All of us are capable of putting off the inevitable and procrastinating as long as possible. We make promises to ourselves that are based on good motives, but for some reason we don’t carry through. Nations can be the same way. The U.S. will be facing a financial cliff someday (no, not 2013), but our government leaders and the voters continue to ignore the very real consequences of our burgeoning debt issue and horrifically expensive demographically-driven future medical expenses.
Europe is no different. Thy have been dithering around since 2009 with how to solve the financial crisis that began in Greece and threatens to engulf all of Europe. The European Central Bank (ECB) and its president, Mr. Draghi, have made bold statements that later lacked substance. The bond market and financial markets in general have justifiably come to view recent pronouncements with a lot of skepticism. That is certainly understandable.
The question then is whether Italy and Spain, which together represent 28% of a $12 trillion economy, will make the changes necessary to satisfy their current and future lenders. Do they in essence feel their backs are against the wall and there is no other option? So far, it would seem so. Both have new leaders who are implementing deficit-slashing programs, and they are doing so despite serious domestic resistance to the austerity. Their ongoing efforts are key to Europe's survival as a monetary union. Their success will lay the groundwork for a stronger financial union.