The Dutch, Austerity and The USA
Its another in a long series of top level government shakeups brought on by Europe’s growing debt crisis.
What’s Happening in Europe?
Because of the debt crisis, top government leaders in Europe are dropping like flies:
- Greece’s George Papandreau is replaced by Lucas Papademos
- Italy’s Silvio Berlusconi lost his job to Mario Monti
- Spain elected a conservative government under Mariano Rajoy
- Belgium has a caretaker government because of the debt crisis
- Now the Netherlands’ Mark Rutte is ousted
Rutte’s action today was triggered when Geert Wilders, a right-wing politician, withdrew his support for Rutte’s planned budget cuts and effectively ended Rutte’s parliamentary majority.
The Netherlands Dilemma
At issue is cutting the Dutch deficit by €15 billion euros to meet the 3% of GDP mandated by the European fiscal pact just passed.
In its defense, the European Commission immediately shot back that the Netherlands had pushed for the strict 3% rule last autumn.
A lot can change between autumn and spring. Its a mess! Uncertainty abounds.
Today’s Financial Times of London(FT) points out:
At this point nobody knows when elections will be held, what the status of Mr Rutte’s government is, how parliament can negotiate a budget without a government in place, and how political parties can work together to pass European-mandated budget cuts at the same time as they are campaigning against each other.
Sound vaguely familiar? Think… U.S. credit downgrade and campaign 2012 looming!
Dutch 10-year bonds that finance its government debt ballooned as much as 16 basis points against German 10-year bonds to its highest level since the start of the eurozone crisis.
Today, Germany’s DAX stock exchange fell 3.36%. That is equivalent to a 437 point drop in the DOW.
A Dutch Prophecy for America
Speaking of their debt crisis, Dutch politician Dietrik Samson, the leader of the Labor Party, the 2nd largest in the Dutch parliament told the FT:
Every party has to be willing to jump over its own shadow
To the Dutch that means, show courage.
Courage is something the U.S. Congress hasn’t shown in years!
The U.S. has its own fiscal cliff looming at the end of this year.
Ironically, U.S. treasury bond yields have dropped back down to 1.99%. The worse things get in Europe, the cheaper it is for the United States to go deeper in debt.
In our lifetimes, it will never be cheaper for the United States to borrow money to feed its $4 billion/day debt addiction than right now.
Nobody in their right mind would invest in Europe. The GDPs of half the countries are expected to drop this year.
That falsely makes the United States government a safe haven for international investors.
That gives U.S. politicians a false sense of security about our ginormous $15.6 trillion debt with $118.5 trillion in unfunded liabilities.
Unless we get serious and fix the problem soon, the federal government of the United States will follow Europe into fiscal chaos.