bail the nation out and delay the inevitable.  More likely, if the only economic power sufficiently able to do so, China, decides to take action, it will require abdication of authority over the nation to Beijing.  In short, that would mean the end of the remnants of constitutional government we presently enjoy.  

If, as Obama recently stated in a campaign speech, his plan worked, then it is obvious that his plan was to destroy the economy.  It becomes obvious that the more government becomes involved in regulating economic activity the worse it is for the citizens.  Some things are simply better off unregulated because that’s how things work.  Statists deny that premise largely because they desire power, whatever the cost.  

Socialist governments must be, by definition, statist.  Statism leads to authoritarianism unless it is reversed and returned to a course of individual liberty, economic and personal.  America faces a choice this November; authoritarian goverment or a return to individual liberty.  We should all pray that the nation makes the correct choice.

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