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November 30, 2010

Euro-contagion spreads [Fritzworth]

It's 2:40 am Wednesday morning here in Paris, and I'm wide awake -- not because of jet lag, but because I came down ill with a 24-hr bug on Monday night and slept most of Tuesday. The good news is that I'll get more euros when I withdraw cash from the friendly neighborhood ATM in the morning:

Investors dismissed European leaders' latest attempt to restore market calm, raising doubts about whether governments can rebuild confidence in the region's common currency amid signs that the debt crisis is creeping deeper into the Continent.
The euro fell to a 10-week low, and was below $1.30 in late New York trading. Bond markets across Europe's vulnerable fringe sank, as the "risk premium" investors demand for lending to Spain and Italy hit record highs. Standard & Poor's said after European markets closed it is considering a downgrade on Portugal's credit rating, citing economic pressures and increased risks to the government's creditworthiness.

The eurozone was, for the most part, a collectivist pipe dream fueled by grand intentions -- the classic liberal fallacy of "if we just mean well, it will all work out." Megan McArdle, a libertarian economist, suspects the euro, as a currency, may not survive. More disturbingly, McArdle -- no alarmist or ideologue -- has real concerns about what lies ahead for all of us:


Europe cannot let its banks fail, but it also can't divert public pensions to line the pockets of bankers. Yet it may well have to do one or the other. I am also expecting finance to win. Forget whether Germany has the political will to bail out the PIIGS: does either the EU, or the ECB, actually have the means to bail out all five? If Spain topples, that is what it will come to.


This is starting to throw off more echoes of the Great Depression, where you have a sequence of crises, each touched off by the ones that came before, like dominos falling into some diabolic design. Europe and America thought they'd seen the worst of things by the end of 1930, only to be knocked back down even harder by the contagion of the Creditanstalt crisis. In the US, the crisis ultimately triggered a string of bank failures worse than those sparked by the initial stock market crash, and the worst two years of the Great Depression were 1932-3.

Hey, if I can't sleep, there's no reason why you should get to. ..fritz..


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