Cramer: Two good options for Europe
Jim Cramer | firstname.lastname@example.org
Let’s go over what they need to do. First, the people need to be able to find jobs. Right now there doesn't seem to be hope for employment. So, it is reasonable to believe that the governments have to play a role in doing so. But they are being told to scale back their operations if they want EU backing.
We all know that's untenable. A government trying to create jobs so we get a multiplier effect on the workers (which allows taxes to be paid and meals to be had) needs help. Without those jobs the sovereign debt will be under pressure because the tax receipts won't cover the debt.
So the EU has to step up and help, most likely with a Marshall Plan, which you can get help from if you play ball when it comes to sovereign state austerity. A Marshall Plan backed by the whole eurozone is a great way to deal with the unemployment issue and get needed infrastructure improvements that have been neglected during this period.
Second, the people of these strapped countries have to have a rational reason to keep their money in their banks instead of pulling it out. Anyone reading this knows that the people of Greece, Spain and Italy have been pulling their money out of their banks, not for fear of their banks' solvency (they have deposit insurance similar to ours), but for fear that they will wake up and be forced to take drachmas or pesetas or Irish pounds for their euros. Why stay in a bank if that is going to happen?
The solution? We need a super ECB on top of the regular deposit insurance that insured people in euros. Then there is no incentive to pull the money out, so the banks can stabilize.
These two solutions are readily available and can be done, but the Germans don't want them done because the amount of insurance and stimulus needed would definitively debase the euro.
The Germans have been steadfast against that. They want a euro union that works for them, not against them. Right now the status quo has been fairly good for Germany. The stock market's up 8 percent, unemployment is low, profits are robust. Why should they agree to do anything?
Without these two measures then the euro will split apart. There will be an intense devaluation of the new currencies, the countries will default, their banks will be seized by the government and they will have to starts all over again. The countries will be plunged into depressions and then spring back, not unlike Argentina's default and devaluation of 1990-1991: pain and then gain.
Either is better than this total freeze.
So the bullet needs to be bitten either way: inflationary or deflationary, growth or depression. But it must be bitten. Obviously one is better than the other, unless you are German and you fear Weimar inflation. As long as that is the ghost and not severe depression for other countries, we will remain status quo and you simply have to protect yourself until the choice is made.