Euro-danger

The Emperor is being de-robed by the Germans. That is, after some fancy footwork in the G-20 ? Euro summit, it turns out that Merkel is not so keen after all to bail out the Greeks. Even if Papandreou's cuts were to be fully implemented, that would still leave a deficit of over 8% of GDP -- well over the maximum mandated by the Euro rules.

But the kicker is this: nobody believes for an instant that the Greeks can stick to it. The uproar on the streets would cause virtual civil war.  And I think that Merkel knows it. But she'd rather that than pay for the failure anyway. Why pay for failure when it will follow as sure as tomorrow? Greece cannot sustain Euro membership. Nor likely can Portugal and Spain. Ireland and Italy ... just maybe.

So what does this mean in the long term for the EU? Not much good. You might have a tighter core body that can retain monetary restraint, but that is predicated in the long term on the similarities of the people to produce the same efficiencies and output for a given input. You see, in the U.S. productivity is more or less the same whether you are in Boise, Idaho or Montgomery, Alabama. In Europe, Germans work hard and produce more than just about anyone else. They save, too. They don't spend what they do not have.

Contrast that with France.... The French worker is a slave to self-interest, to fleecing the government and evading taxes.  Overtime is not a French concept (nor is it popular in Italy, Spain, Greece, Portugal). Germans, by contrast will gladly work like dogs if the pay is right and they get a chance to spend in on a holiday where the sun shines.  Take that fundamental observation and extrapolate it: monetary union can only exist between these two if the harder working segment is willing to subsidize the other for ever.

And Germany may have just reached its limit.