op-ed

PIIGS in a poke

Bernie McSherry Contributor
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At the beginning of “National Lampoon’s European Vacation” the Griswold family appeared on a game show called “Pig in a Poke” standing cheek-to-jowl in matching pink pig costumes as Chevy Chase, portraying the clueless family head Clark Griswold, brashly decided to risk the family’s winnings by playing for the grand prize. Unexpectedly pitted against the show’s all-time winningest family, things looked bleak for the Griswolds when they were asked to name the lieutenant who led the famous expedition to the Pacific Northwest in 1804. Completely stumped when asked for the final answer, Ellen Griswold (played by Beverly D’Angelo), certain that the family would lose everything, turned to her husband and plaintively addressed him, saying “Clark.” Of course, that turned out to be the correct answer and the family found themselves the winners of an all-expenses-paid trip to Europe. Mayhem ensued as the family, completely unfamiliar with European customs, stumbled across the continent in a series of madcap escapades before returning home to the good ol’ USA.

The movie was a hit on both sides of the Atlantic because it played to both audience’s innate belief systems. Americans identified with the Griswold’s loopy optimism and their obvious love for one another played to American beliefs in the sanctity of the family, while European audiences found that the Griswold’s naïveté confirmed their own feelings of superiority to the hopelessly provincial Americans. For a while there last year, it seemed that the financial crisis was reading from the same script.

Even at the height of the panic, European officials could barely hide their glee. Schadenfreude was in the air as continental commentators repeatedly declared that the crisis marked the death of the Anglo-American model of capitalism. American officials didn’t help matters either. Does anybody recall how uncomfortable Hank Paulson looked as he was forced to explain complex economic concepts in plain language to woefully uneducated congressional leaders? And despite his MBA degree, President George W. Bush never seemed comfortable discussing economics, and he all but disappeared at the height of the crisis, forced underground by the McCain campaign and appearing to have little interest in anything but hightailing it back to his ranch in Crawford, Texas. The new team under incoming President Barrack Obama wasn’t much better either: Tim Geithner’s first public appearance as Treasury Secretary was so quiveringly inept that the markets sold off sharply, leading many to despair that another Great Depression was inevitable.

Something funny happened on the way to financial Armageddon, however. The swift and coordinated response of American officials coupled a massive stimulus program with aggressive and imaginative quantitative easing measures by the Fed. American businesses responded by rebuilding inventories and investing in plant and equipment while the American consumer, written off as dead for a generation, opened their wallets and parted with some dead presidents. The spectacular rally that resulted only stalled in the last few weeks, as concerns over European sovereign debt injected fear back into the market. Like Clark Griswold, Americans had stumbled through the crisis, and our native optimism carried us over some very troubled waters.

Things haven’t worked as well out for our old world counterparts. The EU poke is well populated with a group of homegrown PIIGS (Portugal, Ireland, Italy, Greece and Spain) that have exposed the serious structural flaws in the governance of the European Monetary Union. EU leaders, intent on teaching the Greeks a lesson, have dithered and their diffuse and uncoordinated response has led to massive short bets being placed against the Euro.

The Eurozone is increasingly looking like it is heading for a double-dip recession and the internal strains that the Greek crisis has exposed have led many to conclude that the Euro itself will be unwound. Embarrassingly, European leaders, after denying that they would ever respond to market pressures, found themselves dancing to the bond vigilante’s tune, eventually capitulating by guaranteeing Greek debt and purchasing government bonds in the open market. The European humiliation was complete when their leaders were lectured during a series of direct calls during which President Obama urged them to take the forceful and coordinated steps necessary to stabilize the markets. Yes, that’s right. Americans are back in place offering strong advice to Europeans on money matters. What a difference a year or so makes!

Hopes that the American economic recovery can be inoculated against infection from the PIIGS may prove to be overly optimistic however, since a European contraction not only hurts US exporters but also offers Chinese officials an excuse to delay appreciating the Yuan against the dollar. The resilience of the American economy may be sufficient to overcome the weakness that a strong dollar may engender among exporters, but the stock market remains vulnerable and should southern European street demonstrations turn violent once again, investors will again question the ability of governments to make good on austerity promises. The market reaction to Germany’s reported ban on naked short selling of banks, government debt and CDOs offers further evidence that fear lurks just beneath the surface, therefore traders are cautioned to remain nimble and to lighten exposure when opportunities present themselves.

Lest you think I am sounding a little smug in this article, please understand that I love Europe and I intend to seize the opportunity presented by a devalued Euro by traveling to Spain this summer to support the local economy. Assuming that disgruntled workers don’t call a general strike and ruin my plans, my dollars, once predicted to be dethroned as the world’s reserve currency, should garner some real bargains. My only real worry is that lots of my like-minded countrymen will come up with the same idea and spoil the Spanish ambience.

As Americans traveling abroad well know, the last thing you want to encounter on a European vacation is a family full of Griswold’s behaving like obnoxious, clueless tourists. So, maybe the Europeans aren’t entirely wrong. Let’s face it:

Sometimes stereotypes are stereotypes for a reason.

Bernie McSherry is senior vice president for strategic initiatives at Cuttone & Company.