Will Frankfurt (the European Central Bank) come to the rescue of Greece, or Spain, or Portugal? Maybe in the end, but not now, reports Ambrose Evans-Pritchard in The Telegraph:
“Mr Callow of Barclays said EU leaders will come to the rescue in the end, but Germany has yet to blink in this game of “brinkmanship”. The core issue is that EMU’s credit bubble has left southern Europe with huge foreign liabilities: Spain at 91pc of GDP (€950bn); Portugal 108pc (€177bn). This compares with 87pc for Greece (€208bn). By this gauge, Iberian imbalances are worse than those of Greece, and the sums are far greater. The danger is that foreign creditors will cut off funding, setting off an internal EMU version of the Asian financial crisis in 1998.
Jean-Claude Trichet, head of the European Central Bank, gave no hint yesterday that Frankfurt will bend to help these countries, either through loans or a more subtle form of bail-out through looser monetary policy or lax rules on collateral. The ultra-hawkish ECB has instead let the M3 money supply contract over recent months.”
Mr Trichet said euro members drew down their benefits in advance — “ex ante” — when they joined EMU and enjoyed “very easy financing” for their current account deficits. They cannot expect “ex post” help if they get into trouble later. These are the rules of the club.”
And what is the end, pray? To compare the economies and economical good behaviour of Portugal and Spain with the irresponsability of Greece is an idiocy, but it sells well like most idiocies. EU will help all needy or will implode, it is as clear as crystal. Yes, the end, the only end there is, is nigh…
http://www.ft.com/cms/s/0/f3a7fc9a-1270-11df-a611-00144feab49a.html
“Mr Zapatero and Mr Sócrates, both under pressure from political opponents who sense an opportunity in the crisis, have argued in vain that their countries’ finances are better than those of Greece and no worse than those of the UK, the US and Ireland.
The markets are unimpressed, amid doubts that either government has the will or the power to push through the necessary fiscal reforms to cut their deficits and improve competitiveness. Elena Salgado, Spanish finance minister, plans to travel to London next week to help convince the world that Madrid will implement an austerity plan outlining €50bn ($68bn) of savings over four years.
Even in Spain, however, there are doubts about the plan, given the opposition of trade unions and of regional governments responsible for half the nation’s public spending. Unemployment has risen to nearly 19 per cent of the workforce. The Bank of Spain estimated that the economy shrank 0.1 per cent in the fourth quarter of last year, the seventh successive quarter of contraction.
“In a country with such high unemployment, how will it be possible to reduce the public deficit?” asked Prof Toribio. “Spain does not have clear sources of economic recovery, which has to come from either internal or external demand.”
Portugal and Spain are no worse off than California and New Jersey. Also, the europeans report unemployment differently than the U.S. (more honest and the U.S rate if calcualted like EU would be 22%). Also, the political discussions in parliamentary systems are more honest than in U.S.–the members of parliaments are not bankrolled by banks and tend to speak honestly and gauge things differently than their u.s. counterparts. Even the newspaper article cited by MB4 shows an honesty not present in the u.s. plus again, poiticians and media overseas often percieve reality much differently than the u.s.
“Does not have clear sources of economic recovery?” Oh, yes, she has. Very, very clear. As clear as diamonds. And diamonds are forever, right?
This whole bit is tough to follow and sort out. The EU is saying they’re not going to bailout Greece… bubble mentality says throw some money at it from an undisclosed source in an indirect way… feeding the PIIGS with the TARP money that no one seems to be able to say where it went?
This is where one of those witty poems about bubbles… toil and trouble… goes, or perhaps Humpty Dumpty?
Seeing, “government” as the next bubble, as some have said, seems to be easier, clearer. Governments are like upside down homeowers who lost their overtime and… but they saved the housing market… they can save any market… right? (sarc/off)
Robert –
Very true about the greater transparency there.
Frankly, some members of the Swiss financial community were in complete shock at the way US banks skirted regulations by “outsourcing” their transactions and concealing that in the fine print…or not even mentioning it.
Maybe I should add a comment on that. (I haven’t been following the European story much, because I don’t know the politics first-hand and hesitate to say something that might be quite off-base for people living there..)
Clark –
My language might be confusing. If the ECB bails out members, then confidence in its financial responsibility diminishes and with it the euro.
If they don’t (highly unlikely, from all reports) Greek suffers but the euro strengthens.
There’s much more to it than that, but that’s the gist of Rogers’ argument.
They are damned if they do and damned if they don’t, this is where the third party steps in and does the bailout, or swaps for some kind of risk spreading vehicle?
Or is that not an option?