(By Jeffery A Miller) I did not set out to write a trilogy about Europe, but the market is telling us that nothing else matters right now.
My long-standing position is that Europe is engaged in a normal democratic political process with a very large number of contending parties. In such matters it is difficult to predict the exact outcome beyond saying that no one will be completely happy.
My approach is pretty modest in terms of forecasts. I do not know what the exact outcome will be. My current guess includes the following:
- The eventual outcome will include a bit less austerity because of recent election results;
- European leaders will manage to avoid the very worst outcomes; and
- The nature of the political process leads to eleventh-hour solutions, permitting everyone to fear the worst as long as possible.
Nearly everyone else, regardless of credentials, claims a better crystal ball than mine. There is actually a wide range of possible outcomes worthy of review.
Possible Endgame for Europe
Let me rank these from worst to best.
- Doomsday! This is the story getting the buzz. There will be a bank run in Greece based upon fear of leaving the EuroZone. This will rapidly spread to other countries. Advocates of this concept point to the sequential attack on banks in 2008 to prove their point.
Nearly every media source has now highlighted this graphic possibility, so it is already familiar to everyone. CNBC now promises to show lines at Greek ATM machines, in the same way they helpfully showed us oil spilling into the Gulf during the time of the BP oil spill.
- The slow-moving train wreck. This is the analysis from Nouriel Roubini.
"...there are only four ways to achieve such real depreciation:
- First, a sharp weakening of the euro. But this is unlikely as Germany is strong, the U.S. economy is weak and running twin deficits and the ECB is not aggressively easing monetary policy;
- Second, a rapid reduction in unit labor costs through structural reforms that increase productivity growth in excess of wages.