March 06, 2009

Things Fall Apart (including the EU)

A little while ago on ?The Short View,? one of the Financial Times useful video blogs, John Authers announced that a lot of people in the market are ?thinking the unthinkable??speculating that the Eurozone just might break up. Authers pointed out that the spreads between German and Greek bonds had jumped some 200 basis points during the financial crisis and Greece?s recent experience of civil unrest. That is, a Greek bond was considered risky and thus paid a significantly higher yield than the traditionally rock-solid Bund. A similar story can be told about Ireland and Spain. Since all these countries are in the same economic ?community? and share the same currency, their bonds, in an ideal world, should have the same yield?and the fact that the spreads are getting so large reveals that ?Europe? isn’t becoming a “more perfect union.”

I wonder, however, if Authers and the speculators aren?t getting the whole thing backwards. Yes, 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.”

This kind of analysis can be extended to America. Over the past decade or so, lots of conservatives have been warning about ?Aztl?n?, the mythical home of the ?bronze people,? and more recently many have cited the startling 2005 Zogby poll revealing that 58 percent of Mexicans, many of whom might soon live in the U.S., believe that all of the American Southwest is rightfully theirs. I?ve always sensed that the threat of Latino secessionism was over done, and current events bear this out. Much like the automakers, California will be requiring a series of federal bailouts and grants over the coming years just to stay afloat, and it?s highly unlikely that anyone there would want to stop sucking at the Washington tit. If there is going to be an actual breakup of the United States, as this notorious Russian guy is predicting, then I suspect that it will originate in the states that don?t have out-of-control bureaucracies and entitlement programs and would thus be the ones footing the bill when states need more cash infusions: Indiana, Minnesota, Montana, and others come to mind as likely places of revolt. 

The only question is whether the people of these parts are ready to start “going Galt.”

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