Saturday, December 17, 2011

Too Many Cooks Spoil the Broth

From the Desk of Joe Rollins

Last week, while speaking with my son, Josh, he made a very interesting observation which, in retrospect, should have been quite obvious. His education costs have definitely not been wasted. He indicated that he’d been studying the history of the United States in school and that the confederation of our sovereignty, drafted in 1776, was ineffective. It was not until the actual Constitution was signed thirteen years later that the United States was recognized as a functioning institution.

His thoughts were that the problems that the European Union is going through today are similar to the problems that the United States incurred when they tried to create a unified government, and he’s right. A confederation of sovereign states proved to be ineffective with the introduction of the Articles of Confederation in the 1770s and, to no surprise, has once again been proven inadequate, as made obvious by the financial crisis facing the European Union and its eurozone today. While hoping to stabilize the future of Europe by acting as a single entity, the EU must face the realization that they are, in fact, not a country and “lack the political legitimacy to undertake major institutional changes.”

As a result of the Articles of Confederation, the 13 founding states of the United States of America “retained sovereignty over all governmental functions not specifically relinquished to the national government.” Before any action could be taken, however, all decisions had to be agreed on by all 13 states, ultimately creating a weak and powerless government. The ratification of the Articles, alone, took 2 years to be unanimously agreed upon.

And that is, essentially, the challenge that the European Union has to deal with today, as all 27 nations must give their approval before any major decisions are made. Their attempt to “rely on fiscal policy alone has failed,” so they must move on to plan B in order to remedy this current crisis. In 1789, the United States, aware of the shortfalls of the Articles of Confederation, replaced it with the Constitution; unfortunately, the European Union did not learn from the original naivety of the States and certainly does not have 10 years to overhaul the infrastructure of its divergent currency union.

The longevity of the euro has been called into question; can it continue without a centralized government put in place? The European Union currently does not have their own constitution, government, foreign policy, taxation system or military and many say a political union such as that will never happen as “persistent national identities” will make it nearly impossible. There will never be a United States of Europe; the thought of 27 different countries with different cultures, languages, foreign policies and political structures eagerly willing to band together as ONE just isn’t plausible.

So where does the European Union go from here? Does a functional, middle ground truly exist that will allow the euro to once again thrive for those 17 nations that make up the eurozone , while simultaneously serving the best interests of all 27 independent nations in the European Union?

In the United States we do not spend a lot of time worrying about whether one specific state is having economic problems such as Greece in the European Union. In fact, since we are unified in a centralized government with taxing and spending capabilities, the fact that one state is more economically successful than the others does not create problems. Since all of the money is pooled and the taxing authority stays within the centralized government, each state is supported and, therefore, issues with each individual state are irrelevant overall.

This is the where the problem lies with the EU today. Each country is divided in much greater ways than just location and language and their desire to maintain their own sovereignty prohibits them from accepting the idea of a future that would lie in the hands of a centralized European government. The problems today have been emphasized by the wide divergence of each of these countries and their ability, or inability, to function in a very competitive world.

For the last decade, Germany, with its highly qualified labor force, has taken great strides to modernize their work ethic, productivity and formerly rigid work rules in order to remain as a major player in a more competitive world economy. Due to the lack of trade restrictions within the European Union, Germany has been able to manufacture and sell throughout the EU without tariffs or restrictions, allowing them to successfully reap the benefits of free trade. However, countries like Greece have done nothing to be competitive; they continue to impose severe work restrictions and maintain a general “laissez-faire” attitude regarding business. Short of tourism, Greece has very little capacity to overcome the issues associated with their failing economy.

It is not surprising that the European Union, after following in the missteps of the United States, is now in the same predicament that our forefathers faced over 200 years ago. With 27 nations that are essentially related by name only and no one with the authority to control the actions of the others, failure appears to be inevitable. Only after the European Union acknowledges that they need to have a strong central government, will these issues facing smaller countries then be resolved. I do not think this process will happen overnight and it may, in fact, take many years, but that is the only way they will solve these financial problems. Just as the United States learned in the 1770s, a group of independent countries with the desire of sovereignty and preservation of self-worth cannot effectively govern in the best interest of all.

I appreciate Josh for recommending this issue, and I have thoroughly enjoyed discussing the parallels between the United States in its early years and the growing pains of the European Union with him, and now you.

On a side note, here is a recent picture of my two children, Josh and my daughter, Ava, with Santa. I have one child that is 6’4” and another one that is 27”.

As always, the foregoing are my opinions, assumptions and forecasts. It is perfectly possible that I am wrong.

Best regards,
Joe Rollins