The stakes are getting higher as the Eurozone continues to tests the limits of
divergence
What are some of the
key differences between the
Eurozone and Newton’s pendulum of action/reaction:
- The
balls
are not
the same
size and weight …
- The
ties
may
not
bind
forwever …
- The Eurozone imbalances are
NOT self-correcting
- And little is being done to actually reduce the external imbalances so that net borrowing countries may actually begin to cut their external indebtedness.
See Testing the limits of divergence in the Eurozone - 1 http://ppplusofonia.blogspot.pt/2011/12/eurozone-crisis-tests-limits-of.html
See more about the Eurozone crisis in
http://ppplusofonia.blogspot.pt/2011/12/eurozone-crisis-tests-limits-of.html
See also the excellent article of Paul Krugman on the diagnosis about the causes of the Eurozone crises:
- Is the cirisis because of excessive welfare state spending? NO
- Is the crisis because excessive budget deficits ? NO
- Is he crisis because of excessive balance of payments imbalances ? YES
The difference is that in a customs and monetary union, a "balance of payments problem" is a catastrophy. Two false diagnosis don't make a right, they make for remedies that kill the patiente.
Krugman on European Crisis Realities: http://krugman.blogs.nytimes.com/2012/02/25/european-crisis-realities/
http://ppplusofonia.blogspot.pt/2011/12/eurozone-crisis-tests-limits-of.html
See also the excellent article of Paul Krugman on the diagnosis about the causes of the Eurozone crises:
- Is the cirisis because of excessive welfare state spending? NO
- Is the crisis because excessive budget deficits ? NO
- Is he crisis because of excessive balance of payments imbalances ? YES
The difference is that in a customs and monetary union, a "balance of payments problem" is a catastrophy. Two false diagnosis don't make a right, they make for remedies that kill the patiente.
Krugman on European Crisis Realities: http://krugman.blogs.nytimes.com/2012/02/25/european-crisis-realities/
Employment is THE key socio-economic indicator.
ResponderEliminarMuch more important than the Maastricht criteria.
When regional unemployment rates vary by multiples of more than 10X, from 2.5% to 30.4%, what can be said for the supposed benefits of European economic integration, the Single Market, the Single Currency, even the Cohesion and Structural Funds?
Given the reality of persistent and increasing divergence, the promise of convergence seems to have been just an illusion.
SIZE does matter.
ResponderEliminarThis is true at least in international trade and finance, due to economies of scale AND of bargaining power.Peer groups have to consist of peers, not of giants and one-armed midgets.
Small fragile open economies are, first, flooded with hot money capital inflows that feed local bubbles and imports, but may not have the instruments nor the capacity to force their trading partners and creditors to share in the adjustment costs and debt workout sacrifices.
Peer groups consisting of the smaller trading partners call attention on the critical problem of the asymmetric sharing of the gains from the divergence in free trade and free capital flows.
Jawohl, Herr Doktor Professor
ResponderEliminarWe must implement structural reforms, Agenda 2010 for everyone in ageing Europe.
But the smaller net borrowing countries will not be able to repay the excessive debts and credits unless we can turnaround and generate net export surpluses and rebalance intra-Eurozone trade imbalances.
Meanwhile, let's shift risk from the original foolish overextended creditors to the collective Eurozone taxpayers with some more bailouts for the lenders.
Deleveraging is first of all about risk shifting, not necessarily risk reduction.
ResponderEliminarThe original over-extended creditors, which were at the origin of the problem, call on guarantors (credit derivatives) to step up for their over-leveraged borrowers or get new (greater fool) creditors to disburse and allow them to get reimbursement. This tactic of credit workout, to cut exposure rather than to refinance as it comes due, takes time and the avoidance of formal defaults which would cause a creditor stand-still, so the lengthier the discussions about the obviously necessary structural reforms, the better.
Risk shifting to official Eurozone creditors seems well underway, thanks to the (so-called) bailouts.
That's why the insistent calls for additional bailouts come from creditors and not from debtors.
Merkel has invested heavily in making Germans believe she’s made them immune to external grief, just what the German people want to hear.
ResponderEliminarBut as THE net exporter and THE net creditor, Germany is much more vulnerable than German policymakers and the German public believe. Germany’s strength is exaggerated and its weaknesses downplayed.
If nothing is done to help southern Europe to cut its trade deficits and its capital flight, Germany’s credit rating will eventually reflect the massive, largely uncollectible TARGET2 receivables from distressed Eurozone countries.
A creditor cannot, for long, be better than its debtors.
Noboby forced the lenders, and hedge funds, to lend either.
ResponderEliminarAs a matter of fact, German banks were the most overleveraged of European banks at the start of the crisis, clearly they were some of the most aggressive lenders. German Some investors had tax benefits to lend abroad. Now, a lot of their cross-border credit exposure has been shifted and mutualized to collective official creditors like the ECB.
Remmember that foolish creditors are co-responsible for doubtful loans with the foolish debtors, that's why they have to share the sacrifice. There is no debt by immaculate conception, no virgin borrowers.
How do you trace the DNA of bad loans? Try S.W.I.F.T.