Comments on: The euro zone’s self-inflicted killer Fri, 30 May 2014 19:54:25 +0000 hourly 1 By: jlpeng Thu, 24 Nov 2011 16:44:49 +0000 A triple-A rating is awarded to a country if it pays back timely 100 cents on a dollar for a loan. The U.S. has paid back loans but with a weaker dollar. So the Euro country can use the same method: printing more money. The only problem is how the new currency should be divided among all the member countries.

By: robb1 Tue, 22 Nov 2011 01:06:21 +0000 Just print more Euro and lower rate US style… have inflation solve the problem by itself.

Germany enjoyed a subsidized overvalued EURO to export to the PIIGS, they can live with some inflation.

In the long run the weaker EU countries will be better off printing their own money. So the exchange rates will adjust daily without the risk of another EURO distortion in the future.

By: bboaze Sun, 20 Nov 2011 11:34:40 +0000 So the cow stopped producing milk, and they want the grass to pay for a new one.

By: FBreughel1 Sun, 20 Nov 2011 10:38:48 +0000 @scythe, @dingodoggie: Thanks. @spine001: Trust is indeed the name of the game and it won’t be solved by writing a huge blank cheque, no matter by what mechanism. It is patchwork and would have only led to temporary quieting of the markets. Before one knows it, Mr. Soros et al. would change their tune and talk about the insolvency of Germany and the other as well. Like we’re idiots.

The political/econimical path entered by the Southern countries to fiscal discipline is the correct one. The countries which we are talking about now – Italy, Spain- are already solvent and don’t expect them to fall over 7-20 % % refinancing costs in the coming period. E.g., Italy: With a 2 Trillion GDP economy they are certainly ably to carry the burden of a 14-40 bln additional interest payments. I think many investors will wake up to see they are missing a good deal on those two.

By: GivaFromOz Sun, 20 Nov 2011 10:17:32 +0000 @ Kibble: Yes that is the crux of the matter. But it also applies to most of the EU countries as each has huge debts relative to GDP. It is very difficult for countries to greatly increase their revenues and decrease their expenditures, so the prognosis for the EU countries (including Germany) is not good. Few of the non ex-communist countries have managed to avoid (annual) deficits more than occasionally since 1999.

Harsh measures by a government are not only politically unacceptable but tend to be counter productive as they depress the country’s economy and so cause the government can raise even less money than it would without the measures.

It seems to me that the US is in a far worse position than Europe because its households are also heavily in debt. But its taxes on high income earners are very low so it can increase them substantially without crunching the economy. It fact such an increase may very well stimulate confidence in the population at large and confidence is what is needed. That would be of far more benefit than the amount of additional taxes raised from the wealthy.

It is clear that western governments must change their ways of running their countries’ economies. The changes required will be many faceted and very complex and difficult to implement. It will require leadership from politicians and there is scarce evidence of that. So the world is heading into for years of “interesting times”.

By: valueScreation Sun, 20 Nov 2011 08:57:28 +0000 If you consider a fragile pot as economy, the water flowing into as money, with the damage to the pot as debt.
The way to repair the pot is definitely not pouring more water into it and at the same time we cannot afford to stop the water altogether. (One of the similarity between doctor and economist is both of them have to work on live systems which cannot be shut down at any cost).
The repair team should go into the lives of the people solve their issues, create environment to work, encourage entrepreneurship.
For instance, identify the areas where money is locked either with banks, companies in the country or overseas, let the banks share the guarantee for the non-performing assets and mobilize the economy can be done in addition to reducing the spending, privatizing the sectors/industries.
In case of company, the consumer, employee, and share holder are different but in case of a country all the stake holders are the same group = people. It is easier because it is just one set of people with different roles.
The effort is so ensure that the damage to the pot can be repaired with the minimal disturbance and altogether the economy can improve will begin to evolve.

By: rwmccoy Sun, 20 Nov 2011 04:07:34 +0000 The part of the article I like was, ‘a fire extinguisher behind glass: never to be used.’ It’s this kind of logic that can get you into big trouble. First, how do you know it works if you have to use it. Second, if it doesn’t work as advertised, then confidence in your system and/or credibility is shaken twice as badly.

In real life, we check our fire extinguishers at least annually. They are not cosmetic. This is the same kind of reasoning as we never practiced fire drills because we never thought there would be a fire.

So, the moral of the story is emergency financial mechanisms deserve the same scrutiny and care as any emergency equipment. Otherwise, it would be better not to have them in place at all.

By: spine001 Sat, 19 Nov 2011 20:41:26 +0000 Just a reminder that 70% of the bailout money the USA “printed” went outside of the USA, mostly European institutions.

With respect to Europe being in a better situation than the US, nobody argues with that. The problem is that by not creating a Euro-bond, Europeans are telling us that they don’t trust each other to repay them. Then it is really hard to conceive in trusting ourselves what you yourselves don’t trust. That is the crux of the situation.

Until Norther Europeans feel they can trust their Southern brethren to repay their debts and control their spending, nobody outside of Europe that can think will.

By: dingodoggie Sat, 19 Nov 2011 16:54:37 +0000 @FBrueghel1 – although very much conscious of the results of the inflationary phases in Germany, I think you are right. As soon as the ECB is enabled to operate as a lender of last resort, the Euro may even rise. The 7% seems to be a magic number, maybe it could be used as an inflationary target for a defined period of time.

But then, attention will turn back to the U.S., or maybe to China, where not all is gold, either. We will sleep badly in the next few years, anyway.

By: scythe Sat, 19 Nov 2011 13:51:17 +0000 @ FBrueghel1 – yes, exactly – “The real effort is closing governmental deficit gaps, which the EU did: (OECD figures)”