Simon Johnson, former chief economist of the IMF, comments on what it would take to save Europe:
If Italy or any other eurozone country is in good shape and can pay its debts, the European Central Bank (ECB) can provide ample short-term support – through buying up bonds to prevent interest rates from reaching unreasonable levels. The euro is a reserve currency – meaning investors around the world hold it as part of their rainy day funds – and all European debt is denominated in euros. In Mexico in 1994, for example, much of their debt was in dollars; in such a situation, a foreign loan can help stabilize a crisis – although even there the right policies have to be put in place.
But if Italy cannot pay its debt, then the ECB has no business lending to it. The Europeans have to decide for themselves: Is Italy’s fiscal policy reasonable and responsible? If yes, provide full support as need – from within the eurozone. If not, then find another way forward.
Meanwhile, Germany has reached the end of the road on its contributions to the EU bailout fund:
German Finance Minister Wolfgang Schaeuble has ruled out Germany contributing any more money to the beefed-up EU bail-out fund than the 211 billion euros ($A294.51 billion) approved by parliament.
‘The European Financial Stability Facility has a ceiling of 440 billion euros, 211 billion of which is down to Germany. And that is it. Finished,’ he told the magazine Super-Illu in an interview published on Saturday.
which sounds like a triumph of politics over policy to me. Whatever German public opinion on the subject the primary objective of the bailout fund isn’t to allow lazy and profligate Greeks, Portuguese, Spaniards, and Italians to keep the party going. It’s to prop up greedy and irresponsible German and French banks that are too exposed to Greek, Portuguese, Spanish, and Italian debt.
The more I read about Europe the more I think Europe is really fucked (sorry for the language, but I think it’s appropriate here). By extension, we will be equally screwed. Maybe I’m crazy, but I’m actually considering moving out of equities and into cash for a while.
The purpose of the EU and the euro is to support German manufacturing and French farmers at everybody else’s expense. The tables are now turned and the Germans are balking at the cost.
No, the purpose of the EU is to tie the Germans up so they won’t go around invading everyone every 30 years or so. Supporting German manufacturing is just how the rest of Europe hoped to lure them in. The French farm subsidies are there just because the French have a better class of pol/bureaucrat than most peoples.
Nah, that’s what NATO is for. Keeping the Russians out, the Americans in, and the Germans down.
Heh. I stand corrected.