Wednesday, October 05, 2011
Last week was filled with news that European leaders were slowly but surely sorting their debt crisis out – inciting a massive sigh of relief among international investors. This was reflected by big rallies on Wall Street. But with news this week revealing that deep-seeded differences among European leadership remains in the way of a successful compromise, investors, financial experts, and economic analysts alike are once again holding their breath when trying to postulate the future state of the global market. This is reflected by big losses on the stock market that have reminded everyone that there's still no end in sight to the uneasy European economy.
There is virtually no European country currently invulnerable to the threats of a potential financial meltdown on a continental and ultimately global scale. Even Germany – which most people consider the strongest and most financially secured European nation – is at-risk for catastrophe if troubled Eurozone nations such as Italy go belly up. Indeed, as long as a country is tied to the unifying Euro, they surely play a major role in the current crisis, either as a detriment or as a potential source of a solution. It's a failure for these nations to responsibly dish out the proper punishment to each other and collect the correct amount of assistance from one another that's keeping a rescue plan from being carried out.
It sounds all too familiar – we're basically witnessing the aftermath of the 2008 crisis in the U.S., only instead European leaders have the luxury of acting before the catastrophe occurs. It might sound proactive, but there's one primary difference between the way the United States handled it's crisis and the way European leaders are wanting to handle theirs: we bailed our big boys out, and they're trying everything they can to avoid that.
Germany and France are determined to avoid bailing banks out, and just about any other institution at risk for default, countries included. This inability to commit to a last-ditched solution, even if it's under the condition of being “just in case”, is what has the world so shaken up by the European debt crisis. When the United States economy was at risk of collapse over three years ago, the world watched and waited as we doled out the cash necessary to prevent a second Great Depression. Seeing that the United States clearly avoided such a catastrophe through bailouts, investors and economists are eager for Europe to commit to the same thing. But so far, they are not.
Perhaps they have, on some level, negotiated a backdoor strategy for solving sovereign debt crises attached to the Euro, which most certainly would involve major bailouts. But since such news would be helpful in solving day-to-day market strife, the lack of a plan being spoken of is an indicator that one unfortunately does not exist. In the meantime, European leaders race to figure out a unique way to fix their economic crisis, something that avoids the alleged pitfalls created by the quick actions of the American government when it bailed out banks and beyond.
Europe has the luxury of being able to anticipate their oncoming disaster and therefore thwart it. While this makes the continent's leaders determined to take their time and come up with a refined solution, they must understand that when it comes to the global economy, a continent is definitely too big to fail.