My Views From Europe: Greece & Spain

The past 10 days across Spain and Greece have been most enlightening concerning the depth of the challenges Europe- and the global economy- face moving forward.

Fundamental to this is a question that no one I met this past month could truly answer. That is, what is the real problem the Old World faces?

Everyone seemingly uses the term "the crisis" to explain everything that is going wrong. You can't go anywhere without hearing it ad nauseum.

Greedy bankers; too much debt; suffocating unemployment; German desire for renewed dominance; the perceived slothfulnesses of Mediterranean culture; and other negatives are categorized as contributing to or causing "the crisis".

But at its core, these all come up short in getting to the heart of the problem.

It seems the source of so much of the current angst is fear.

Europeans are scared that the wonderful lifestyles they have fought so long to maintain are no longer sustainable. That the social contract between individuals and their government, which has guaranteed an adulthood of some work and a lot of leisure, is eroding quickly. Governments are broke and there is nothing on the horizon to fix this reality.

To work effectively, capitalism requires a delicate balance of greed and fear. For a long time, fear was engineered out of the equation by high-growth forecasts, "innovative" risk management techniques, and the piling on of more and more debt.

No where was this more evident than countries like Spain and Greece.

Fueled by cheap foreign investment, these countries spent big. The lenders, using unrealistic growth models, believed that Greeks and Spaniards would build their way to success.

The infrastructure in Athens and Madrid is state of the art: the metro systems clean and glittering; the highways new and wide open; the airports world class.

These are the results of the 2004 Olympics that Athens hosted and the bids Madrid has recently submitted to win the Games. All of it financed by willing foreigners who thought growth would never go away and risk could be alleviated. How wrong they were.

Now that fear is back at a palpable level, capitalism is frozen.

When people are scared, they do things they normally wouldn't do.

Several leaders in both countries told me they quietly feared that their people would work to sink the Euro- and the EU- just so that the Germans would go down with them. If we are going to suffer, the story goes, better a little payback to ease the pain...

What happens here going forward is anyone's guess. But until the level of fear is reduced to a more moderate level, Europe and the world will be living on the edge of the precipice.