Monday, May 10, 2010

Europe Revisited

The Lehmann Letter (SM)

The stock market rebounded sharply today in response to the European rescue package. The European Union pledged $750 billion to defend the euro against the prospects of sovereign-debt default. The stronger economies of Europe will bail out the weaker. The weaker nations, in turn, will have to reduce the likelihood of default by enhancing their tax revenues and reducing expenditures.

We will see if this is enough to alleviate concern. And once again there is the impression of "muddling through." But, seen in historical context, there is another point of view. World War I and World War II and the events leading up to those wars were disastrous for Europe. A new yet middle-aged leadership emerged after the end of those debacles. These seasoned leaders were internationalists who had to suppress their views in the nationalistic inter-war years. By 1950 they were leading Europe in a new direction: A series of trans-national agreements that built a customs union, and then an economic union and then a single-currency union. They built and are building a true European Union.

Compromise and accommodation and patience have been key. The willingness and ability of stronger nations such as Germany and France to accommodate the needs of weaker states on the periphery has also been key. The attempt to bring in the former states of the Soviet bloc has been remarkable.

These daunting challenges over the past 60 years and the clear success in meeting them puts the current crisis in perspective. It should also make us confident that Europe will do what is necessary to secure its future.

© 2010 Michael B. Lehmann

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