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The longer we sit on the Euro problem, the worse the situation will get

by Aaron McCormack on June 21, 2012

Business teaches some very valuable lessons about how to deal with problems, challenges and all-out crises.  One rule, that is certainly golden, is that things rarely get better by just waiting them out.  Another key skill that business teaches is “abstraction” – the ability to cut through the crap and the noise and get to the heart of what needs to be done to fix things.  Business also teaches us that even when we know what to do, many companies fail because they just can’t seem to get it done.  Knowing that execution is even harder in the public world versus the private world, it is possible to appreciate the challenges that our political leaders face.

That it is difficult is no excuse, however.  No-one forced these individuals to step up and lead – there was no gun to their heads.  We got the political leaders we deserve.

Re-establishing competitiveness in the Eurozone economies that are struggling is the key mission for those leaders.  It isn’t about saving the Euro, or the banks, or the financial system – those are symptoms and sideshows.  I can understand an argument (although I don’t agree with it) that keeping the Euro intact and protecting the integrity of the financial system is somehow important to maintain what fragile economies we have.  But they are not ends in and of themselves.  We are abstracting to the wrong layer of the problem.

Even government indebtedness is really a symptom of lack of competitiveness.  When an economy is really moving, all systems go, a country usually finds itself in good financial shape and any bumps in the road are temporary.

But then, as can easily happen in businesses, folks get complacent and lazy and take their eye off the ball.  The history of the western economies over the past thirty years is one where governments have replaced real progress and growth with phony progress and growth – burgeoning government payrolls, asset bubbles, housing bubbles and the printing of too much money.

Not everyone on the planet has had raw deal from this – hundreds of millions of people in countries like China, India, Brazil, Indonesia and the Philippines have been raised out of abject poverty into their own version of a working or middle-class existence.  We have seen a boom in technology that has transformed not only western lives, but those in the poorest of regions.  Think how cellphone technology is transforming communities around the world for example.

But let’s face it – a lot of the froth in our western lives has been generated by borrowing or printing money.  Our false sense of prosperity has further helped us cling to outdated models of social support structures.  We have gotten soft.  And now I am not sure we have the mettle to deal with the realities in front of us.

But, back to the Euro crisis.  One of the great lubricants of international competitiveness has always been exchange rates.  Countries who would succeed and prosper would find their currency strengthening, making their exports relatively less competitive, dampening their comparative advantage and thus exchange rates would therefore act as a natural balancing mechanism between countries.  When you remove that influence – one that acted on our economies every second of every day – you end up with one more contributing factor to our sense of “false prosperity” and a faux-crisis when it all needs to come to an end.

So, now I believe it is time to let the recession, the correction, finally do its work.  It is time to get on with the convulsions of breaking up the Euro and having the banks suffer the consequences of their poor investments. It is time to end the Euro-drama and get on with the real job of fixing competitiveness.  Simply saving the Euro will actually do nothing to save our economies.


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