Will European Pact Survive?

The pact fashioned by Merkel and Sarkozy to solve the European debt crisis, is doomed to fail according to Brett Arends who writes today on Market Watch.  His main point is, will an independent nation  allow other nations to dictate what benefits the government will provide its citizens or what taxes its people will pay. In other words the debtor nation would be conquered, not by military action, but by a financial takeover. 

In the case of Europe, Hitler must be kicking himself. This is the easiest blitzkrieg ever! Greece and Portugal would be dictated the terms of their financial takeover by Germany and France and not a shot was fired! Can Italy and Spain be next on the menu?

Will these countries or their citizens, agree to this? Will this be the way the world works in the future? If so, the United States better get its act together very soon or we will be next.

China and Japan must be watching Europe very intently for if it works there, the US will be  one of the next takeovers. It only makes sense.  We are indebted up to our eyeballs, unemployment has steadily been around 9%, our government cannot get out of its own way to make a plan, and nothing will happen for the next 11 months unless there is an emergency.  

In this way, China and Japan would guarantee that the money they invested in Treasuries will be paid back. They would control how much money was spent on defense, foreign aid, domestic spending, infrastructure spending and social benefits (social security, medicare, medicaid, welfare etal). 

This is so out-of-the-box scary thinking that I am sure many will disagree with assumptions. However, if it works in Europe and if we don't get our act together to cut spending and yes, maybe increase taxes, we will be the next victim.

My hope is that it will fail in Europe and that the whole experiment can be abandoned and those naysayers can say "Tom, you were wrong again!"

What are your comments?

Conservative Tom

Why Merkel-Sarkozy pact is doomed to fail

By Brett Arends | MarketWatch – 10 hours ago

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BOSTON (MarketWatch) — If you want to understand the latest Franco-German proposal to “save” the euro, imagine this.

Imagine the governments of China and Japan demanding they be given the legal right to override the U.S. budget’s legislative process if needed, and to impose tax hikes and spending cuts on the American people as needed.

After all, China and Japan are our biggest creditors. The U.S. government owes them trillions. We’re not quite as deeply in debt as a share of our economic output, as Europe’s naughtiest Nellies. But we’re not far behind either.

Markets rallied this week on hopes that the leaders of the European Union will at long last solve the region’s budget crisis. Center stage is the new proposal from Angela Merkel and Nicolas Sarkozy. They want to turn Europe into, effectively, a federal government, with the power to impose budget discipline on wayward members.

Their proposal is preposterous. Anything can happen in this life, but it would be remarkable indeed if this idea got off the ground. Anyone pinning their hopes that this will solve the crisis needs to think it through.

Why would the Portuguese accept the right of Germany to impose budget cuts on their country? Why would the Greeks?

Would we accept that role for the Chinese and the Japanese, the biggest holders of Treasury debt? How would you feel if you opened the paper to be told that the new Sino-Japanese “Fiscal Stability Commission” in Washington had just slashed your grandma’s Social Security checks by one-third, scaled back federal highway repairs, and that it would impose a 10% national sales tax?

That is, after all, effectively what is being offered to the people of Greece, Italy, Spain, Portugal and Ireland.

It’s absurd. There is no reason why these countries should have to surrender sovereignty. They can simply, where necessary, default. A default by, say, Louisiana would not destroy the dollar. Neither did the bankruptcy of Enron or Lehman.

The British look smarter and smarter for staying out of the euro area in the first place. Prime Minister John Major, and then, later, Chancellor of the Exchequer Gordon Brown, each took the decision to keep the British pound free. At the time fashionable opinion predicted disaster for the Brits. So much for that.

(Predictably, fashionable opinion now says the Brits look “isolated” for staying out. Really, you couldn’t make it up).

It has long been clear the Franco-German duo wanted to use their shared currency to bludgeon the continent into something closer to a federal system.

Any investor pinning their hopes on this bird flying needs to be aware it looks a lot more like a turkey than an eagle.

This week’s meeting of European leaders already marks the fifth “summit” to solve the region’s debt crisis since early 2009.

My favorite comment this time: “After a series of ‘final’ summits, it would be nice this time to have a real ‘final’ summit.” That was from Standard & Poor’s chief European economist, appropriately-enough named Jean-Michel Six. What’s the betting Mr. Six will be attending Summit No. Six in the new year?

Brett Arends is a senior columnist for MarketWatch and a personal-finance columnist for the Wall Street Journal.