That is the question quietly not being posed, but only suggested, by Europe’s version of a northern alliance. This alliance is notably led by Germany and France and includes the Netherlands, Finland, Luxembourg, and Austria, all of whom have top credit ratings. Should we stay and suffer the slings and arrows of outrageous misfortune from the hands of others, or, thus, by opposing end them? Even Shakespeare had something to say about this.
There is no longer a strength-from-within when it comes to Europe’s single-currency monetary system. So much for the notion that the euro would provide protection against devaluation in individual currencies. The advent of the euro was meant to bring that strength, along with stability, way back in the distant financial epoch of 1999. It seemed like a good idea at the time.
Lacking ties that bind, the behaviorally wayward southern members of the euro-zone spent-and-sold, sold-and-spent, themselves into financial oblivion. The strength of the union covered the cracks in the monetary system’s weaker participants. The strength of a few covered the weakness of a few more. Inter-state investment among zone members capitalized on what appeared to be, as it was intended to be, a stable financial union.
The possibility of default by anyone in the group was all but nonexistent. If there was any risk sitting on anyone’s doorstep, it shifted to the newly-formed community-at-large, the common currency members comprising the zone. A country’s central bank was not the focal point of ultimate resort should travesty set-in; rather, the European Central Bank and other international apertures afforded protection. That was the idea, anyway. Alas, who could have foretold the misadventures of Greece and the rest of the Mediterranean Mob? To be sure, there were voices in the wind calling out, “Beware!”
The worst-of-the-worst may yet be unseen, but a concert of voices is now murmuring that perhaps it is time to leave the fold. The strongest of the zone members are easing away, and investment is quietly taking flight. They are leaving the danger zone and moving into their own markets or others thought to be beyond the pale of danger. It’s been called ‘de-Euroization.’ In reality, it is perhaps a precursive form of de-globalization. From March 2010 to September 2011 eighteen of the largest banks in northern Europe slashed bond holdings from about 230 billion euro to about 130 billion euro according to the European Banking Authority (EBA). A de-Euroization flight of investment away from sinking economies could eventually spell their doom. All the talks and strategizing to figure out how to save euro-zone miscreants will prove useless if relocated investment cuts the umbilical cord that has kept those sad few alive to this point.
We’ve had enough!
Finland, though small at a population of only about 5 million, is one of the euro-zone’s most stable members economically. The Finnish government enforced its skepticism towards Greece by demanding a ransom on their share of Greece’s August 2011 bailout. While it didn’t sit well with other members contributing to the 109 billion euro aid package, the Finns, nevertheless, insisted on an escrow deposit of 500 million euro from Greece in exchange for their 1.4 billion euro contribution. The escrow money, or ransom, was redirected to triple-A securities until full repayment on the debt or until it accumulated sufficient interest matching the contribution.
Timo Soini, leader of their anti-EU populist party, True Finns, characterizes the distressed southern economies bluntly, saying they were suffering from “economic gangrene.” He said, “As long as we don’t amputate what can no longer be saved, we risk poisoning the rest of the body.” Sounds painful, but maybe he is right.
Similar sentiment came from an official of a Netherlands company that last year cashed out of some heavy investment in Greek and Spanish bonds. According to a Wall Street Journal article, when asked when his company would invest in Italian bonds, his reply was, “…when they have their own currency.”
Maybe it really is time to go for some.