Looking back at 2011, Europe blew out some smoke and kicked that much talked about fiscal can down the road. 2012 may present a decidedly different impact for Europe and beyond.
Seriously, the economic and monetary issues in Europe continue to persist into 2012. The effects of massive debt and 2011 policy moves by the European Central Bank (ECB) have shifted the immediate threat of monetary upheaval. Actions taken by the ECB have basically cranked up the printing mill for the Euro and pushed the debt payoff on a longer term basis. The result has caused usual sources for credit and bonds, China and the Arab states, to turn their collective backs on the Europeans. China and Arabia have total disdain for the eurozone monetary policies leading to debt to GNP percentages well over 100%.
Five eurozone nations, in particular, are at continued fiscal risk. Greece, Portugal, Spain, Italy and Ireland, are the usual suspects. They each average well over 120% debt to gross national product output. Creditors, such as Moody's, Standard & Poors and Fitch, typically issue warnings to countries with percentages exceeding 90%. All five have had their credit rating slashed in 2011. Additional credit downgrades were announced on Friday which also included France. This will dramatically effect inflation within each country, expense to citizens due to higher lending rates and increase the costs of each country to trade internationally.
The actions of the ECB are of a band aid, not a cure. All Eurozone nations will need to enact the debt reduction (austerity) measures for this quick fix to stick. Should just a couple of countries with high debt loads deviate from the agreement the infection on the Euro would be contagious. Should the ECB plan implode, the monetary unit of the Euro could be destroyed. In essence, the Euro would be worthless and each eurozone nation would have to re-establish their own currency. This would be the ultimate upheaval with international monetary impact. Clearly, this unstable fiscal deal is something Neosporin or hydrogen peroxide could not cleanse.
So, politically, what will be the impact on the eurozone? Political fallout will most likely happen sooner rather than later. Greece's Prime Minister already resigned and was replaced in 2011. Continued public distrust and discontent due to economic pressures will boil over. Citing regular protests in every eurozone against the austerity actions of government. In fact, President Nicolas Sarkozy, is already bracing for political challenges.
With the can kicked, where will it land? Final analysis will see, but clearly the political leadership will have a rough ride securing their jobs as their citizens feel the economic jolt of fiscal and monetary abuse. And, keep your eye on the five usual suspect Euro nations. Their further fiscal mismanagement of the ECB deal would be the tipping point.