Sponsored Content
« Boehner Makes New Promise: No Way Debt Limit Is Increased Without Reform | Main | Shrinkage: New York Times Contrasts GOP's Awful "Shrinking" of Medicare To Obama's Wonderful "Savings" »
April 11, 2011

Doom? The Eurozone Is On The Brink?

More and more member nations need bailouts.

At some point, the wealthy can't cover for the poor.

This was always a ridiculous idea. As this article notes obliquely, some states in Europe have had a drunken-sailor attitude about debt -- just spend until you run out, declare bankruptcy, accept a few years of austerity, limp along again -- and some, notably inflation-sensitive Germany, are committed to fiscal solvency.

The Eurozone supposedly unites all these countries economically, but these are not in fact inferior states subject to federal authority as in America, were the government can bring all states on to the same basic page (for better or for worse-- lately, worse).

The states that like to borrow and spend can keep on doing so. It's just that the consequences of their imprudence wind up to be largely a problem of Germany, which then, of course, just encourages them to keep doing it.

Until Germany's tapped, too.

Very worst of all worlds scenario going on here.

Recently, I asked a well-placed minister what plans had been put in place in case the eurozone started to unravel. He just looked at me blankly: “That’s not going to happen. There is too much political will behind the euro for them to let it go.” In other words, the Cameron Government shares the same complacent analysis as the European political class: this is not a real problem, we’ll muddle through somehow, it’s all the fault of the speculators, etc etc.

This is denial. The simple truth is that Greece, Ireland and Portugal are all bankrupt. Perhaps it is worth spelling out exactly what this means: however hard these countries try, and whatever austerities they impose, they will never, ever be able to pay off their debts.

In itself, this is not much of a problem – Greece and Portugal (though not Ireland) have gone bankrupt many times before, and always recovered. The tried and tested response is to default, then reschedule debts by reducing coupons (ie interest payments) and extending maturities, while allowing the national currency to depreciate so that the economy can once again become competitive.

Their membership of the eurozone, however, means that none of this can happen. There has, until recently, been an absolute determination in Frankfurt and Brussels that no European country should default. The reason for this is sobering: many leading European banks have massive exposure to the sovereign debt of these troubled countries.

Were Portugal or Greece to acknowledge formally that they are bankrupt, the big banks would have to come clean with investors about the true value of these loans. As a result, massive sums would have to be written off on the balance sheets of many of European banking’s most famous names, sending some spiralling towards bankruptcy. Even those that survived would have to cut back the scale of their operations sharply, thus curtailing lending to individuals and businesses. This, in turn, would damage business activity and send Europe yet deeper into recession.

Strapping yourself to drowning men is rarely a wise course to stay alive at sea.


digg this
posted by Ace at 06:38 PM

| Access Comments




Recent Comments
... : ""Mercy killings" for the benefit of society is the ..."

rickb223 [/s][/b][/i][/u]: "He's got to either continue this charade and put o ..."

But it will eventually get a lot better: "So in 1962 Vatican ALMOST statd that gender cha ..."

Thomas Bender - Trump Fanatic Since 2016, Now With More Fanaticisms: "@444 >>We are watching the US stature in the wo ..."

TheJamesMadison, being witty and sophisticated with Ernst Lubitsch: "Bragg is just a non-partisan guy doing his job, ac ..."

NIST- WTC7 uniform collapse was from burning office chairs, not conspiracy theories like impacts: "Xi's comment about changes that we've haven't seen ..."

bear with asymmetrical balls - an election is simply a festival for the majority: "[i]Universalist Unitarian church[/i] Unitarians ..."

Maj. Healey: "Among the senators who shrugged off defending Trum ..."

Cato, Collectivism Delenda Est, Post-Apocalyptic Scourge of the Seas: "And yet somehow they are positive they are right a ..."

Bamanarama: "Grotesque butchery of children brought to us by th ..."

Sponge - F*ck Joe Biden: "[i] But he can't get rid of that taint smell. Po ..."

Cat Ass Trophy: "But honestly," Bowers continued, "I can't sit here ..."

Recent Entries
Search


Polls! Polls! Polls!
Frequently Asked Questions
The (Almost) Complete Paul Anka Integrity Kick
Top Top Tens
Greatest Hitjobs

The Ace of Spades HQ Sex-for-Money Skankathon
A D&D Guide to the Democratic Candidates
Margaret Cho: Just Not Funny
More Margaret Cho Abuse
Margaret Cho: Still Not Funny
Iraqi Prisoner Claims He Was Raped... By Woman
Wonkette Announces "Morning Zoo" Format
John Kerry's "Plan" Causes Surrender of Moqtada al-Sadr's Militia
World Muslim Leaders Apologize for Nick Berg's Beheading
Michael Moore Goes on Lunchtime Manhattan Death-Spree
Milestone: Oliver Willis Posts 400th "Fake News Article" Referencing Britney Spears
Liberal Economists Rue a "New Decade of Greed"
Artificial Insouciance: Maureen Dowd's Word Processor Revolts Against Her Numbing Imbecility
Intelligence Officials Eye Blogs for Tips
They Done Found Us Out, Cletus: Intrepid Internet Detective Figures Out Our Master Plan
Shock: Josh Marshall Almost Mentions Sarin Discovery in Iraq
Leather-Clad Biker Freaks Terrorize Australian Town
When Clinton Was President, Torture Was Cool
What Wonkette Means When She Explains What Tina Brown Means
Wonkette's Stand-Up Act
Wankette HQ Gay-Rumors Du Jour
Here's What's Bugging Me: Goose and Slider
My Own Micah Wright Style Confession of Dishonesty
Outraged "Conservatives" React to the FMA
An On-Line Impression of Dennis Miller Having Sex with a Kodiak Bear
The Story the Rightwing Media Refuses to Report!
Our Lunch with David "Glengarry Glen Ross" Mamet
The House of Love: Paul Krugman
A Michael Moore Mystery (TM)
The Dowd-O-Matic!
Liberal Consistency and Other Myths
Kepler's Laws of Liberal Media Bias
John Kerry-- The Splunge! Candidate
"Divisive" Politics & "Attacks on Patriotism" (very long)
The Donkey ("The Raven" parody)
Powered by
Movable Type 2.64