Europe Gets Sick of Being Sick

Feeling bad is bad enough, but one of the worst things about a prolonged illness is that, after a while, you can hardly remember what it was like to be healthy. You get sick of being sick.

Europe has officially reached that point. Sunday’s elections in France and Greece, following earlier balloting in Spain, Portugal and other struggling eurozone nations, signaled that voters across much of the continent – with the conspicuous exception of Germany – are at their wits’ end over high unemployment, shrinking government services, rising taxes and cuts in pensions and other benefits. There may be no quick cure for their economic ills, but like a frustrated patient who turns to “alternative” medicine when science cannot help, they will give a shot to anyone who says he can make them feel better fast.

French voters ousted President Nicolas Sarkozy and replaced him with François Hollande, a Socialist. Hollande promised to push for “pro-growth” policies, which in his view include higher taxes on corporations, still higher taxes on targeted industries such as banks and oil companies, and a 75 percent tax on individuals who earn more than €1 million (about $1.3 million) a year. He wants to raise the minimum wage in France, and he wants to re-negotiate the budget tightening rules that Sarkozy agreed upon with Germany just five months ago.

In Greece, Sunday’s parliamentary elections produced chaotic results, in which the two dominant parties received only about one-third of the total vote between them, while about eight other parties – including the neo-nazi “Golden Dawn” – won enough votes to claim seats in the incoming legislature. Most of the fringe parties campaigned against Greece’s crucial agreements with its creditors, and it is not clear whether the new government will be strong enough to honor the country’s commitments.

If Greece reneges, it may very well be forced out of euro currency zone, and conceivably out of the European Union itself. It would also find itself cut off from the new borrowings that are keeping the country afloat. Greek voters have heard all this, but their frustration with the governing parties is so deep, and their denial of responsibility for their country’s condition is so strong, that they just do not care. German money is keeping Greece in business, but the Greeks resent the Germans so much that they have just put neo-nazis into their own parliament.

The idea behind Europe’s recent balloting is that prosperity can be bought with government spending, even though the money governments spend must either be taxed or borrowed from the private sector. European leaders did not originally choose fiscal austerity because they wanted to retard growth. They chose it because there was no other option.

Europe’s themes will be echoed in our own upcoming election. President Obama and his supporters will make arguments similar to Hollande’s: that growth can be bought with more government spending and with higher taxes on business and the rich.

The difference is that Obama has implemented those policies – at least the spending part – for more than three years, to little effect. Mitt Romney will spend much of the campaign pointing this out.

He’ll be betting that American voters are as sick of their sick economy as Europeans, and that, having tried the Obama prescription of unbridled spending, they might be ready for different medicine.

About Larry M. Elkin 564 Articles

Affiliation: Palisades Hudson Financial Group

Larry M. Elkin, CPA, CFP®, has provided personal financial and tax counseling to a sophisticated client base since 1986. After six years with Arthur Andersen, where he was a senior manager for personal financial planning and family wealth planning, he founded his own firm in Hastings on Hudson, New York in 1992. That firm grew steadily and became the Palisades Hudson organization, which moved to Scarsdale, New York in 2002. The firm expanded to Fort Lauderdale, Florida, in 2005, and to Atlanta, Georgia, in 2008.

Larry received his B.A. in journalism from the University of Montana in 1978, and his M.B.A. in accounting from New York University in 1986. Larry was a reporter and editor for The Associated Press from 1978 to 1986. He covered government, business and legal affairs for the wire service, with assignments in Helena, Montana; Albany, New York; Washington, D.C.; and New York City’s federal courts in Brooklyn and Manhattan.

Larry established the organization’s investment advisory business, which now manages more than $800 million, in 1997. As president of Palisades Hudson, Larry maintains individual professional relationships with many of the firm’s clients, who reside in more than 25 states from Maine to California as well as in several foreign countries. He is the author of Financial Self-Defense for Unmarried Couples (Currency Doubleday, 1995), which was the first comprehensive financial planning guide for unmarried couples. He also is the editor and publisher of Sentinel, a quarterly newsletter on personal financial planning.

Larry has written many Sentinel articles, including several that anticipated future events. In “The Economic Case Against Tobacco Stocks” (February 1995), he forecast that litigation losses would eventually undermine cigarette manufacturers’ financial position. He concluded in “Is This the Beginning Of The End?” (May 1998) that there was a better-than-even chance that estate taxes would be repealed by 2010, three years before Congress enacted legislation to repeal the tax in 2010. In “IRS Takes A Shot At Split-Dollar Life” (June 1996), Larry predicted that the IRS would be able to treat split dollar arrangements as below-market loans, which came to pass with new rules issued by the Service in 2001 and 2002.

More recently, Larry has addressed the causes and consequences of the “Panic of 2008″ in his Sentinel articles. In “Have We Learned Our Lending Lesson At Last” (October 2007) and “Mortgage Lending Lessons Remain Unlearned” (October 2008), Larry questioned whether or not America has learned any lessons from the savings and loan crisis of the 1980s. In addition, he offered some practical changes that should have been made to amend the situation. In “Take Advantage Of The Panic Of 2008” (January 2009), Larry offered ways to capitalize on the wealth of opportunity that the panic presented.

Larry served as president of the Estate Planning Council of New York City, Inc., in 2005-2006. In 2009 the Council presented Larry with its first-ever Lifetime Achievement Award, citing his service to the organization and “his tireless efforts in promoting our industry by word and by personal example as a consummate estate planning professional.” He is regularly interviewed by national and regional publications, and has made nearly 100 radio and television appearances.

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