The Mess That Is Europe

| About: Vanguard FTSE (VGK)
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The situation in Europe appears to be getting worse and worse and is not limited to problems in Great Britain, or Italy, or Greece.

Leadership seems to be absent everywhere one looks and even the star of Angela Merkel of Germany seems to be waning in the face of upcoming elections.

The economic situation in the United States cannot but be hurt by such developments and is not really in a position to be of any help to the European Union.

The United States has its own problems.

Yet, the United States cannot divorce itself from what is going on in Europe.

And, Europe appears to be in a mess.

In the last days of June, Great Britain voted to "leave" the European Union. The existing leaders of the Conservative Party resigned and Theresa May became the Prime Minister and put together her cabinet.

Nothing coherent has resulted.

Today we are reading in The Times of London that European leaders are "fed up" with the people that they are having to deal with who represent the British government in talks.

"Boris Johnson and David Davis, the cabinet ministers leading Brexit, have been accused of 'unbelievable arrogance' and having no idea what leaving the European Union means."

The leaders of the European Union are seeing nothing less than a "hard exit" for the British with little generosity being given in any final settlement.

And, within the European Union itself, there is the upcoming vote on Italian constitutional reforms coming on December 4, a vote that Matteo Renzi, Italy's Prime Minister, seems destined to lose.

Furthermore, the Italian banking system seems to be on the edge of collapse with huge amounts of bad loans on their books, loans that have been carried over for years and years.

The negative downside to situation is that Italy may be on the path to leaving the EU. If such a thing were to happen, it becomes more likely that Greece would also leave the community.

The problems don't end there with more elections coming up on the continent, the one getting the most attention right now is the one coming next spring in France. Right now everything seems to be in a jumble, with the shadow of Marine Le Pen and the populist right threatening another move away from a unified Europe.

Europe seems to be spinning out of control and in many ways a breakup appears to be more probable than ever.

The decline in the value of the euro seems to be a harbinger of such pessimism. Today, the value of the euro against the US dollar dropped below $1.0550. Many analysts are predicting a $1.0000 euro by early next spring.

Pessimistic European corporations have borrowed lots and lots of money taking advantage of all the liquidity and low interest rates provided by the European Central Bank, but…they are not spending the money.

Economic growth is stalled…or, at best, halting.

Even Europe is hoping, along with the US financial markets, that President-elect Trump will be able to provide some governmental stimulus that will result in all markets rising in expectation of faster economic growth in the future.

But, there is little or no leadership stepping forward. Even Angela Merkel, German Chancellor, seems to be losing her star power and is struggling, both within the European Union, as well as at home.

If Europe cannot climb out of its hole, world growth and world trade will continue to suffer. It is even unlikely that the United States can maintain its mediocre growth rate if the EU is breaking apart and Great Britain continues to wallow in incompetency.

And, who stands to take advantage of all this disarray and despondency?

China stands to gain and is poised to move into the void that is evolving in much of the rest of the world. China stands to take advantage of the United States "leaving" the Trans-Pacific Partnership. Others seem to be ready to move with them.

So, this is how we move into 2017. The stage is not being set for any very optimistic pictures of the upcoming year.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.