Monday, May 10, 2010

Ashes and Greece

The fate of civilization in Europe is threatened by two factors, one natural and the other man-made. They are the ash clouds originating from the volcano in Iceland and the Greek economic catastrophe.

The ash cloud is a new phenomenon in that it threatens air transportation throughout Europe, particularly Britain. The volcano named Eyjafjallajokull (I'll only say that once) is a new form of disruption, since the ash being thrown high into the air can severely damage jet engines and endanger lives. The cancellation of flights and travel is a major economic disruption at a time when recovery is just beginning in Europe and particularly Britain. This particular volcano has not erupted since 1823, but there is no way to tell for how long the eruptions will continue and another larger one nearby named Katla (that's easier) has erupted before and may do so again. There are volcanos in various parts of the world, in Italy, Greece and around the Pacific. If a few of them erupted at once that might spell a significant setback for air transportation around the world that we have become used to.

What can be done about this? All the countries affected could sue Iceland for lost revenues, but we all know that Iceland is bankrupt. Perhaps dropping an atomic bomb on the volcano could stop it, but that might not be effective and also might kill too many Icelanders. It is an "act of God" and apparently nothing can be done about it.

The Greek economic crisis has reached its climax, with the Greek Parliament voting to accept b$160 in loans from the EU and IMF, so that it can pay its debts and stave off bankruptcy. In May b$9 debt are due to be paid, but overall the Greek debt amounts to a staggering b$600. This is what socialist profligacy over a long period of time can do. In order to receive the loan the Greek Government will be forced to economize by an amount of ca. b$60, that will cause huge cuts in benefits, salaries and pensions. Understandably the Greek people are not happy with this outcome and have been demonstrating all round the country including around the Parliament building in Athens that was protected by a ring of armed forces. Three people were killed in a bank that was set on fire by the mob and there has been periodic violence.

In response to the Greek crisis, markets around the world dropped. The Dow Jones plunged by 1,000 points; but then ended 300 points down, and in Asia there was a precipitous drop in all the major markets. The euro lost ca. 24% of its value against the dollar, causing trillions of dollars worth of damage. The fear is that other vulnerable countries in the Eurozone, such as Portugal, Spain, and Ireland and even the UK (although it is not part of the Eurozone), might also follow Greece down the slippery slope and where will the EU or the IMF find enough funds to support them. The European Central Bank has been criticized in this mess, but it's not really its fault. There is the anomalous situation that the Greek Government can spend excessively, but cannot then devalue its currency as other countries might do, because it uses the Euro that it cannot control. The Eurozone is in the process of developing a common financial control system, as the US has the Federal Reserve, that will hopefully protect all of its members from such future disasters.

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