You may have heard about how Greece is fuxored thanks to a combination of high taxes, stagnant economy, restrictive job rules, and widespread tax evasion. Indeed, the sins of the Greeks may be enough to bring the Euro crashing down. It may come down to that, or else getting a bailout from an already-resentful Germany.
Somewhat less reported is the fact that the other members of Europe’s PIGS (Portugal, Italy, Greece, Spain) aren’t doing a whole lot better.
In particular, Socialist Prime Minister José Luis Rodríguez Zapatero seems to have worked socialism’s usual magic on Spain’s economy:
Spain now has the highest unemployment rate in the European Union. Nearly 20 percent of working-age Spaniards (or 4.5 million people) were without a job at the beginning of 2010. That compares with an average rate of 10 percent among the 16 countries that use the euro currency.
Spain is also facing an exploding budget deficit. The collapse of the labor market, which has resulted in a steep drop in tax collections, and the Zapatero government’s haphazard (and spendthrift) policy response of increasing unproductive public sector spending skyrocketed the deficit to nearly 12 percent of GDP in 2009 (or five times higher than in 2008).
The combination of negative GDP growth, rising unemployment, and a high deficit has raised concerns about the sustainability of Spain’s finances.
Hmmm: High unemployment, out-of-control spending, a huge budget deficit. Where have I heard that before?
In response to Spain’s economic crises, Zapatero has admitted that his socialist policies were a mistake, and set out a platform for lowering taxes, cutting the budget, an monetary reform.
Ha! Just kidding! He’s ordered Spain’s secret service to hunt for “Anglo-Saxon conspirators” as the cause of Spain’s problems. It’s always easier to scapegoat America than make hard choices, or face the consequences of your own failure.
At this point, I don’t it’s a question of if the Euro will crack, but rather when. Despite Obama’s mismanagement, the basic U.S. economy is still a lot more resilient and flexible than Europe’s. Europe has huge demographic problems combined with an unsustainable welfare state. Combine that with the the anti-democratic elites in Brussels, plus the fact that certain number of nations (the PIGS, certainly, but not limited to them) that are playing fast a loose with the EU’s deficit guidelines, and the chances are good that the Euro will crack sooner rather than later.
And the fallout from that isn’t going to be pretty for the U.S. economy either.