The UK and the EuroZone Debt Crisis

Over the past weeks I have been watching with some amusement as people in Canada boast that we are truly different from all other Western economies in that we are fiscally conservative and responsible economic actors.  While their might be some truth to that, no economy is an island and what is more, there are indicators and data that prove otherwise.

Another source of amusement has been Britain.  While the EuroZone inches toward financial implosion, other countries (like the U.S. and Canada) pretend that the they are on the road to recovery and that it is Europe (or the uncertainty over Europe) that is holding them back.  Then there is the U.K.  PM David Cameron has delighted Eurosceptics in his country by talking tough and not participating in any scheme to save Euro banks.  And while many in Canada and the U.S. applaud Cameron’s decision for his apparent intent to not expose the U.K. economy to the disaster that is Europe, there are probably other reasons why Cameron does not want to participate in any talks that might include financial reform in Europe: to save the London financial sector.

But before I get to that, I should like to reiterate that the Eurocrisis (just like the financial collapse of 2008) is not (only) a sovereign-debt/lazy-society problem… it is a global banking problem.  Sure, Greeks retired early, don’t like paying their taxes, and didn’t work hard enough.  But the problem goes well beyond that.  Germany is often held up as the EuroSaviour.  The hard-working Germans work hard, generate wealth and pay taxes.  End of story.  But that is not quite true as well as they have a hand int he problem that is the EuroZone.  The easiest way to understand this is through the phrase, “It takes two to tango.”  Greece (or the other PIIGS) did not get to where they are on their own.  If the Greek government has lived beyond its means by taking on too much debt, once must understand that that debt comes from somewhere.  And the “somewhere” is primarily other Western economies.  The debt that Greece owes is owned by Greek and other Western/European banks.  What is more, a lot of that debt was taken on to finance purchases from corporations in those other Western economies.  So, it should come as no surprise that, while the discussion of what Greece should do was just getting started, countries like France and Germany threatened Greece that they had to get their economic house in order, but such austerity should not threaten arms purchases from French or German military contractors.  (See this article from the Jerusalem Post from May 2010 as an example: http://www.jpost.com/International/Article.aspx?id=176792.)  Greece led Euro countries in military spending (measured against GDP, a standard measure of military spending) and much of that spending was for French and German armaments.  The hypocrisy did not go unnoticed in Europe and this, in part, points to how misleading it is to only point fingers at Greece in the EuroCrisis.  The economies in places like Germany and France are dependent upon countries like Greece overspending, especially for such costly (and mostly useless) expenditures like military spending.  (In case you are wondering, the reason why Greece buys so much armaments is because it is in a long-standing rivalry with Turkey.)

As I said, it takes two to tango.  More realistically, it takes many to create a debt crisis.  The economies of France and Germany, for example, are dependent upon sovereign overspending.  Those economies would not seem so strong without it (and that also goes for countries like China and Canada).  The global banking system is dependent upon sovereign overspending (on defence and all kinds of social programs like health care and pensions).  It is all of a piece.  That is why the discourse that the EuroCrisis is the fault of lazy Greeks is so inaccurate: the Western financial system is entirely dependent upon things like Greek overspending and sovereign deficit spending.

And this is how we arrive at the U.K.  While Cameron is acting like the responsible steward, steering his country away from the EuroIceberg, the real reason he is walking away from the EuroTable is because he fears any financial regulation… for such regulation would likely stop the PonziSchem-onomics that is the British economy.  There is a reason why financial pundits (the honest ones) have called the U.K. (London in particular) as the “ground zero” when it comes to the global financial crisis.  And that is because the loosest rules have allowed for all kinds of financial shenanigans that are still coming to light.  Case in point is the revelation that when tallying all debt (government, corporate, and individual), no one rivals the Brits… whose debt-to-GDP ratio is somewhere in the 1000% range.

That’s right, U.K. debt-to-GDP ratio is somewhere near 1000%!!  (Actually it is around 950%… but, hey, ’1000′ is much more dramatic.)

I am sure that the numbers here will become more transparent in the months to come as more people start poring over the data.  For those interested, check out this Zero Hedge article from Dec. 18 (it is from this article that the graph at left is borrowed):

“Psssst France: Here Is Why You May Want To Cool It With The Britain Bashing – The UK’s 950% Debt To GDP”  (Dec. 18, 2011)
http://www.zerohedge.com/news/psssst-france-here-why-you-may-want-cool-it-britain-bashing-uks-950-debt-gdp

Much more amusing is Episode 226 of the Keiser Report (the discussion starts around the 14 min. mark):

http://rt.com/programs/keiser-report/episode-226-max-keiser/

And, finally, take a look at Steve Keen’s website (he is the interviewee in the Kesier Report report above)… he is more sceptical of the numbers at the moment but I am sure will have more on this in the future once the data become ore clear:

http://www.debtdeflation.com/blogs/2011/12/23/max-keiser-me-the-uks-950-debt-to-gdp-level/

The point here is that Western economies (and the developing economies that have been serving them) are entirely dependent upon a financial sector that has itself reached gargantuan and absurd proportions relative to the real economies of those nations.  All of this was fuelled, in my humble opinion, by the need to maintain the illusion that Western economies are healthy and productive.  The U.K. should really be the poster boy of the global financial crisis at perhaps it still will turn out that way.  IN the meantime, politicians like Cameron will continue play-acting… but that should not be very surprising either.  At any rate, don’t bet on seeing too much in the mainstream media on this until the moment the U.K. economy completely implodes because, as we all know, there are too many Google 2011 ‘Top Search’ lists, Twitter Twends, and celebrity Facebook posts to “report” on.

Peace.

(And may 2012 be better than 2011.)