July 16, 2009

Re: Hate to say I told you so but…

Joining in the backpatting, I’d add that I, too, got something right with regard to the Icelandic meltdown! As someone who thinks the European Union will disintegrate in the coming years, it’s always struck me as odd that whenever a country on the Union’s periphery experiences internal troubles—like riots in Greece or a housing bust in Ireland—commentators, and currency traders, begin speculating that the unthinkable might occur, that the Brussels superstate might collapse. And they all start shorting the Euro.

But I’ve always thought that the dynamic of EU disintegration will operate in the opposite direction:

Greece has riots and corruption, and Ireland and Spain have housing busts even worse than ours here in the U.S. This means that they?re more likely to default on bonds. True. However, it doesn?t mean they?d want to leave the EU?to the contrary. For exiting the Union would necessitate that they forego the chance to get a big bailout from the more prosperous countries like Germany, which has account surpluses and a stable housing market. Greece has the most to gain by remaining in the EU, Germany the most to lose.

This doesn?t mean that Germany will bolt any time soon. So much has been invested in ?Europe? and being post-/anti-national plays into the postwar guilt-complex that has been foisted on the German people for so long. Still, there might come a time when die Deutschen simply get sick of always footing the bill and having their prosperity ruined by ?the neighbors.?

The worldwide economic collapse has strengthened the power of the Brussels superstate and will continue to drawn more independent nations into its web. Matters will only change once the governments in Paris and Berlin rethink whether it’s worth it to them to bailout their former allies and adversaries.

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