Alan Guebert: Go ahead, bet against Europe
May 31, 2012
When I hopped on the ag journalism jet in 1981, the European Union (known then as the European Economic Union) forecast it would spend a fabulous sum – $5 billion or so – on its farm support program, the Common Agricultural Policy.
By comparison, the U.S. Department of Agriculture estimated total 1981 farm program costs here would be about $2 billion. The estimate was pretty accurate; actual U.S. farm program expense totaled $1.9 billion in 1981.
The disparity between the two compelled the smart money to bet that not only would America’s farm program spending flatten out, and perhaps fall, as the good years of the 1970s stretched into the 1980s, but that European farm program spending would, because of it massive outlays and talked-about expansion, simply implode.
Not one nation and certainly not one group of nations, forecasted any ag economist worth his slide rule and bowtie back then, could sustain the Continent’s wild-eyed ag spending.
The bowtie gang was, of course, wrong – on both counts.
Not only did the Europeans continue their rich ag spending, they expanded it and their “common market” to other nations for 30 more years. In 2008, CAP costs topped 55 billion Euros, or $70 billion. (CAP will cost about 53 billion Euros this year.)
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At the same time, U.S. farm program spending did everything but drop. The go-go 1970s gave way to going-going 1980s and gone-gone 1990s. Ag program costs here grew to $16.7 billion in 1987 and, after hovering between $8 and $13 billion for a decade thereafter, soared to $24.4 billion in 2004.
Today, after a re-jiggering of ag policy in 2008 and two of the three most profitable years in the history of American agriculture, federal farm program spending still weighs in at hefty $11 billion.
Those 30-year-old predictions – and their dismal results – come to mind as the smart money once again lines up to bet against Europe, its currency, the Euro, and its resolve to stand together. According to conventional economic thought, the European Union and the Euro will sink in a cold summer soup of debt, doubt and division.
And, like the 1981 view that Europe couldn’t continue its farm program spending, there is plenty of evidence to suggest the conventioneers might be right. After all, national debt to gross domestic product for troubled EU members like Greece is 165 percent. That means, at current rates, if every cent of the Greek economy went to pay its debt, it would take one year and nine months to cover it.
Other nations face similar woe. Italy’s debt to GDP is 120 percent, Portugal’s is 107 percent and even solid, stolid Germany, the anchor for the leaky EU ship, is 81 percent.
And yet, no one – not even the Greeks who are staggering through an EU-imposed austerity program – are ready to cash in and move out of the Euro or the EU. In fact, a May 29-released survey shows 71 percent of all Greeks, the highest of any nationality polled, want to stay with both the currency and the union.
Another sign of recovery, or at least less chaos, comes from changes in political leadership throughout much of the region. Key EU members like France, Italy and Greece have new leaders that were elected to balance yesterday’s recession-inducing austerity programs with tomorrow’s growth-building public spending ideas. Both are needed to reel in debt while nurturing business activity.
Despite these changes, the EU and the Euro still could go south. That likelihood, predicts the conventional gang, involves global bond traders ganging up on the European Central Bank as it attempts to prop up, say, Greek debt or slow capital flight from Rome.
‘Course they said the same thing about European ag spending in 1981. Back then, we thought it was about money. To the Europeans it was about freedom from war and want.
Still is, I’d bet.
© 2012 ag comm