Will Europe Survive?

[Giant Communist Robot]

Deficit spending in the U.S. vs. austerity in the EMU---we'll see how this works out.

[Shapley]

Deficit spending in the U.S. vs. austerity in the EMU---we'll see how this works out.

Emus are getting austere? Can ostriches be far behind? ; )

[Giant Communist Robot]

You gotta remember it's the Germans who are calling the shots, and they'll take what they want even if it means grinding some others into dust. The Maastricht Treaty limit of 60% debt to GDP and austerity are the brain children of ordoliberalism, the modern German approach to socialism.

[Giant Communist Robot]

The problem with Greece is not so much Greece as it is the banking systems from whom Greece has borrowed. I've read that U.S. exposure is covered by CDS's, but we've seen haircuts without triggering defaults already, and I'm pretty sure U.S. banks have no idea what their exposure is. The truth is no one knows what will happen.

But here's some guesses--if U.S. banks suffer large losses, the Fed can step in and stabilize. While ultimately painful, the harm could be contained. As for the effect on the U.S. economy, there is evidence of decoupling from the Eurozone. Over the last couple of years the U.S. has grown while the EU has vacillated and then declined. This suggests we don't need the EU much in order to grow. I do wonder about the export situation, though. Implosion of the EMU could be unlikely, but they could be looking at a lengthy period of languid recovery. To me it looks like it will be worse over there than it has been here.

[Giant Communist Robot]

Some of the terms for the new bailout are laughable: fire 150,000 government employees, cut government wages by 20%, lower minimum wage by 20%, big cuts for benefits and pension plans...the Greeks will be delighted. Hope the big default is properly priced in.

[Giant Communist Robot]

I see Fitch has downgraded Greece to a C, which is the lowest possible rating above default. How long did it take them to figure this one out?

[dai bread]

Probably about as long as it took to figure out that CDOs weren't AAA material.

[Haggis@wk]

I see Fitch has downgraded Greece to a C, which is the lowest possible rating above default. How long did it take them to figure this one out?

Greece has a sad record of running its country into the ground, and it has a terrible record of implementing policies it has agreed to. The lack of trust and the consequent request for assurances are understandable.

Things would be different if we were talking about another country who looks more trustworthy (Sweden rather than France or Spain).

Greece remains a proud democracy. From what I read, the EU asked Greece to change its constitution to make payment on debt a priority, and earlier on it suggested that Greece suspend elections.

These are extreme measures that, I assume, would make the Greek people furious and unlikely to accept further reforms imposed on them (even good and necessary ones).

The bottom line is that Greece may be better off defaulting now — since it appears it will happen at some point — rather than going through another bailout that’s almost sure to fail. A new bailout won’t help Greece. At the same, it isn’t realistic to ask other EU countries to bail out Greece without guarantees that austerity measures will take place, guarantees that I don't believe Greece can honestly make or be believed by the rest of the EU if it does.

The EU needs to let Greece default. Although what happens then is unclear.

[Giant Communist Robot]

The EU needs to let Greece default. Although what happens then is unclear.

I've been trying to point out the EU wants to avoid this because of what may happen to their banking system. Do you suppose they know something? Or are they altruistically trying to help the Greeks? And what about American banks? Will they need to be bailed also?

While I'm on this subject again, let me add a few of my naive ideas about banking.

It was always my understanding that banks were supposed to be conservative institutions that did not wildly speculate with their funds. Also, that a relationship exists between risk and reward--the greater the risk, the greater the reward. Last year the yield on some Greek bonds hit 100% and they were snatched up by banks. When someone offers me a 100% return the first thing I think is "scam". Now, I don't think I'm smarter than the bankers, but I wonder what they were thinking.

[BigJon]

Over the last couple of years the U.S. has grown while the EU has vacillated and then declined. This suggests we don't need the EU much in order to grow. I do wonder about the export situation, though. Implosion of the EMU could be unlikely, but they could be looking at a lengthy period of languid recovery. To me it looks like it will be worse over there than it has been here.

Hah! Remember not so many years ago when the newspapers were all trumpeting the ascendancy of the EU economy and the decline of the USA? I laughed then and I laugh now.

[Giant Communist Robot]

Remember not so many years ago when the newspapers were all trumpeting the ascendancy of the EU economy and the decline of the USA?

EU monetary policy rests with the ECB, which--frankly--is run by the Germans and French. These tools are the first thing turned to when the economy needs moderation. You can bet they will always be used for the benefit of those two regardless of the consequences to other nations. Their reasoning is that they must benefit the largest parts of the EMU economy. In the future one of the biggest problems they may face could be the gradual growth of a strong socialist role for the governments and overregulation. This is what ordoliberalism calls for. In a less than perfect world problems are going to occur in the economy, but the solution shouldn't be handing over greater portions of the free market to the government.

China is now being touted as the economy of the future. I have my doubts about that. One of their biggest problems will be endemic corruption.

[Giant Communist Robot]

It was always my understanding that banks were supposed to be conservative institutions that did not wildly speculate

A simple Sharpe Ratio could keep them out of trouble.

[Haggis@wk]

FITCH DOWNGRADES GREECE TO 'RESTRICTED DEFAULT'

tick...tick

[Giant Communist Robot]

The French may call for a renegotiation of the treaty. Certainly the EMU has glaring structural problems.

[Haggis@wk]

Certainly the EMU has glaring structural problems.

The main one is they have no constitution, Another one is a doubtful rule of law. They have nothing that is not negotiable. If every rule is flexible then nothing can be depended upon.

[Haggis@wk]

48% of Brits want to get out of the UK

I love England and love to visit every few years but, lardy, the cost of living. I marvel each time I go there at the prices for the simplest things. They are easily double or triple what we would pay for something, except for phones, phones were cheaper than in the U.S.; curious.

I have a retired military friend who bought a cottage in the Cotwolds in the early 80s before the prices went crazy then went south and are now on the rise again. He’s decided to come back to either the U.S. or Canada as soon as his dog dies (some of us can relate)

His is a strange story. He was born either in Canada or the U.S., no one knows. His father and mother lived in a log cabin (no electric) in the late 40’s in the far north of Minnesota or far south of Canada. When it was his mother’s time she went to a nurse who probably lived in Canada. When he join the USAF in the 60s he was considered an American. Sometime during his career they decided he was a Canadian and he had to apply for citizenship. Before that occurred it was decided that he was American….or Canadian. This went on his whole career and when he retired he used his Canadian passport to live in the U.K.

He retired in 1984 and bought a golden lab puppy. His latest is the “granddaughter” of the first one, I think, maybe great granddaughter. Anyway, his retirement pay and medical payments are killing him and he’s struggling to get by. When he retired he used his savings to buy his cottage and says that his retirement pay was enough to live on, now, not so much.

So when the latest dog dies he’ll come back. He’ll do well on the sale of his cottage and will probably settle somewhere warm, which in my estimation leaves both Canada and Minnesota out!

[Haggis@wk]

DENIAL AIN’T JUST A RIVER IN EGYPT — it’s also a museum in Europe:

The whole problem of explaining the present is so nettlesome that the European Union’s “House of European History” museum decided to omit the mention of World War 2 altogether by the simple expedient of declaring 1946 the Year Zero for European history. “It celebrates the creation of the EU with barely a nod to the crisis raging all around. France’s recent history is marked by a picture of the Tour de France, and Germany’s by the famous Berlin address by Barack Obama in 2008.”
Farcically, it’s been decided to omit any exhibit on which agreement cannot be reached. And because of their differing views about World War II, the museum will begin with an EU ‘year zero’ of 1946.

But of the unpleasantness of 1939-1945 it will only say that there was an event called the “European Civil War”, which presumably was fixed by the European Union, without the slightest input from things called the United States, the former Soviet Union, China and the Empire of Japan.

Yet these absurd naming conventions are only further signs that the Narrative is now developing yawning gaps. For the current world crisis, like almost every other crisis is caused as much by what went right in the last 70 years as what went wrong. And the problem with the Narrative is that what should have gone wrong went right and what ought to have gone right went wrong.

Incredible, simply incredible.

[Haggis@wk]

Understatement alert over the weekend! I don't know where I heard this but it reverberated in my mind

“History has shown that when Germany is economically isolated and placed in debt, they do not just accept it.”

[Haggis@wk]

Understatement alert over the weekend! I don't know where I heard this but it reverberated in my mind

“History has shown that when Germany is economically isolated and placed in debt, they do not just accept it.”

[Giant Communist Robot]

I think there is a general feeling that QE3 is being held back in case of a European meltdown. Soros says things are worse than ever, and ECRI has been hyperventilating about recession since last September. It's hard to keep in mind that the root of this problem is political, not economic. It's also hard to prepare for. Don't tell me those guys knew so far in advance Hollande would be elected.