The European Onion

By Peter Atwater  JUN 26, 2012 11:45 AM

The layers of leadership are clearly pulling apart.

 


MINYANVILLE ORIGINAL This morning, Messrs. Barroso, Van Rompuy, Draghi, and Juncker presented a plan for rescuing the eurozone that included creating a closer fiscal and banking union that would, to quote the Telegraph, “turn Brussels into a finance ministry for all eurozone members.”

Put simply, that dog don’t hunt. Or, maybe more appropriately for the eurozone at the moment, that salmon don’t spawn.

I offer the latter analogy given the “upstream battle” I am afraid European leaders now face in proposing a plan that clearly goes against the tide of mounting nationalism across the continent.  What European leaders have repeatedly failed to appreciate with their offerings of one grand solution after another is that, as social mood deteriorates, local priorities take clear precedence over national/regional objectives.  (And one need only look at the stock charts of the DAX (^GDAXI), CAC (^FCHI), IBEX (^IBEX), and Athens Stock Exchange (ATG) to see just how low mood has fallen.) 

The idea that governments will cede even more national sovereignty to Brussels flies in the face of everything that I see across Europe today that suggests a clear social mood-driven preference for “me” versus “us” solutions.

And not to be overly dramatic, but those “me” versus “us” solutions are becoming increasingly troubling. This week Kathimerini, the Greek news organization, reported that “brutal attacks against migrants in Greece are becoming almost a daily occurrence, with violent mobs acting almost unhindered as police have failed to make any significant arrests.”

But beyond European leaders' failure to appreciate the mounting low social mood-induced nationalism is those leaders’ own inability to see how low social mood is fracturing what we think of as “European Leadership” itself.

In an effort to explain the Greek election results back in early May to my clients, I turned to a Nolan chart offered by Alan Hall in the October 2011 edition of The Socionomist.
 
What history suggests is that during periods of falling social mood (which can be readily measured by falling stock prices), politicians move away from the center toward the corners.  And as we have seen in our elections here in the United States over the past decade, compromising moderate statesmen such as Richard Lugar and Mike Castle have been replaced by more extreme leaders – both on the left and right.



What I saw with the Greek election results was not “unanimous opposition to austerity” suggested by the financial and political media, but rather a panicked herd. Thanks to extremely low social mood, there was an extreme dispersion of votes across the full spectrum from far-left to far-right.  As I described at the time, it was “The Serengeti on the Aegean” with Greek citizens fleeing the collective center to wherever they thought they (individually) could find safety.



Of late, however, I am afraid that we are seeing the same “fracturing” and “dispersion” taking place within “European Leadership."  In the late 1990s, if you had used the term “European Leadership” I suspect that you would not have had to spend any time explaining what you meant by it. Phrases like "compromising," "moderate," "unified," and "focused on clear voter-endorsed pan-European goals," were readily accepted and all but implicit in the term “European Leadership."

Today, I am afraid that “European Leadership” resembles something more akin to this image:



Those in “European Leadership,” like voters across the continent, are acting in a much more self-interested manner. (And even this chart may not do the current level of self-interest justice.  Based on news reports over the weekend, “ECB Governors,” for example, should probably be broken down into subgroups, and the same can be said for others on the list as well.)

Maybe I am being far too simplistic, but a closer fiscal and banking union that would “turn Brussels into a finance ministry for all eurozone members” requires underlying behaviors that suggest a clear migration back toward “European Leadership,” not the example after example that I see every day of the reverse.

Until mood turns, I am afraid that even today’s “less ambitious” plan faces an “upsteam battle.”  The European current is clearly flowing toward greater and greater nationalism, and with it “European Leadership” is fracturing before our eyes.
 
Peter Atwater's groundbreaking book "Moods and Markets" is now available for pre-order on Amazon and Barnes & Noble.
 
“Peter Atwater brilliantly provides a framework for understanding both the socioeconomic hubris that led to the great credit bubble of the past decade and the dark social-psychological hangover that has resulted from its collapse. In so doing, he offers an invaluable guide to what promises to be a very difficult and turbulent period ahead as we experience what he calls the ‘me, here, and now’ behavioral tendencies of the post-crash world.”  —Sherle R. Schwenninger, Director, Economic Growth Program, New America Foundation
Position in SH and JPM

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