Europe

In their open confrontation with the Americans and other European countries, the Germans have good arguments on their side. Trade restrictions are certainly not the way out of the world economy’s problems; and to prevent moral hazard, bondholders need to bear the costs of defaults.

The next acute crisis of a Eurozone country may happen sooner than EU leaders think. It is only then when we will see what their new celebrated compromise is worth in practice.

When we are looking at Australia today, we can be pleased that we have so far avoided many of Europe’s problems. Our debt still looks manageable. Our demography is still healthy. Our society is still united. But Australia could end up like Europe – under different stars, but with the same destiny.

For months, the French republic has been shaken by growing resistance to president Nicolas Sarkozy and his plan to increase the retirement age from 60 to 62 years. Whether the new pension system is eventually implemented or not, the tumultuous scenes in the streets of Paris, Marseille and other big cities leave only one conclusion: France is an unreformable country.

Voters are becoming disillusioned with mainstream political parties unable or unwilling to deal with voters’ real concerns. A quick look at other countries should be a warning where this may lead.

The stronger the fears about a double-dip recession in the US grow, the better it looks for the euro. Only a few months ago, experts were discussing the possibility of a quick break-up of Europe’s monetary union. The same experts have now shifted their attention to the US dollar. However, this does not mean that the euro is off the hook. Far from it.

Europe’s problems remain painfully real. But it was wrong to believe that they would inevitably lead to a cataclysmic crisis. It now looks as if it’s going to be much worse. There is never going to be a solution, just a slow, ongoing decline. Not a purgatory from which there is an eventual escape route to heaven, but a Dantean inferno with its famous inscription above the gates: ‘Lasciate ogni speranza, voi ch’entrate’ – ‘Abandon all hope, ye who enter here.’

Many of Europe’s problems were the result of complacent or, shall we say lazy, policymaking. Looking at the Australian election campaign, you get the impression that our politicians are hell-bent on repeating many of Europe’s mistakes.