The Independent Market Observer

Happy Father’s Day!

Posted by Brad McMillan, CFA, CAIA, MAI

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This entry was posted on Jun 18, 2012 1:14:52 PM

and tagged Debt Crisis, Europe

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I hope all you fathers out there had a great day. I had a wonderful time playing with my son, Jackson, who is 4 years old. We brought him home from Viet Nam about three and a half years ago, and he is a great kid.

There’s a reason why I bring up Jackson’s adoption. In considering the European situation, a great deal of attention has been paid to the economic aspects of the crisis. Much has been made of how the euro was fatally flawed from the beginning and how the eurozone makes no economic sense. Fair points both, actually.

What Americans—including me—have a difficult time understanding, though, is that although the eurozone has significant economic imbalances, they are largely beside the point. When my wife and I brought Jackson home, we knew it would cost a lot of money over decades—it has and it will. We knew there would be difficult moments, even crises—there have been and there will be. But when we decided to bring him home, we knew we had to commit to paying the costs and dealing with the crises because our goal was to give him a better life than he would have had.

Note that we made a choice to bring him home. The Europeans do not have a choice about living with their neighbors. Looking back over the past thousand years—particularly over the past hundred—any European father or parent has to consider the political environment as he tries to make a better life for his kids. There’s no choice but to pay the costs and deal with the crises of living in a crowded neighborhood.

The European Union and the eurozone are a political attempt to provide a better future for Europe—and for the kids there. Europe has regularly destroyed itself, most recently in the 1940s, and it might well have done so again since then if not for the U.S./Soviet domination of the continent. Indeed, since the communist regime collapsed in 1989, it has taken only 20 years for a new crisis to hit and once again split Germany from the other countries.

So here we are. Germany stands, not alone but certainly becoming so, as the dominant power of Europe. Much of the periphery is at economic risk. If the eurozone collapses, Germany loses many constraints on its actions. An unconstrained, dominant Germany has historically led to European conflict. Everyone, especially the French and the Germans, remember the last war, and they have no desire to repeat it.

That is why, despite understanding and agreeing with the economic criticisms of the eurozone, I do not believe that it will collapse. The choice right now is between greater integration and dissolution, and the world after dissolution is one that no one with a sense of history wants to see.

A speaker I respect made a good point the other day; he said that, in his opinion, should Greece leave or be ejected from the eurozone, Europe would still provide future aid—in the form of famine relief. Further, if the “Grexit” occurred, it would provide the horrible example that would keep the rest of the union together. While dramatic, I suspect he is correct, and in the end, I think that the necessities of history and politics will continue to trump the economics and keep the eurozone together.

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