Solving a Rubiks Cube

January 8, 2012
| By Pete Daly |
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Is the debt crisis within so many European countries going to end in disaster, with an end to the euro as currency and the failure of the European Union? If so, what happens to the U.S. economy?

The growing crisis has much of the world looking to Germany — the largest economy in the euro zone — for a solution. So the World Affairs Council of Western Michigan has invited one of America’s premier academic experts on modern Germany to offer his opinions at the council’s luncheon this Thursday in Grand Rapids.

Jackson Janes, executive director of the American Institute for Contemporary German Studies at Johns Hopkins University in Washington, describes the solution to the situation as a “Rubik’s Cube,” because there are 17 countries involved. But he believes that if the EU does collapse, “I think it’s probably not going to happen soon.”

The problem with the euro zone is that it is an organization that does not have a unified fiscal policy that can be enforced, and never has, since the countries agreed to use a common currency more than 10 years ago, Janes said. There is a fiscal policy, he said, but no way to enforce it. Because of that, “The Greeks were able to cook their books, and nobody could go in there and say, ‘Hey! What are you doing?’” he told the Business Journal last week.

German Chancellor Angela Merkel and French President Nicolas Sarkozy want to create a system that would be “more invasive,” in Janes’ words, to bring more accountability into a system that had none.

But Sarkozy is up for re-election in late spring, so “he will have to tread carefully now until June,” about what he asks the French people to go along with, which could involve some loans for “the derelicts” like Greece.

Merkel isn’t up for re-election until the fall of 2013, but she is dealing with a sense of outrage among many Germans who don’t like the idea “of what they call bailing out other people around the continent, who haven’t been as disciplined as they have been,” said Janes.

Janes said he believes a similar message should be directed back at Germany, “in the sense that they have made a lot of money on the basis of having this euro in place, over the last decade. They’ve been able to export, using stable currency that hasn’t fluctuated, and they have been able to make a fortune because of their export juggernaut.

“I think it’s up to the Germans to also realize that if anybody’s going to save this damn thing, it’s going to be them — and, hopefully, the French coming along to help, because everybody else is in trouble. Remember, there’s only 17 countries in the euro zone. The ones that matter really at this point are the Germans and French. And even the French are worried, because the (financial) ratings agency has been looking at France, too.”

How far will Germany go to save the euro?

As far as it takes to make sure it’s acceptable to the German people, the corporations there and to the EU in Brussels, Janes replied. “But I think that’s a long way. I don’t think Merkel is going to, at some point, tell the Germans, ‘OK, that’s it. We’re out.’ I just don’t think that’s going to happen.”

If the euro does fizzle, it is hard to predict what the impact would be on the U.S. economy, said Janes, but he noted that “we have an enormous economic investment there. The trans-Atlantic trade dwarfs a lot of other trade around the globe.”

The economic stability of the 450 million people who live in the 27 nations that make up the European Union (not all are in the euro zone, using it as their currency) would be critical to maintain normal trade with North America.

“We have a lot of foreign direct investment in Germany, and in Europe in general, and it really dwarfs a lot of the (other) investment around the globe. Maybe in the long run, we’ll have a lot more in China than we do now,” but there is more in Europe, said Janes.

That is why, he added, the Obama administration has been “on the phone a lot,” talking to Merkel and Sarkozy and the head of the European Central Bank (which doesn’t have the power the U.S. Federal Reserve system has over the 50 states.)

If one of the American states ran out of money, said Janes, the others would help because everyone has a stake. “Whereas, in the case of the situation in Europe, there are people who say … if (the Greeks) can’t deal with this thing, they should go off on their own and stew in their own juice.”

Janes indicates the situation is salvageable unless something “extraordinary” happens, such as a war in the Middle East that pushes oil prices to $250 a barrel.

Some European countries that are not in the euro zone would like to be, he notes, such as Poland.

“When people want to become part of your club and play by the rules, by the way, to some extent — even though they fudged it down in Greece and a few other places” — it shows potential for the European Union to continue.

“I just think it’s come a long way. I don’t believe it’s all of a sudden imploding, but there is a long way to go.”

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