No Better in Europe

Der Spiegel this week gives us a piece on Europe's financial prospects for weathering the deepening financial crisis.

If the authors are correct, they are grim in the extreme.

Perhaps most dire is the possibility that Britain could become "a second Iceland," its economy overwhelmed by an even more severe housing crisis than the one that exists in the US. I can recall televisions shows running through a number of modest four bedroom houses (if you are picturing a British home in your head, that's probably what I'm talking about) in the 200k pound range, and then as a teaser cut to the 12 bedroom swimming pooled mansion that could be yours if only you moved to Spain or the US.

As interesting is the dilemma faced by the Eurozone, in which some of the weaker members face bankruptcy. Should the stronger members offer them bridge loans to prop up a fellow member and maintain the value of their shared currency, or does such a policy take away all incentive for governments to make the hard choices that might stave off insolvency in the first place?

Perhaps most striking, the concluding pages of the article range over European economic history going back to the 16th century, pointing out the relative frequency with which national governments had run out of money over the last half millennium. Setting aside the objection that this scope of time runs us all the way back into the declining days of mercantilism, national insolvencies have generally been associated with attempts to pay for wars using economic policies that lacked the sophistication to manage the resulting debt. Considering that we enjoy far more robust mechanisms for debt management today, the apocalyptic sweep of the piece is breathtaking. As is the idea that Europe stands on the brink of some sort of continental prisoner's dilemma with regard to the Euro.

"It's not dark yet, but it's getting there."