Summary:  As with others in the same position, I am seduced by my quasi-outside status as a frequent visitor to Europe to write down some observations.  In this case, it is about Europe in this economic crisis and the news is this:  Not all that bad.  True, it is the worst economic situation in almost two generations but the special European “system” has demonstrated admirable resilience.  People are losing their jobs and shops are closing but the safety net has held and governments have responded with alacrity (such as it is) without the ideological war cries about socialism that are rampant in the US.  Besides, the espresso remains delicious, as does the panna cotta.

The Details.

Over the last two years I have spent about half that time (off and on) in Europe.  While I did not play the fiddle while all around me was burning, Rome itself was not on fire nor was it being sacked (but then I was not in Rome, so enough of that allusion).  Upon each return to Europe from the economic wreckage and political name-calling and Chicken Little screaming, I was mildly amazed at how well the European economy has managed this terrible crisis.

Weak Dollar, Resilient Companies. True, the weak dollar has severely crimped revenues (and jobs) of many export-based industries—the engine of the EU economy—but companies have responded by seeking other markets or simply riding out the storm.  Most of these companies are small enough and experienced enough that resilience seems to be inherent.

Fast Government Intervention. In addition, the crisis started as a credit crunch.  Without much dithering, the governments responded, usually with nationalization.  That worked.  Few cries of “socialism” were heard because people knew, and accepted, what had to be done.  Moreover, not all of the national economies included banks in serious trouble;  financial regulators in several countries had spotted the looming crisis several years before, forcing banks to suffer lesser pain then so as to avoid fatal illness later.

The Safety Net Held. EU governments invest a lot of money in their forms of social security, unemployment and—get ready—health care.  And they work.  True, public debt is high and getting higher—but, contrary to the claims of monetarists that such debt crowds out (presumably more efficient) private debt, it has not happened.

Don’t get us wrong:  We are neither for nor against public sector spending.  We’re just following the money.  Viewed that way, the safety net expenditures operate as a kind of ongoing stimulus package.  After all, people receiving this money have to spend it somewhere and they do:  on rent, food, even entertainment (today in the phone store I listened to a welfare recipient rant about problems with his government-subsidized mobile phone).  The larger public sector employment also operates as a kind of ongoing stimulus program, in much the same way.  Public employees—notoriously difficult to fire—nonetheless earn (at least some of) their money by making the trains run on time and, like welfare recipients, they spend what they earn from the taxpayers.

The same can be said of the long vacations enjoyed by most Europeans.  Five to six weeks of time off means higher, not lower, expenditures.  True, the money “bleeds” out of, say, Italy to, for example, Switzerland but it is still money spent.  GDP measurements do not differentiate among types of expenditures—just that things are made and spent.  Thus, vacation expenditures contribute to GDP.

Macro Level Productivity. Whatever the ideological knee-jerking that occurs in reference to nationalized companies, a little bit of analysis shows that they fare pretty well by all measurements—ROI, return to shareholders.  The Economist pointed out that most of the largest corporations in the world are in fact government controlled.  Moreover, European employees perform pretty well by most measurements of productivity.  Long vacations, high wages and lots of rich food do not seem to damage their output.

So What?

One can draw many conclusions from these observations (and we haven’t even gotten to the panna cotta).  We think there are many opportunities for US companies in the EU and vice versa (hey, we’re not here just for the espresso and good food).

Part Deux to come . . .

James C. Roberts III ( is the Managing Partner of Global Capital Law Group and CEO of the strategic consulting firm, Global Capital Strategic Group.  He heads the international, mergers & acquisitions and transactional practices and the industry practices concentrating on digital, media, mobile and cleantech technologies.  He is currently involved in opening the Milan office for Global Capital.  Mr. Roberts speaks English and French.  He received his JD from the University of Chicago Law School, his MA from Stanford University and his BS from the University of California—Berkeley.

Global Capital ( counsels domestic and international clients on legal issues inherent in the deployment of intellectual & financial capital—a merger or acquisition, foreign market expansion, a strategic alliance, a digital content license, a mobile deal, foreign and domestic labor and employment policies, starting a new entity or raising capital. Clients range from global Fortune 100 corporations such as Deutsche Bank and News Corporation and its subsidiaries, and Fox Interactive Media, to start-ups.  Industries represented include digital media, Internet, software, medical and biotechnology, nanotechnology, consulting firms, environmental technology, advertising, museums and other cultural institutions and manufacturing.

It does not matter what you think about the propriety of Wall Street paying $18 + billion in bonuses at the end of 08 (about what they paid in 04).  What matters is that senior management may have blown it.  Here’s why:

1.  It is a PR disaster at an especially bad time.

2.  They (the banks/Wall Street) need the support not only of politicians but also the rest of America.  Just how many unemployed workers will like that news?

3.  Now, imagine politicians voting for the next bank bailout.

Whether or not the bonuses were earned is not the issue:  It is the bad taste this news leaves in the mouths of important constituencies.

Just returned to Milan from the usual European winter holiday–this time up in the Alps, surrounded by the wealthy and the ultra-wealthy in their SUVs and furs (we are not among those people).

So what?

1.  Some people have so much income that their lives are not–and will not be–affected by the on-going economic meltdown.  They will still pay $12 for a bratwurst while on the ski slopes and millions for the right apartment, no matter what the conditions.  In the Swiss resorts, this is not a small fraction of the people.

2.  Many others are being affected:  Cracks in the “perfect” mountain life are showing.  Please keep in mind that most people planned–and paid for–their holidays long before the meltdown started, so NOT going was generally not an option.  (Besides, the majority of people in these places go to family-owned–and modest–apartments.)  Evidence:  Dinner reservations off and, from the stories from the locals, few sales in the chic stores (Prada, etc.) and even in the sports stores (e.g., new equipment).

3.  The economy was the second topic in all lunch and dinner conversations (Obama was first).  Everyone assured me that he or she was not being affected.  When people go out of their way in conversation to make such assurances then I read the tea-leaves the other way:  They are on the phone screaming at their private banker.

4.  Noted for their absence:  Investment banking and hedge fund partners normally there.  Hmmmmm…

5.  Private-side M&A deals were actually discussed and–yes!!–several had closed!

News just out in the DealBook that the Fed actually DID lend money to Lehman just before its collapse–contrary to Hank’s claims that they had no legal authority to do so.  Hank, what are you doing?  Your credibility is critical to the salvation of this economy.  Come clean.  From the European perspective, this is one more nail in the coffin of US credibility.   But as one dinner companion said, “That coffin doesn’t need any more nails.”