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February 08, 2010

Is Europe About to Melt Down?

Although we're always told our problems were due to The Fiend Bush, seems that a lot of European countries are similarly situated. A lot of money is tied up in bad Spanish property.

The poorer European countries have a lot of debt they can't pay, and they can't use the typical means to avoid paying (printing money, borrowing even more money they can't pay) because they're in the Euro system, with their finances significantly controlled by German deficit/inflation super-hawks.

So basically they're just being told by Europe's central banks to lay off a significant fraction of government workers, stop safety net payments, etc. Bite the bullet, in other words.

Most of these countries will have to repudiate the Euro and drop out of that system.

But even if they do -- their situations are becoming more dire.

Flow data shows an abrupt withdrawal of German and Asian capital from Club Med debt markets. The EU's refusal to offer Greece anything beyond stern words and a one-month deadline for harsher austerity – while admirable in one sense – is to misjudge how fast confidence is ebbing. Greece's drama has already metastasised into a wider systemic crisis. The world risks a replay of the Lehman collapse if this runs unchecked, this time involving sovereign dominoes.

Thanks to AHFF Geoff.



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posted by Ace at 12:29 PM

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