Television and computer screens worldwide have been filled with tragic images of the Costa Concordia, the 1,000-foot-long cruise ship with more than 4,000 passengers and crew on board that hit a rocky reef off an Italian island and quickly foundered. Like the Titanic sinking nearly 100 years ago, horrible scenes of fear and desperation have been reported, as individuals tried to reach safety and protect loved ones while the ship capsized. At 114,000 tons, the Costa Concordia is the biggest ship ever built in Italy and is valued at over $500 million.
Captain Francesco Schettino has been charged with manslaughter, as a result of his inaction and delay. He faces up to 15 years in prison, having allegedly given the evacuation order 70 minutes after the ship first suffered a 160-foot gash in its hull.
As the casualty lists from the Costa Concordia are being compiled, Europe itself is struggling to keep its head above water. Several European countries face huge debt problems, and despite renewed efforts by the European Central Bank to intervene in the financial markets and uphold the euro, fears are still mounting.
This past week, Standard and Poor's stripped France of its prized AAA rating, which it has held since 1975. This is a significant blow to a famously proud country that is at the center of rescue efforts for the Euro. But France was not singled out maliciously. Eight other euro zone countries were also downgraded, with Italy facing a precipitous drop of two notches, to BBB-plus. S&P then went on to downgrade the euro zone's rescue fund, the European Financial Stability Facility, for which France is responsible for 20 percent of the funding.
Not all euro zone countries, however, were tarnished with the same brush.
Frugal countries such as Germany and Netherlands survived the week with their AAA ratings intact. Britain has also maintained its credit rating under the deficit-cutting "austerity policies" put in place by the Coalition government that took over from the discredited Labor government of Gordon Brown.
The euro zone will work as a monetary union if members feel that there are valid reasons to stay within the union long term, and that members who do not play by the rules will be brought into line, whether by way of the stick or the carrot.
Unfortunately, in 2012, European countries will need to raise approximately $1 trillion in order to refinance existing debt and address lingering budget deficits. Without the money to pay off their debts as they come due, these governments have no choice but to issue more bonds, and more bonds, and more bonds.
Week by week, month by month, these governments must go back into the financial markets and raise billions in new debt financing. Should investors become spooked, the interest rates they will demand could spike up dramatically. With each rise in borrowing costs, the likelihood of default rises.
In the case of Greece and Portugal, the situation has become so difficult that the European Financial Stability Facility was established in order to provide a "co-signer" for them!
Despite more than $600 billion in loans made by the European Central Bank to provide liquidity to the banking system, surprisingly little money has flowed into European government bonds. Investors are turning their backs on what, at least on paper, are easy profits to be made by borrowing at 1 percent from the ECB and then lending that same money to Spain or Italy and pocketing the difference of 4 percent to 6 percent. Instead, banks prefer to sit on the money, uncertain about the future.
As the great and the good from the EU and the ECB meet this week in Athens with the International Monetary Fund to assess Greece's progress in reforming its grossly distended budget, fears again were mounting that a Greek default may ultimately be inevitable. Systemic budget imbalances and bloated public debt means that many countries now face the prospects of long-term economic malaise.
Interestingly, although a legion of valid criticisms could be made about the operation of the EU and the anti-democratic effect of the faceless bureaucrats at EU headquarters in Brussels plying their trade far from voters' eyes, the debt problem faced by European countries is largely of their own making.
The examples set by the fiscally prudent states, such as Germany and the Netherlands, show that austerity and a balance budget are not impossible in the EU. They are simply a policy choice that political leaders must have the courage to pursue. Voters can and will back them if the benefits of prudence are clearly explained.
Reports have surfaced that Captain Schettino manually overrode the pre-programmed course of the Costa Concordia, in order to conduct an unauthorized "sail by" of his head waiter's family home on Giglio island. The consequences of this decision were devastating and humiliating, regardless of the sentimentality and good intentions behind it.
The owners of the vessel have quickly blamed the accident on the "significant human error" of Schettino. To the extent that European political leaders continue to live outside their means, and indulge in the vanity of propping up excessive government spending with costly public borrowings, this "significant human error" may soon have its own devastating and humiliating consequences.