Why You Should Care About Europe's Debt Problems
The euro zone's financial problems may seem far away to us, but they could hit home soon.
Sometimes it’s a good thing for people here in Lotusland to lift their eyes from their navels once in a while and see what’s happening in the rest of the world.
On Friday, those eyes should have been focused on Europe.
Why? Uh, something to do with the euro and fiscal shenanigans. Apparently, in some make-it-or-break-it meeting, they couldn’t solve their financial problems.
At least that’s how most people here viewed it all. I mean, who cares about Europe anyway? The U.S. and China is where it’s at for us.
Well, a few billion people care. If the euro zone doesn’t solve its fiscal problems, you’re going to see a global recession as savage and probably a lot longer than the one that hit in 2008 when the U.S. financial system almost went belly up.
Essentially, the euro zone’s biggest problem is financial irresponsibility. Some of the member countries (most of the 17 countries in the euro zone use the euro as their currency, with the United Kingdom as the most notable exception) have been, to say the least, pretty profligate. Ireland, Greece, Spain and Italy – and their banks – are sitting on mountains of debt created as individual governments borrowed continually to finance bloated day-to-day operations.
The more prudent fiscal managers of Northern Europe, led by Germany, don’t want to bail them out any longer unless they put their financial houses in order – or are forced to by the European Union.
Sound familiar? It should. It’s the same story in the U.S., where government debt has run into the trillions of dollars.
Canada’s a little better off because our resources kept us afloat. But consumers here have been on a debt binge as well, racking up billions upon billions of dollars in mortgages alone. We’re not immune to another banking crisis.
So, why should we lotus eaters behind the mountains care?
Because, as much as we might think we are, no one is separate anymore. If the euro goes down, it will be a financial shock that will reverberate around the world. Even mighty China, which is suffering its own inflation problems and so isn’t quite as mighty these days, will be hit hard.
I’m sure most of you out there will read this with some amusement. Europe? Cool place, but so far away.
But maybe not as far as you think.
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