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Old 03-05-2012, 05:00 AM
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Default I told you so

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HA! I told you so. I said, and I quote "unclench, it'll be fine" and despite the hedge funds' (who heavily bet on the Euro to fail and thus have been spinning the whole thing in the media for all it's worth), Moody's and S&P's best efforts it looks like it actually will be fine. nyah!

Here's a (former) firm sceptic's view, so you have hopefully a blanced piece. the sentiment within the European press is far more optimistic than the one here.

Quote:
Originally Posted by Time
Is Germany’s Euro Crisis Strategy Actually Working?

Lionel Bonaventure

I have been guilty, on many occasions, of eviscerating the strategy taken by the leaders of the euro zone to combat its dangerous debt crisis. They have routinely acted too late with too little, causing contagion to spread through the zone, because they have been unwilling to put the interests of the euro over their own political careers. I have been far from alone in forwarding such a critique. Everyone from George Soros to Timothy Geithner has expressed their concern over Europe’s lack of action. The primary target has been German Chancellor Angela Merkel, who is really driving the entire effort. Her insistence on austerity would send Europe into a tailspin, critics contended, while her continued resistance to steps many believe would halt the crisis – such as a bigger bailout fund, or jointly issued Eurobonds – was putting the entire monetary union at risk.

But sentiment appears to be changing. There seems to be growing optimism in Europe that the worst of the debt crisis is behind them. French President Nicolas Sarkozy was practically giddy at last week’s summit of European Union leaders. “We’re turning the page on the financial crisis,” he said at a press conference. “The strategy we’ve implemented is bearing fruit.” Now I find myself under attack. One former TIME editor is bombarding me with emails saying that my continued gloom about Europe’s future is more and more misplaced.

So is Merkel’s debt crisis strategy actually working? Have its many critics been wrong all along? Well, in my opinion, the answer depends on what we mean by “working.”

Clearly, Merkel’s policies have brought Europe back from the brink of true disaster. Back in November, the monetary union appeared to be on the verge of unraveling, with the banking sector facing a destabilizing credit crunch, the Greek crisis intensifying, and contagion spreading to Italy. Today, the situation has greatly improved. Italy’s 10-year bond yield, which late last year soared over 7% – a rate which the country would eventually find too expensive to bear – has dipped under 5%, thanks to the bold reform efforts of new Prime Minister Mario Monti.Greece, after much drama, looks likely to get both a restructuring of its debt and a second, $170 billion bailout. An emergency cash-injection program by the European Central Bank has eased conditions in the banking sector. And the leaders of the euro zone have agreed to other significant reforms to the monetary union, including tougher rules on deficits and debt (a step towards much-needed fiscal union) and the faster introduction of a permanent bailout fund. There is also talk of other important reforms, such as steps to deepen Europe’s common market, which could help spur growth. Investors are obviously pleased. Even as the Greek bailout hung in the balance, the euro was strengthening — a signal that market players have begun disassociating the debt crises in the zone’s peripheral countries from the survival of the 17-nation common currency itself.

Though I will give credit where credit is due – a lot has been achieved in just the past few weeks – I’m still not prepared to hang up a “Mission Accomplished” banner just yet either. What continues to concern me is that most of the serious problems facing the euro zone remain unresolved. I fear investors are looking at the bandages and not noticing that the wound underneath isn’t healing.
[[note by yks: he's not taking into account the structural reforms that either have already been agreed and will be implemented within the next few years or are being fiercely debated now. Not only in the "problem countries" but all over EU. For example: pension reforms, education reforms, consolidating municipalities etc, etc]]

First of all, we have to question if the bailout programs are actually achieving what they are supposed to achieve – restoring confidence in the debt-laden economies of the euro zone. There are still serious doubts about the viability of the second Greek bailout for three key reasons: (1) concerns remain that the Greek government will not be able to hold up to its reform commitments; (2) there is a strong likelihood that the government brought in by the upcoming Greek elections will try to renegotiate parts of the deal; and most importantly (3) the bailout may not improve the debt sustainability of Greece’s government. A recent IMF assessment figured that the bailout was based on unrealistic assumptions and that Greece’s government debt (relative to the size of the economy) might be at the same level in 2020 as it is today. That raises the possibility that Greece won’t be able to return to capital markets for funding any time soon, which could mean the country might require yet a third bailout. The problems with the European bailouts don’t end there.Portugal, which has implemented reforms more aggressively than Greece, is still suffering from bond yields at extremely lofty levels, raising concerns that it, too, might require another bailout. And the IMF warned last week that even Ireland, the poster child for euro zone reform, might not be able to fund itself in financial markets after its bailout starts running out in 2013. So the euro zone still runs the risk of having to keep one or more of its members on continued financial life support. And we have to ask if the richer members of the euro zone will be willing to keep shelling out more and more money. Just look at the wrangling over the second Greek bailout, in which some members, especially Germany, were actually considering allowing Greece to default rather than throwing more good money after bad.

Secondly, the austerity measures demanded as part of the German-led reform agenda continue to send several countries in Europe into a “deflationary debt spiral.” Economies are contracting across Europe as the pain of higher taxes and reduced government spending bite into growth. As a result, deficit targets become harder to meet, and debt more difficult to stabilize. That reality hit home last week when Spain announced that it would miss its deficit target for 2012 as the economy is now expected to contract more sharply than initially forecast. What this also shows is that the tighter rules of the new fiscal compact, agreed to at last week’s EU summit, can do very little to alleviate the debt situation of these countries today. Investors seem to have forgotten how severely austerity is damaging growth and employment prospects in much of Europe, and how that will keep the debt crisis very much alive.

Third, we shouldn’t kid ourselves that the European banks are out of the woods either. The ECB averted disaster in the banking sector by slathering it with liquidity. According to the Wall Street Journal, the ECB has granted more than $1.3 trillion of low-interest loans to hundreds of banks since December. But that cash is no substitute for true balance sheet repair. Research firm Capital Economics argued in a recent report that the ECB’s lending program “might have prevented an outright collapse in some banking sectors” but then added that those who believe the loans will alleviate the wider crisis “are likely to be disappointed.”

Even if banks have more money to invest, we are not convinced that they will stash it in risky government bonds. Recent data have also shown continued acute weakness in lending to both firms and households. Admittedly, it might take time for banks to use their new funds to increase lending. But January’s ECB bank lending survey…revealed that banks intended to tighten their lending criteria further.

Nor is the liquidity boost a substitute for real bank reform. The promised euro zone-wide recapitalization program has yet to materialize, and even that might prove insufficient to fix the banks. Joao Soares, a partner at consulting firm Bain, points out that the deteriorating economic conditions in the weaker European economies will only further undercut the health of the banks going forward. As economies contract, more companies suffer, and bad loans at banks increase. That in turn could put more pressure on governments to aid the banks – increasing the strain on debt-heavy sovereigns trying to cut deficits. Europe could end up in another nasty downward spiral, with deteriorating banks placing a heftier burden on government budgets, leading to heightened fears of both a banking crisis and a sovereign debt crisis. Soares adds that Europe has been much too slow in addressing the problem of its banks, which he expects will make the banking problem a long-term drag on Europe’s recovery. “We’re looking at a very protracted (banking) crisis like Japan’s,” Soares recently told me.

So let us return to our original question: Is the German debt crisis strategy working? Yes, in terms of bringing Europe back from a near-death experience. No, in terms of actually solving the debt crisis. The question now is: Will Germany’s efforts continue to bolster confidence even as the underlying problems persist? I wouldn’t count on that.
Something that is largely missing from most American coverage of the Euro-crisis is a topic that's coming more and more to the forefront in Europe: Yes, the Euro-area has a financial problem. The cause of it and therefore the only way to resolve it though, is not by financial means, it is by reforming the politics. This is a political crisis. The countries having the hardest time now are ones with overly convoluted political systems, be it due to political corruption (as is the case of Greece and Italy) or huge amounts of unnecessary bureaucracy (Belgium). The way to solve it, therefore, is to make each individual country's political system as well as the Europarliament itself more transparent and accountable to the voters.
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Old 03-05-2012, 05:42 AM
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Originally Posted by yks 6nnetu hing View Post
The way to solve it, therefore, is to make each individual country's political system as well as the Europarliament itself more transparent and accountable to the voters.
Needed: glasnost and perestoika.
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Old 03-05-2012, 05:46 AM
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Originally Posted by GonzoTheGreat View Post
Needed: glasnost and perestroika.
oh, I think we've got the glasnost ("openness [of data]"), at least as far as I know there are currently no archive documents summarily and massively censored and/or destroyed.

as for perestroika, which literally means "rebuilding", it's ongoing. As I already pointed out.

Now, what we don't need is the mafia bosses taking over while everybody else is dazzled by oil-riches and meanwhile the political leadership devolves into a gerontocracy.


in other words: do you actually have something meaningful to say or did you just feel like throwing some words around?
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Last edited by yks 6nnetu hing; 03-05-2012 at 05:50 AM.
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Old 03-05-2012, 06:14 AM
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Well, mostly I was just throwing words around, but I did want to point out that such changes can be hijacked by those who want to take things in a different direction. I don't think that the ones who did that to Russia in the 1990s had intended the results they eventually got. However, I'm not sure they would really decide not to pursue their agenda if they saw that they had to choose between democracy or riches. And neither am I convinced that they would accept the verdict that that was the choice they were making.

So, while I do not think many (if any) people are hoping we'll move towards where Russia is right now, it is a danger which is real, and should be taken into consideration. Simply letting some bankers, bureaucrats and lobbyists decide how to arrange the European Union so as to suit their view of what would be right, while we're focusing on whatever lunacy Wilders is tweeting right now, does not guarantee the survival of freedom.

As far as I know now, the whole problem for the Euro stems from having a bunch of enthusiasts storm ahead with no consideration for the possibility that there could be a problem. And then they did not explain to people what they were doing and why, nor did they put it up for an actual vote. (When that happened for part of the whole mess, a bit later, it was voted down in a couple of referenda. The outcome of which was then ignored, and the thing went ahead anyway.)
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Old 03-05-2012, 06:28 AM
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Originally Posted by GonzoTheGreat View Post
Well, mostly I was just throwing words around, but I did want to point out that such changes can be hijacked by those who want to take things in a different direction. I don't think that the ones who did that to Russia in the 1990s had intended the results they eventually got. However, I'm not sure they would really decide not to pursue their agenda if they saw that they had to choose between democracy or riches. And neither am I convinced that they would accept the verdict that that was the choice they were making.

So, while I do not think many (if any) people are hoping we'll move towards where Russia is right now, it is a danger which is real, and should be taken into consideration. Simply letting some bankers, bureaucrats and lobbyists decide how to arrange the European Union so as to suit their view of what would be right, while we're focusing on whatever lunacy Wilders is tweeting right now, does not guarantee the survival of freedom.

As far as I know now, the whole problem for the Euro stems from having a bunch of enthusiasts storm ahead with no consideration for the possibility that there could be a problem. And then they did not explain to people what they were doing and why, nor did they put it up for an actual vote. (When that happened for part of the whole mess, a bit later, it was voted down in a couple of referenda. The outcome of which was then ignored, and the thing went ahead anyway.)
thanks

you do have a point. The main problem is how countries outside of Europe treat the countries within EU: currently for example US and Russia both like to pursue bilateral relations meaning that they'll make a deal with one EU-country (e.g. Germany) but not EU as a whole. This can be politically dangerous for the EU as a whole. Note the extremely friendly relationship between Russia and Germany and compare to the politically freezing but economically very vibrant relationship of that same Russia and the Baltics, all the while Germany is also pursuing warm relations in the Baltics. The whole thing is somewhat scitzophrenic.

On the other hand, the world has changed since the 1990s, and a large part of that change is due to the Internet and the integration and flow of all sorts of information that brings. The world is much smaller than it was in 1991 and any political bilateral decision automatically has consequences elsewhere. Because of this change I'm not quite so afraid of a descent into Russia of 1998 as I would be if actually it was 1998.
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Old 03-05-2012, 08:39 AM
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Its only fine because Europe finally realized that Germany should be running things. If only they had just let this happen the last two times they tried.
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Old 03-05-2012, 10:27 AM
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I personally think Sweden should be running things. But they're not in the Euro.
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Old 03-05-2012, 10:57 AM
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I personally think it is dangerous to have such interconnected and regulated financial institutions but that is not a surprise now is it.

Was Europe too big to fail?
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Old 03-05-2012, 11:00 AM
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I personally think it is dangerous to have such interconnected and regulated financial institutions but that is not a surprise now is it.
Was Europe too big to fail?
How is it dangerous? It was going to be interconnected regardless as a result of advances in technology and the free market...the only difference is trying to ensure some govt control over it instead of a complete return to the gilded age. Having big business decide government leadership is a bad idea in general.
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Old 03-05-2012, 11:06 AM
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How is it dangerous?
It's quite dangerous to the American Empire.
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Old 03-05-2012, 11:08 AM
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How is it dangerous? It was going to be interconnected regardless as a result of advances in technology and the free market...the only difference is trying to ensure some govt control over it instead of a complete return to the gilded age. Having big business decide government leadership is a bad idea in general.
08 US Crash sent reverberations throughout the world and the IMF and state banks trying to inject capital where they could and the massive hiking of debt that insued.

You should know why I would have a problem with that for 2 reasons:

1) Jefferson's acknowledgement of the threat of a national bank (now magnified to international bank)

2) I accept Friedman's conclusion that it was the federal reserve that cause the great depression.

This article: http://www.thefreemanonline.org/feat...lton-friedman/

does a good job of summing up that view.
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Old 03-05-2012, 11:11 AM
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2) I accept Friedman's conclusion that it was the federal reserve that cause the great depression.
I disagree with his contention there...unbridled speculation and the harsh treatment by the Allies of the Weimer Republic were far greater issues than the Federal Reserve. If anything, the Fed has had a moderating effect on the boom/bust cycle inherent in our economic model. One need only look at the Panic of 1893 and the Panic of 1873 as great examples of pre-Fed crashes caused by a complete lack of that type of control.
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Old 03-07-2012, 12:00 PM
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Originally Posted by Davian93 View Post
I disagree with his contention there...unbridled speculation and the harsh treatment by the Allies of the Weimer Republic were far greater issues than the Federal Reserve. If anything, the Fed has had a moderating effect on the boom/bust cycle inherent in our economic model. One need only look at the Panic of 1893 and the Panic of 1873 as great examples of pre-Fed crashes caused by a complete lack of that type of control.
Gotta agree with Dav here. This past recession was the worst in 80 years, but its easy to forget (since no one is still alive to remember) that such crashes were common, every 10 years or so, actually, before the Fed. People who blame the Fed for being a cause of recessions, or a proponent of booms, are ignorant, as are all folks who attribute sole causes to complex issues. Does the Fed always make smart decisions? No, as we see in hindsight now that the way in which they fueled cheap credit the last 20 years helped set us up for a fall. But demographic and other policy factors also played a huge role. The Fed is essentially a reactionary entity, meant to smooth. economic cycles, not cause or end them.

And obviously the eurozone problem is one of politics, because the economics of the euro is inextricably tied up with the politics of the EU. The only reason the problem came to this is because Greece can't just print more money.
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Old 03-07-2012, 12:10 PM
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The only reason the problem came to this is because Greece can't just print more money.
Nah, the reason it came to this is that the politicians who engineered this situation deliberately ignored such details, because acknowledging them would have scuppered their plans.

Basically, Greece and Germany (and other countries, which can be more or less said to be the same as either of these two) have different approaches to how to handle their economies. If those differences had been acknowledged, then either the Euro would have been impossible, or very big changes would have been needed in one side or the other (or both). The politicians pretended that by unifying the coinage they had abolished those differences. Now they are surprised that it did not quite work out.
 

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