It seems not a day goes by that we are not hearing of some new "alphabet soup" (EFSF, ESM, EU, ECB, IMF...) of entities that are having a "summit" on how to bailout Greece, or Spain, or Italy, and so on. So much has been made of this fiasco and yet it is really not all that complicated.
For years the European welfare state, present in just about every European country including Germany, has been promising citizens what it cannot deliver: cradle to grave security and an easy life of limited work and long vacations. This came in the form of perks like early retirement on full pension and health benefits, for life, leisurely guaranteed five week vacations, and more typically nine weeks at many large companies! It all sounded great until the bills started coming due. Europeans, especially those along the Mediterranean, have run out of money to pay for such excesses.
Some are in better shape than others. Germany, for instance, had a much lesser party than Greece, for instance, and is particularly annoyed at the prospect that they could be saddled with the debts of those to their south who have "lived it up". While Germans have not been completely innocent of embracing the welfare state, they are a very hard working and productive people who absorbed their own profligate son (East Germany) within the last twenty years and managed to do a pretty good job of it.
Eventually, this drama may come to a head in a much different way than most expect. The "Grexit" as many in the media have dubbed it (Greece's long awaited exit from the Euro) may give way to the "Gerxit"! That's right, it may be that Germany is gearing up for a Euro exit which, while painful for Germany in the short run, may be the best solution for all concerned.
Frankly, while so much was made of the Greek election this past weekend, the more important election in Europe was in France, where the French have gone "all in" for the welfare state with the convincing election of Francois Hollande and his Socialist government. This ends any possibility of coordination between Germany and France on greater Euro issues. It is notable that Hollande campaigned on reversing the move to change French public workers' retirement age from 60 to 62. France's finances are incapable of avoiding the inevitable day of reckoning but Hollande will have to face that reality, which will come crashing in on the French one way or another, and deal with the consequences accordingly.
Regardless, this may clear a path for Germany to say goodbye to the Euro and go back to the stability of the Deutschemark (DM). The DM would immediately strengthen against the Euro (or more likely the Euro will collapse), giving an out to the Greece's of the world who desire devaluation so they can inflate away their debts. Ultimately, it would free Germany from the responsibility of propping up those profligate members of the EU who have been unable to control their finances.
While we recognize this may be considered a long shot, we note that this is being discussed in other circles, as can be seen here, and here.
Over twenty years ago, we wondered about the "United States of Europe" as many were promoting its promise. Could there be monetary union without political union? Apparently not.
The United States of Europe? Not!
