{"id":75846,"date":"2015-07-27T21:51:26","date_gmt":"2015-07-28T01:51:26","guid":{"rendered":"http:\/\/countingpips.com\/?p=75846"},"modified":"2015-07-27T21:51:26","modified_gmt":"2015-07-28T01:51:26","slug":"thoughts-from-the-frontline-europe-running-on-borrowed-time","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2015\/07\/thoughts-from-the-frontline-europe-running-on-borrowed-time\/","title":{"rendered":"Thoughts from the Frontline: Europe: Running on Borrowed Time"},"content":{"rendered":"
July 27, 2015<\/div>
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By John Mauldin<\/span><\/h4>\n
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\u201cI am sure the euro will oblige us to introduce a new set of economic policy instruments. It is politically impossible to propose that now. But some day there will be a crisis and new instruments will be created.\u201d<\/p>\n

\u2013 Romano Prodi, EU Commission president, December 2001<\/p>\n

Prodi and the other leaders who forged the euro knew what they were doing. They knew a crisis would develop, as Milton Friedman and many others had predicted. It is not conceivable that these very astute men didn\u2019t realize that creating a monetary union without a fiscal union would bring about an existential crisis. They accepted that eventuality as the price of European unity. But now the payment is coming due, and it is far larger than they probably anticipated.<\/p>\n

Time, as the old saying goes, is money. There are lots of ways that equation can work out. We had an interesting example last week. Europe and the eurozone pulled back from the brink by once again figuring out how to postpone the inevitable moment when all and sundry will have to recognize that Greece cannot pay the debt that it owes. In essence they have borrowed time by allowing Greece to borrow more money. Money, I should add, that, like all the other Greek debt, will not be repaid.<\/p>\n

I\u2019ve probably got some 40 articles and 100 pages of commentary on Greece and the eurozone from all sides of the political spectrum in my research stack, and it would be very easy to make this a long letter. But it\u2019s a pleasant summer weekend, and I\u2019m in the mood to write a shorter letter, for which many of my readers may be grateful. Rather than wander deep into the weeds looking at financial indications, however, we are going to explore what I think is a very significant nonfinancial factor that will impact the future of Europe. If it was just money, then Prodi would be right \u2013 they could just create new economic policy instruments, whatever the heck those might be. But what we\u2019ve been seeing these last few months is symptomatic of a far deeper problem than can be addressed with just a few trillion euros, give or take.<\/p>\n

But first, I\u2019m going to reach out and ask for a little help. I have just signed an agreement with my publisher, Wiley, to do a new book called Investing in an Age of Transformation.<\/em> I\u2019ve been thinking about this book for many years, and it is finally time to write it. As my longtime readers know, I believe we are entering a period of increasingly profound change, much more transformative than we\u2019ve seen in the past 50 years. And not just technologically but on numerous fronts. There are going to be substantial social implications as well. Imagine the entire 20th<\/sup> century fast-forwarded and packed into 20 years, and you will get some idea of the immensity of what we face.<\/p>

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Now think about investing in this unfolding era of change. Companies will spring up and disappear faster than ever. Corporations will move into and out of indexes at an increasingly rapid rate, making the whole experience of index investing \u2013 which constitutes the bulk of investing, not just for individuals but for pensions and large institutions \u2013 obsolete.<\/p>\n

Just as we wouldn\u2019t think of relying on the medical technology of the early 20th<\/sup> century, I\u2019m convinced that we need a significantly new process for investing that doesn\u2019t depend on the concept of indexing created deep in the last century. In an age of exponential change, being wrong in your investment style will no longer mean you simply underperform: you will not merely be wrong; you will be exponentially wrong.<\/p>\n

Of course, the flipside is that if you get it right, you will be exponentially right. We will be exploring some new investing concepts in Thoughts from the Frontline<\/em> as I write the book, since this letter is actually part of my thinking process. I\u2019ve been spending a great deal of time lately exploring new ways of thinking about the markets, different ways to manage risk, and strategies to take advantage of overwhelming change.<\/p>\n

This project will be significantly more complex than any book I\u2019ve attempted so far. I\u2019m looking for a few research interns or assistants to help me on various topics. Some topics are technological in nature, and some are investment-oriented. You can be young or old, retired or working in any number of fields; you just have to be passionate about thinking about the future and be able to spend time exploring a topic and going back and forth with me through shared notes and conversations. It\u2019s a plus if you write well. If you are interested in exploring a topic or two, drop me a note at transformation@2000wave.com<\/a>, along with a resume or a note about your background, plus your area of interest. Now let\u2019s jump to the letter.<\/p>\n

<\/a>The More Things Change<\/strong><\/p>\n

Almost four years ago, in an article on Bloomberg with the headline \u201cGermany Said to Ready Plan to Help Banks If Greece Defaults<\/a>,\u201d we read this paragraph:<\/p>\n

\u201cGreece is \u2018on a knife\u2019s edge,\u2019\u201d German Finance Minister Wolfgang Sch\u00e4uble told lawmakers at a closed-door meeting in Berlin on Sept. 7 [2011], a report in parliament\u2019s bulletin showed yesterday. If the government can\u2019t meet the aid terms, \u201cit\u2019s up to Greece to figure out how to get financing without the euro zone\u2019s help,\u201d he later said in a speech to parliament.<\/p>\n

Over the last few weeks he took a similar hard line, offering the possibility that Greece could take a \u201ctimeout,\u201d whatever in creation that is, and only the gods know how it could work for five years.<\/p>\n

Reports of the final meeting before the agreement with Greece was reached demonstrated that there is little solidarity in the European Union. The Financial Times<\/em> offered an unusually frank report<\/a> of the meeting:<\/p>\n

After almost nine hours of fruitless discussions on Saturday, a majority of eurozone finance ministers had reached a stark conclusion: Grexit \u2013 the exit of Greece from the eurozone \u2013 may be the least worst option left.<\/p>\n

Michel Sapin, the French finance minister, suggested they just \u201cget it all out and tell one another the truth\u201d to blow off steam. Many in the room seized the opportunity with relish.<\/p>\n

Alexander Stubb, the Finnish finance minister, lashed out at the Greeks for being unable to reform for half a century, according to two participants. As recriminations flew, Euclid Tsakalotos, the Greek finance minister, was oddly subdued.<\/p>\n

The wrangling culminated when Wolfgang Sch\u00e4uble, the German finance minister who has advocated a temporary Grexit, told off Mario Draghi, European Central Bank chairman. At one point, Mr Sch\u00e4uble, feeling he was being patronised, fumed at the ECB head that he was \u201cnot an idiot\u201d. The comment was one too many for eurogroup chairman Jeroen Dijsselbloem, who adjourned the meeting until the following morning.<\/p>\n

Failing to reach a full accord on Saturday, the eurogroup handed the baton on Sunday to the bloc\u2019s heads of state to begin their own an all-night session.\u201d<\/p>\n

That meeting ended with Angela Merkel and Alexis Tsipras arguing for 14 hours and giving up. Donald Tusk, the president of the European Council (and former Polish Prime Minister), forced them to sit back down, saying, \u201cSorry, but there is no way you are leaving this room.\u201d<\/p>\n

Essentially, they were arguing over what form of humiliation Greece would be forced to swallow.<\/p>\n

To continue reading this article from Thoughts from the Frontline<\/strong><\/em> \u2013 a free weekly publication by John Mauldin, renowned financial expert, best-selling author, and Chairman of Mauldin Economics \u2013 please click here<\/a>.<\/p>\n

Important Disclosures<\/a><\/p>\n<\/div>\n

The article Thoughts from the Frontline: Europe: Running on Borrowed Time<\/a> was originally published at mauldineconomics.com<\/a>.<\/div>\n
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By John Mauldin \u201cI am sure the euro will oblige us to introduce a new set of economic policy instruments. It is politically impossible to propose that now. But some day there will be a crisis and new instruments will be created.\u201d \u2013 Romano Prodi, EU Commission president, December 2001 Prodi and the other leaders […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-75846","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/75846","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=75846"}],"version-history":[{"count":1,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/75846\/revisions"}],"predecessor-version":[{"id":75847,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/75846\/revisions\/75847"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=75846"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=75846"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=75846"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}