News that the European Union had arranged a bailout for Spain's embattled banks brought little cheer, as nervous investors quickly shifted to the next string of obstacles.
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It's becoming clearer that each new bailout, emergency deal or central bank intervention, while often reached after much difficulty and drama, is just another anti-climax. None of these stopgap measures is a solution to the real financial problems facing Europe, which represent a series of challenges that may take years to play out.
As the markets start to face up to the gravity of the problem, bailouts are increasingly having a diminished impact on investor behavior.
A series of crises
By extending credit to Spain's banks, Europe helped stave off the immediate threat of a run on those institutions. However, with its 24 percent unemployment rate, Spain has problems that won't be solved by a quick extension of credit. Plus, Spain is not Europe's only trouble spot. Even after that credit deal, markets looked forward warily to a pivotal election in Greece that coming weekend, and then at lingering debt problems in Ireland and Italy.
The pattern here is that politicians and central bankers have been forced into taking emergency actions to head off a series of crises, but since none of these actions addresses the underlying, fundamental problems in Europe, it is only a matter of time before another crisis bubbles up.
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Pressure on Merkel
What can change the pattern of continual crisis management? A growing chorus of commentators is calling on German Chancellor Angela Merkel to take bold actions to stimulate Europe's economies. Fiscally conservative Germans look at out-of-control debt in parts of Europe and feel austerity is the natural solution, but outside of Germany there is support for the more aggressive austerity measures that could help the region grow its way out of difficulty.
That sounds good, but it's not so easy. Germany is in good shape because it has achieved growth while managing its affairs responsibly. One can forgive the Germans if they look on more profligate nations and wonder if a massive stimulus package would only encourage more excess spending without creating the resolve for fiscal responsibility.
Echoes from the U.S.
Besides the fact that Europe is an important market for the U.S., the difficulties across the Atlantic resonate over here. The U.S. is a prime example of how stimulus doesn't always succeed in helping borrowers grow their way out of debt. Current mortgage rates are at record lows, but they haven't revived the housing market. Low refinance rates have had a limited impact in helping current home owners because many have bad credit or their mortgages are underwater. On the flip-side, low rates on savings accounts have robbed savers of income that could have been put constructively to use in the economy.
There may be a game-changer out there, but until one comes along, people on both sides of the Atlantic are going to be increasingly unimpressed by the latest emergency tactic.