This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Saving Europe From Collapse

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( TheStreet) -- Governments may soon fall in France and Holland, and are quickly losing legitimacy elsewhere in Europe, because austerity programs and a common currency risk throwing the continent into an endless recession.

Europe's infamous labor laws, which make layoffs expensive and businesses reluctant to invest, have long impeded investment and productivity growth.

During the expansion of the 2000s, the competitive core -- Germany, other northern economies and important parts of France -- coped better and accomplished stronger productivity. Consequently, the euro became undervalued for those economies and overvalued for Mediterranean economies -- specifically, goods made in the north became bargain priced and those made in Club Med states too expensive.

10 Stocks That Won't Leave You High and Dry >>

Southern economies suffered large trade deficits with the north and insufficient demand for what they make. Governments in Italy, Greece and Portugal borrowed feverishly to keep folks employed, finance early retirements, and provide inexpensive health care.





Even as northern Europe and the U.S. recovered, the sovereign debt carried by those governments alarmed investors and interest rates soared. Each was forced to accept bailouts from more solvent European governments, led by Germany, on the condition they accept draconian austerity and pledge allegiance to the common currency.

Certainly, Mediterranean states must trim government spending and reform labor markets, but to pay back what they owe, they must earn euros by growing their economies and exporting more than they import. Together, those require more gradual reductions in government spending and abandoning the euro; or their economies will endure years of high unemployment to push down wages and prices and make their economies competitive with the north.

Enron 10 Years After -- From Bad to Worse >>

In the end, all this will not be enough and endless recession will result, as new investments dry up and existing capital -- both machines and workers' skills -- atrophy or leave. The collapse of the south is now threatening the vitality of the north, as Germany, Holland and others may fall into recession without customers further south for what they make.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
AAPL $130.28 0.00%
FB $81.53 0.00%
GOOG $565.06 0.00%
TSLA $218.42 0.00%
YHOO $44.52 0.00%

Markets

DOW 18,080.14 +21.45 0.12%
S&P 500 2,117.69 +4.76 0.23%
NASDAQ 5,092.0850 +36.0220 0.71%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs