The European Union and Einstein

Albert Einstein once defined insanity as doing the same thing over and over again and expecting different results.

That seems to me to be the perfect definition and explanation of the debt crisis the European Eurozone is suffering.

We all remember Greece. It had to be bailed out by the European Union, the European Central Bank (read both of these largely as Germany) and the IMF because the country had gotten itself into a financial mess that was leading it rapidly to sovereign bankruptcy. Greece almost went belly up because it lied about its debt burden (every candidate country for entry into the Euro currency zone had to certify that its current debt was not more than 3% of its Gross Domestic Product) to get into the Eurozone.

Greece’s systemic corruption, admitted publicly by its prime minister, and poor private sector performance make it the worst managed country in Europe. The rest of Europe knew then and still knows this. But, in the rush of euphoria that led to the creation of the Euro, Greece was warmly ushered in. Finally, Greece had too much debt to cover it up any longer, and the rest of the story is a 90 Billion Euro (120 Billion USD) bailout.

Now, we have Ireland. It’s a completely different story with the same result. Ireland didn’t supervise its banks (if that sound familiar vis-à-vis the USA, you’re right on target). So, the banks lent and lent and lent and covered all of Ireland with housing mortgages that ultimately fell into default when the 2008 global financial crisis hit. So, the Irish government made a promise to insure all the debt of its banks, to the tune of approximately 130% of the Irish GDP. Evidently, that was doomed to failure and so today we have Ireland preparing to receive a 90 Billion Euro (120 Billion USD) bailout. And to cover its needs until the bailout details are worked out, the UK is providing a 7 Billion Euro bridge loan.

Now, every financial eye has turned to Portugal, where similar facts lead almost everyone to conclude that the result will be similar, too. And, those with wider horizons are already looking toward Spain.

So, to go back to Einstein...have we got European or Eurozone insanity on our hands? Are we watching the repeat ad nausea until every Eurozone country is bailed out, or until the IMF, Germany and the European Central Bank run out of funds.

Is there another solution? May I whisper, “Yes, there is.”

The Eurozone could rethink itself. Its fundamental problem is that historically successful countries like Germany, The Netherlands, Austria and France have been lumped together in the great Euro currency experiment with chronically debtor countries like Greece, Spain and Portugal.

The logical solution might be to swallow their pride and admit that their Euro-dream was just too big. They could gracefully and on an agreed timetable, let the countries that never should have been admitted to the Eurozone leave it. They could take back their original currencies, revalue their debts in their historical currencies, repay them over longer periods with their own currencies, and leave the Euro to those countries that will make it work.

Germany, France, Austria, The Netherlands and Denmark (and maybe Italy) will be able to build a strong and successful Eurozone, if they aren’t collectively bankrupted by the Eurozone hangers-on who shouldn’t be there in the first place.