Image by AFP/Getty Images via @daylife
Thanksgiving Week offered at least one blessing for the U.S.: The onus of the world's financial woes clearly shifted to Europe.
Ireland was in intensive care, but the casualty list, as reflected in sovereign debt spreads and general banker murmurings, was more extensive: Greece, still in critical condition; Portugal, uncompetitive; Spain, haughty even as its best bank, the giant multinational Santander, has seen its stock price halved; and not to be left out, Belgium, whose public debt to GDP is right up there with the world's bad boys, at 100%. Really, can the sagging south of Italy be far behind in this cavalcade?
The debt issues in each of the European situations are different, and can mask some fundamental strengths. (Ireland's export economy, led by overseas investors benefitting from a low 12.5% corporate tax rate, is actually its remaining life's blood.) But the compound worry and aggregate rescue burden, should it come to that, may further undermine the euro currency or lead to a breakup of the monetary union altogether. The surprising German uptick in 2010 has made that nation less inclined politically to an all-in reflation.
Over the weekend, the European finance ministers agreed to shovel $113 billion of coal into Ireland's furnace to ward off an impending chill. That may lead to a relief rally but the fundamentals haven't changed. Most of Europe has demographic worries (low fertility and a discomfort with most likely immigrant sources) on top of its steep obligations. It's going to need to come up with great (and exportable) science and technology to maintain current living standards.
However much the U.S. seemed to be off the hook in the world's fretting derby this past week, it should not rest easy. A cheapened euro and shaky bank debt on the continent is not a recipe for a stronger market for U.S. goods and services, with which America's own mighty debt load must be financed. Selling a few more goods to ourselves, as the Black Friday store reports indicate is happening, will not do the trick. Excrutiatingly tough budget politics lie ahead.
And in Chinese-centered Asia, where the distinct signs of a bubble are at hand, the visions of decoupling from the old powers are going to people's heads. I saw one too many initial-listing parties at swank Hong Kong locations this past week. The monetary binge with which the Western economies try to revive themselves may help float new stock issues in Asia now (money goes where it's warmest) but things come around. Maybe, to put it hopefully, there will be lots of cheaper assets on sale soon across the oceans and less reason to go chasing the next China IPO.
