6/25/2012 7:36 PM ET|
Europe plays 'Let's Make a Deal'
This week's European summit could be the last gasp for the euro. We will undoubtedly see a deal -- the question is whether it will be strong enough to save the euro.
This week's summit of European leaders is the last real chance to save the euro.
If this summit fails to produce a credible long-term plan for fiscal union, effective short-term policies to reduce interest rates in Italy and Spain and at least create the hope of increased economic growth, then I think the momentum toward dissolution of the common currency will be irresistible.
The result won't end the euro tomorrow or even necessarily this year. Given the costs of ending the euro, I expect any path toward the end of the currency to be long and messy. The euro won't go easily. But kicking and screaming, it will go -- unless the summit scheduled for Thursday and Friday reverses the current course.
And I'm not optimistic about that. In its current form -- after two years of promises, halfway efforts and astonishing denial -- I think the euro is cooked. Stick a fork in it.
Politics vs. the euro
Why am I so pessimistic? In what has always been a political crisis, the euro has almost run out of political room. I think there's just enough space for one more try. But if this attempt at the European summit doesn't work, I think the euro is out of time. Politics from both ends of the crisis -- the weak economies of the periphery and the strong economies of the center -- will soon have built enough momentum that this crisis will be able to move in only one direction, and that is toward the end of the euro.
The politics have taken a decided turn for the worse in countries such as Greece and Spain, which are at the heart of the eurozone financial crisis.
At this week's summit, Greece will ask for more time to meet the terms of its bailout deal. According to a draft proposal, the newly elected coalition headed by the New Democracy Party will ask for a two-year extension; an end to plans to cut 150,000 government jobs; reductions in required sales taxes on cafés, bars and restaurants; and an increase in the income threshold that triggers higher taxes.
Think about the significance of the Greek request for the other countries facing austerity requirements. If Greece gets a break, why shouldn't Portugal or Ireland? Any concessions to Greece will be hard to deny those two countries that have, by objective measures, tried harder to meet the terms of their bailout bargains.
But we should also think about the effect on the euro crisis if European leaders don't offer any carrot to go with the stick. The "austerity countries" are headed toward a series of political crises on the Greek model, because voters can't see any light at the end of the tunnel in a tolerable time frame. Even the good stories aren't likely to raise anyone's spirits. On June 19, the Irish government said that it will easily reach its budget target for 2012. Unfortunately, that will leave Ireland looking at many more years more of austerity before it can return to financing its borrowings in the financial markets. The 2012 budget target is, after all, a deficit of 8.6% of gross domestic product.
And, of course, that 8.6%-of-GDP budget deficit isn't the end of austerity; it's merely a signpost on the road of pain.
The big danger that looms is that the governments of Spain and Italy will lose so much political support that they won't be able to implement promised austerity and necessary economic reforms. The government of Mario Monti in Italy, indeed, seems headed in that direction -- which is why, in my opinion, Monti has recently become so vocal about the need for the eurozone to implement a bigger program aimed at increasing economic growth.
The hard-pressed governments in the austerity group need to show something or else they will be forced from power. And any likely replacement governments will be weaker -- and therefore less able to deliver on austerity and reform promises -- and will be likely to have won power on the basis of promises to negotiate a better deal.
But this is only half of the deterioration in the politics of the eurozone debt crisis.
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They have all run budget deficits on the nanny programs, for the last 12 years, except Norway, who uses the entire output of their North Sea Oil wells to pay for them..
Their business and "rich" have left the Euro countries in a steady stream, to avoid things like 63% in Income taxes and VAT's
.They will continue to try to hang on to their handouts until their economies simply lie down, then they will acknowledge there is no such thing as a free lunch.
Watch them closely, this is the paradigm, for the USA.
It was insane to create the euro, it has cost the europeens a lot ! As a europeen, I hope the euro be gone.
More socialistic bS. The soluttion isn't thave haves paying for the have nots.
“Parts of it read like a wish list,” German Deputy Foreign Minister Michael Link told reporters in Luxembourg. The proposals lean “toward various models for mutualizing debt. What comes up short is improved controls,” he said.
This week's summit of European leaders is the last real chance to save the euro.
Well, that is until next week, when the next newest johnny come lately plan to save the Euro is trotted out.
I mean really, how many times have we heard something along the lines of "this is it, the last chance, the final hurrah, after this, everything falls apart".
Now, I certainly believe that it is going to fall apart, but Europe has been crying wolf for at least two years now, so I'm not going to bet the farm that this latest effort is the final straw.
The pattern seems to be, whenever the pundits call for the knock out punch, China comes along and says they'll step in. Of course, I don't recall them actually having stepped in as yet, but just the suggestion by China that it is supposedly willing to do so seems to be enough to kick the can down the road for another few months....just enough time for the next latest johnny come lately plan to be trotted out, and then the pattern repeats itself.
This is not a socialist thing or a haves versus have nots thing (it is a divide and conquer thing)
One currency for multiple nations, but each nation raises money to print the currency through separate bond sales means:
Germany raises money for less than smaller nations (lower interest on the instruments they sell to get Euros from the ECB. Their 'euro' costs less than a greek or spain or italian euro. They now have the ability to produce more at less cost than the neighbors to the south. Neighbors to the south have an incentive to import on credit rather than produce (kind of like US versus China).
Massive debt is inevitable to the south, while the larger economies become power houses.
Next thing on the horizon - the banks will try to implement a FED like entity over Euro nations to 'level things out.' That will lead to a bank controlled europe, continued long term debt and decay.
Very simple - separate nations need separate / competing currencies in order to remain separate nations.
Separate nations also need separate political classes to maintain sovereignty ( a single overarching entity will destroy that)
Want to save the euro (why?) - Take Germany, Greece, Spain, Portugal, Ireland and Italy out of the European Union and that might happen, but again, why? Bad ideas (common currency across multiple diverse nations) are just bad ideas. But people are stupid enough to believe that this is a socialist / captialist / communist / fascist or whatever thing.
It's just simple economics.
Now austerity measures are imposed on the hurting middle/working class - in the name of profits for investors, multinational corporations, and financial institutions?
Sticks = kindling for a great fire of revolution.
I know nothing.
A revival of the Glass-Steagall Act, the Depression-era law that separated commercial and investment banking, is “absolutely necessary” to protect the U.S. financial system, Federal Deposit Insurance Corp board memberThomas Hoenig said in a Bloomberg Radio interview.
Using Dodd-Frank Act powers to break up banks one-by-one is the wrong approach to removing the threat that risky trading could spark a repeat of the 2008 credit crisis, Hoenig said today on “The Hays Advantage” with Kathleen Hays.
Its just to much debt.The usa has to much also.We are kept afloat with debt,money printing.
How long can it last?
Talk is cheap. The Euro is getting cheaper by the minute. So spend until it hurts.
I personally liked the DM better than the Euro. But of course that was because it was 50% of US Dollar at that time 2DM to $1 US dollar. Some items were still the same prices even after the currency conversion so the dollar strength wasn't much of a currency power.
What I liked about it, it fit the culture where they had mark unit coins rather than a bunch of paper bills. And now, it is apparent the lack of sovereign control over the currency makes it unfeasible unless they want to create a strong central European government like the we have in the US. And for some reason, I don't think that will work. Culturally, they still all speak various languages and have various different social systems. So I don't think that will work.
I say go back to individual currencies. It only works in the US because most of the states are on the same continent and speak English and the history of how the US formed was based on the principle of states being united.
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last-chance-deal to those troubled nations. But they know from history that Spaniards, Italians, and Greeks do not think like Germans. They know that those incapable governments that abuse their people will not solve anything. So, the best think to do is to buy some time to figure out how to proceed.
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