It's Europe's Fault: They're Holding Back the Economic Worldwide RecoveryWhat are we supposed to do with Europe? Many of the continent's nations have run up deficits that make the U.S. look thrifty, and well over a year after their problems came to light, they're still holding the worldwide recovery back.

Because the eurozone nations have a common currency, the normal recipes to fix their troubles aren't available:

  • Greece and Spain can't just print money to pay off debts, as the United States will probably do in some manner.
  • Entitlements in Europe are ingrained in society at a level that is not approached in the United States.
  • Tax rates were already relatively high, and governments have little latitude to increase them, something we could easily do here (fiscally, if not politically).

Whatever Europe is trying to do, it doesn't seem to be working.

Why You Can't Shrink Your Way to Prosperity

Austerity measures and budget cuts have shrunk government spending. But when the government is a major provider of employment in a country, such choices can have a disastrous effect. In fact, spending cuts have contributed to keeping unemployment elevated and, sadly, done little to lower deficits.

It's a downward spiral: Lower spending leads to layoffs, which lead to lower consumer demand, which reduces tax revenue (even sometimes when there are tax increases) and leads to more government spending cuts.

So how in the world do we fix this?

Just Swallow the Bitter Pill Already

One of the main reasons budget deficits are growing in Greece and Portugal is that borrowing costs are ballooning for their high levels of debt. Reducing the deficit by cutting spending and increasing revenue will help, but there's only so far those measures can go. Eventually, debt levels need to come down.

Instead of slowly bleeding out, as it's doing now, Europe needs to rip off the bandage. Just default, get it over with, and deal with the consequences.

That's what the U.S. did with the auto industry, helping it through an orderly default, and it's time to do the same thing in Europe.

If Europe doesn't, we'll all be dragged down together.

The Dominoes Will Fall

The world has become so intertwined that when Greece sneezes, the U.S. gets a cold and China comes down with the measles.

The U.S. stock market has had its eye on this crisis for months, and China has even been rumored to be looking at buying European debt to avoid an economic disaster within its own borders. A long, drawn-out solution to this debt crisis isn't good for anyone. What's the likely ending?

  • The bailout package being discussed by Germany, France, and other EU countries will probably get passed, but it isn't nearly big enough to solve the problem.
  • Some sort of default by Greece, maybe Ireland, and maybe Portugal will probably take place. It's just too hard when you can't print money, debt costs are rising, and austerity measures aren't helping.
  • U.S. businesses and U.S. investors will continue to use uncertainty in Europe as an excuse to sit on their hands and not invest the money we need in the domestic economy to have a real recovery.

Or, we could have a different, better ending for all. The EU could face the music, accept that its debt problems are affecting the economic recovery around the world, and realize that someone is going to have to fail. Then we could take the next step forward.

Until Europe stops sitting on its hands, my headline stands: It's Europe's Fault.

Motley Fool contributor Travis Hoium really does like Europe but can't stand its debt situation and doesn't have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, and check out his personal stock holdings.


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hgeorgech

Face it, if they didn't have Europe to blame, the blame would go to George Bush ,,, but NEVER, never, never, our inept Congress or the current resident at 1600 Pennsylvania Avenue !

October 26 2011 at 4:30 PM Report abuse rate up rate down Reply
Warren

Growth of GDP is the only answer to restore the economy. This growth is generated by the proper application of the factors of production. The problem is people of the world have lost the dream requiring the pursuit of happiness. Require more paperwork, more restrictions, and forbid business activity and profit, then you will not only delay any economic recovery, you shall destroy any hope of it.

October 25 2011 at 1:29 PM Report abuse rate up rate down Reply
giogolf

If we don't initiate meaningful tax reform, reduce regulations and address our unaffordable entitlement programs we will be in the same or worse financial condition as Europe.

October 25 2011 at 12:12 PM Report abuse +1 rate up rate down Reply
girardjoe

And I thought it was Obama's fault. Along with every thing else.
With this posting I am forming "The American Coalition of Wacked Out Nut Jobs" the ACWONJ. The purpose of this PAC is to Blame President Obama for any thing and every thing that we do not like or that makes us a little cranky.

The list of grievances that follows will not be limited to just what I put down today, because I know there will be other things that will *%^& me off later.

And if I can get enough fellow wackos to join me, we can form a larger group that can get corporate sponsorship from greedy minded people who want to control the world, like the Koch brothers, and get PAID to spew half-truths and innuendos around the internet while still sitting in our recliners.

Right now, I and a few others in the collective are blaming or are going to blame President Obama for:

911, The George Bush economy, Hitler, the 2007 collapse of Wall street, the wars in Afghanistan, Iraq, Libya, the US deficit and the one over in Europe, his not having a Birth Certificate that has been notarized by the John Birch Society, being a secret Muslim, the Movie Ishtar, the high price of Gasoline, Charley Sheen, Tricorne Hats, Earth quakes, Hurricanes, Crappy weather, Global Warming caused by cow flatulence, Rampant Homosexuality in Congress, Male Patterned Baldness, Obese Americans (and those foreign fatty's too), Skinny people, Oil Leaks and Spills, the News Corp (fox News) scandal, All of those Foreigners immigrating, can't we just import 3rd or 4th generation Americans?, Poor People not poverty just poor people, the Texas drought and John Boehner’s tanning addiction.

October 25 2011 at 11:24 AM Report abuse -3 rate up rate down Reply
achini1

Our elected MP's have just condemned our future generations to the sort of life our fathers had< slaving down the pits, destroying their lungs in steel works etc. They did not vote for what people wanted, OUT OF AND FREE OF THE MONKEY ON OUR BACK! EUROPE!!! Not to help us or the economy! BUT TO ENSURE THAT MP's WILL GET THE HUGE WAGES AND REWARDS FOR M.PS in EUROPE< THEY know they are assured a million pounds a year, plus free travel to Europe and anywhere else in the world! It is the old saying, " I'm all right Jack." The US had a civil war to decide how they would live! we cannot even have a vote! This vote should have been what we were promised, Every one in the uk should have voted! But Cameran and CO. know that if they encourage enough people from Africa and the poorest nations to flood in here that will swing the vote!
George S. Cooper

October 25 2011 at 3:53 AM Report abuse rate up rate down Reply
Sexy Hornball

oh sure lets blame Europe, much easier then to look in the mirror, and by the way, didnt we just get downgraded on our credit? GeZZZZ

October 24 2011 at 10:27 PM Report abuse +1 rate up rate down Reply
cabo79

Same idea for the banks and housing market in this country. Remember the savings and loan. They were closed down and the bad loans and defaulted houses were sold off. In two years it was over. We need to repo and auction and get it over with. Our government is letting the Banks drag it out. At this pace we will still be dragging in 15 years. My 8 year old grandkids won't be able to get a job when they finish collage.

October 24 2011 at 9:57 PM Report abuse rate up rate down Reply
docmetcalf1955

actually its the democrats fault, they have no idea what they are doing

October 24 2011 at 9:56 PM Report abuse +2 rate up rate down Reply
koos458

Sooner or later, the house of cards that international bankers have constructed is going to come falling down.

October 24 2011 at 6:01 PM Report abuse +4 rate up rate down Reply
marine1942

Not of of Europe's problem are their's alone. Our banks and the Fed have poured billions into Europe.
Wonder if we could get the amounts ?
Know nobody wants to say "one world government" but it is a thought.

October 24 2011 at 5:17 PM Report abuse rate up rate down Reply