Why Europe doesn’t work. Why Canada does

The biggest determinant of commodity price trends – including crop and meat price trends – over the next year will almost certainly be what happens to Europe and the Euro.

Tomorrow – actually late tonight in Eurotime – their financial heavies will unveil – or not – the outline of a plan to save the Eurozone and solve the problem of the bankrupt Greeks, Portuguese and Irish, and the possibly soon-to-be-bankrupt Spanish and Italians. That will probably kick the can down the road a bit further – each kick seems to send the can less far – and give us a shot at continuing high commodity prices for a few more months.

If Spain and Italy go down in the next few months, the Euro blows up and we’ve got a real mess on our hands. And that’ll kill demand for commodities, or simply wipe away any remaining confidence out there that is helping keep commodity prices high. That wouldn’t be good.

The Eurozone is broken and what it will take to fix it is almost inconceivable to predict. Here’s how James Shugg, senior economist with Wespac Banking Corporation, summed it up in a Bloomberg radio interview yesterday:

“Are these guys serious about the Euro or not? That’s the question. We’re going to need to see a system put into place once the current mess is sorted out that involves permanent, ongoing fiscal transfers from the wealthier economies in Europe to the poorer ones. We’re going to need to see a much different decision-making process than the hugely cumbersome one we’ve got at the moment.”

“These are things that are anathema to Germans, but if the Germans are serious about the Euro and understand the history of it – and remember Europeans haven’t been killing each other every 20 years for the last 70 years now – and the Euro is part of the unification process that has led to that relatively peaceful state of affairs, if that’s worth saving, if that’s worth preserving and keeping on in the future, then really, really tough decisions have to be made.”

“You need to get the likes of (German chancellor Angela) Merkel and (French president Nicolas) Sarkozy sacrificing their political careers, alienating their political parties, and doing the right thing. And they’ll get a legacy for doing that, but do they have the mettle, do they have the guts to actually make the sort of decisions that actually could see a sustainable future for the Euro?”

(Back to Ed White here:) I’d say “Of course not.” And I’d probably be right. Because that would demand Europe to become a federation, and I just can’t see the various Eurotypes agreeing to that kind of sovereignty-swapping. And really, can anyone imagine the Germans or – and this is an outrageous notion – the French agreeing to endlessly shovel money out of their countries to Greece, Italy, Portugal? Never happen. (Never say never, right?) And Europeans have never shown any sign of being willing to have decisive governments for their Union.

But there are a couple of places on the planet where this does happen, and we can be grateful for that. Anyone ever heard of Canada?

Yes, indeed, ladies and germs, we are a well-functioning federation and we have both wealth swapping between poor provinces (like Manitoba where I’m at) and rich ones (like Saskatchewan next door), and a Parliamentary system that is capable of being very dynamic and decisive (Just look at the speed at which the government is pushing the CWB bill through Parliament).

And we’re a democracy with a common Parliament, so issues can get dealt with eventually, even if they linger for years or decades (the gun registry?), rather than getting bottled up until they explode.

And because of all that, we can have a common currency in our confederation of Canada, and we don’t rip apart at the seams when one part of the joint (Alberta? Quebec?) doesn’t like what other parts are doing and wants its money back, or threatens to walk out the door. The political stuff is political, but we have a common national government with one fiscal and monetary policy so we can have a common currency.

So what the Europeans really need is to become more like Canada. But that isn’t likely to happen. Because Canada is a miracle, a stunning success, and those are hard to duplicate.

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