Debt Crises in Ireland, Greece, Portugal and now Spain may Prove too much for the Euro to Survive

Posted by PITHOCRATES - June 3rd, 2012

Week in Review

The woods are lovely, dark and deep.  But I have promises to keep.  And miles to go before I sleep.  And miles to go before I sleep.  Lines from a poem by Robert Frost.  For some reason this came to me as I read about the never-ending crisis that is the sovereign debt crisis in Europe.  And the Eurozone.  For the Euro is lost in those dark and lovely woods.  Woods that are so deep that it will never find its way out.  And the only kind of sleep the Euro is going to get is the kind you don’t wake up from (see Britons face £5bn bill to help out Spanish as fears grow that Madrid will have to ask IMF for €300billion bailout by Hugo Duncan And James Salmon posted 6/1/2012 on the Daily Mail).

British taxpayers could be forced to stump up another £5billion to rescue Spain as the crisis in the eurozone spirals out of control.

Fears are mounting that Madrid will have to ask for an emergency bailout of up to £300billion as it struggles to prop up its basket-case banks.

A third of that money could come from the International Monetary Fund – including around £5billion from the UK, even though Britain is not in the eurozone.

UK taxpayers have already coughed up £12.5billion to rescue debt-ridden Greece, Ireland and Portugal…

But growing doubts over how the Spanish government will finance the £15billion needed to rescue Bankia, one of its biggest lenders, have raised fears that it will follow Ireland, Greece and Portugal in requiring a bailout from Europe and the IMF.

This week US investment bank JP Morgan warned a joint rescue of Spain could cost around £300billion.

The Spanish banking system has been crippled by nearly £150billion in toxic property loans.

At the heart of the sovereign debt crisis in Europe is debt.  They have way too much of it.  So much that the odds are not good that they will ever be able to repay it.  Which makes people very reluctant to loan them any more money.  It’s like loaning a friend money who already owes you a lot of money.  Do you loan him more money?  It just may help him turn his life around.  Start anew with a new job.  Earning enough money to support himself and pay you back.  That’s one possibility.  Then there’s the possibility he may just blow the money on booze, drugs and women.  You know he’s just going to spend whatever else you loan him.  And not pay any of it back.  So it would be rather foolish to loan him more money.

This is the decision facing the people who could attempt to bail out those in the Eurozone.  They’ve already loaned them a lot of money.  So these in-trouble countries can sustain the government spending their current tax revenue can’t support.  But the deal was to cut back that spending so they can live on what their tax revenue CAN support.  But there’s only one problem.  The people of these countries reject calls for them to live within their means.  And have had enough of austerity.  And that’s a big problem.  Because if they don’t live within their means they will perpetuate the sovereign debt crisis.  As they will always need to borrow more money to pay for the things that their tax revenue can’t afford.  Until the day this house of cards collapses.  And the longer it goes on the more money people will lose in bad loans to these in-trouble countries.

The central problem in this crisis are bad loans.  Caused by the easy credit policies of central banks to loan money to anyone so they can buy a house.  All this easy credit caused housing booms in countries all around the world.  And housing bubbles.  Then the bubbles burst.  Leaving countries with debt crises as toxic mortgages weakened banking systems everywhere.  And still Keynesian economists are urging central banks to repeat this reckless lending behavior again to stimulate economies.  And to bail out the Eurozone.  The problem is that the central banks have so destroyed their economies no one is borrowing money.  Or spending money.  Because no one thinks the worst has passed.  And businesses and private citizens have learned the lesson from the great debt crisis we’re going through everywhere.  Too much debt is a bad thing.  And are refusing to take on new debt.  And using what income they have to pay down existing debt.  Contrary to all Keynesian doctrine.  For they want reckless and irresponsible spending.  Because they believe only spending is good.

Politicians and central bankers said the situation in the eurozone was unsustainable and drastic action was needed to prevent the ‘disintegration’ of the single currency.

They spoke out as European leaders scrambled to stop the financial crisis in Spain spiralling out of control and infecting other countries such as Italy…

Mario Draghi, president of the European Central Bank, said the eurozone was unsustainable in its current form.

In his sharpest criticism yet of eurozone leaders’ handling of the crisis, he said the European Central Bank could not ‘fill the vacuum’ left by governments in terms of economic growth or structural reforms.

So, no, more easy credit isn’t the solution.  Countries must live within their means.  Which means adopting austerity measures.  And find ways to achieve real economic growth.  Not the kind that leads to bubbles.  Or sovereign debt crises.  And the best way to generate real economic growth is with tax cuts.  Cutting spending as needed so they spend only what their tax revenue can afford.  They must stop running deficits.  And stop borrowing money.  (Good advice for the United States as well).  As the private sector economy picks up because of a more business-friendly tax structure they will create jobs.  So all of those government workers who lost their jobs in the public sector can get new jobs in the private sector.  Whose salaries and benefits will not have to be paid for by more government borrowing.  If they adopt pro-growth policies like this the international community may still be able to help them.  And save the Euro.  But will they?  With all of that public opinion against any more austerity?  Don’t know.  Probably not. 

It’s unlikely that the Euro will ever find its way out of the woods.  For these woods are scary, dark and deep. 

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The US and UK are pressuring Germany to print Euros and guarantee Greek Debt

Posted by PITHOCRATES - May 20th, 2012

Week in Review

Greece is in a world of hurt.  Their government spends too much money.  And their people answer calls for austerity with riots.  They simply refuse to address the problem that got them where they are.  Too much spending.  If they continue to reject austerity measures to bring their spending in line with their ability to pay for it they’re going to be cut off from future loans.  And broomed out of the Eurozone.  That won’t be pretty.  Because if others don’t prop them up they simply won’t be able to service their debt.  They will default on their sovereign debt obligations.  And the banks who have loaned large sums of Euros to them will struggle to recover from these losses.  Many of them simply won’t be able to.  Once the banks start failing the contagion will spread throughout Europe.  And the world.  Bringing on a worldwide recession.  That could easily slide into a depression.  And all of this because of excessive government spending.  There’s a lesson to learn here.  STOP SPENDING SO MUCH.  But no one ever learns this lesson.  Especially when Keynesians are running the government.

They’re talking about your typical Keynesian solutions.  More of the same that got Greece into the trouble they’re in.  Quantitative easing.  Printing money.  To stimulate these troubled economies with…wait for it…more government spending.  As if they can fix their debt troubles with higher consumer prices.  Which is what you get when you print more money.  Especially when the supply of money grows at a rate greater than its economy grows.  So prices will rise while the value of the Euro will fall.  It’ll make their exports cheaper.  But it’ll also make the value of all those outstanding sovereign Euro bonds worth less.  Those bonds all those banks are holding.  Giving them a negative return on their investment.  Pushing these banks closer to insolvency.

And it doesn’t end there.  The strongest economy in the Eurozone is Germany.  They know a thing or two about inflation thanks to the hyperinflation in Weimar Germany that gave the world Adolf Hitler.  So the Germans have governed responsibly.  By living within their means.  And their people have been paying a lot of taxes to pay for all of those Eurozone bailouts.  A nation that has truly gone above and beyond.  Their reward for responsible governing and selfless sacrifice?  They’re asking the German taxpayer to assume the Greek debt (see David Cameron and Barack Obama lead charge to save the eurozone by James Kirkup posted 5/19/2012 on The Telegraph).

Angela Merkel of Germany came under intense pressure to do more to support the struggling currency by putting German economic credibility behind the debts of weaker economies like Greece…

There is growing agreement among G8 leaders that the answer to the eurozone crisis is for members of the single currency to “mutualise” their debts, meaning strong members like Germany partly guarantee the debts of weaker ones like Greece.

Mrs Merkel has resisted any such plans, reluctant to ask German taxpayers – who already resent the bill for helping other eurozone countries – to underwrite the budgets of indebted southern Europeans…

That’s fair.  Except to the Germans, of course.  The problem is if the Greeks don’t reduce their government spending the underlying problem will remain.  Excessive spending.  Which means they will need bailout after bailout.  One or two or three just won’t do it.  And it will delay the inevitable.  And take more people with them when this Keynesian house of cards implodes.

Giving people benefits is easy.  People love you for your generosity.  Taking benefits away is very, very difficult.  People will hate you.  The longer you wait to start the more difficult it will be to cut these benefits.  And the more the people will hate you.  Which is why it is so difficult to govern responsibly.  Because politicians find it is easier to buy votes with generous benefits than it is win votes with good ideology.  This is why governments everywhere embrace the failed policies of Keynesian economics.  Because it gives legitimacy for the easy way of winning elections.  Buying votes with excessive government spending.

And this is the ultimate problem in the Eurozone.  Keynesian economics.  For if governments did not deficit spend or ‘stimulate’ their economies with monetary policy there would be no Eurozone sovereign debt crisis.  Being debt free makes everything easier.  Because you don’t have to borrow.  Service your debt.  Or roll it over.  You have none of those headaches when you live within your means.  Just look at the Germans.

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The End of the Euro is Fast Approaching

Posted by PITHOCRATES - May 12th, 2012

Week in Review

This is the end.  Beautiful friend.  This is the end.  My only friend, the end.  Of our elaborate plans, the end.  Of everything that stands, the end.  No safety or surprise, the end.  I’ll never look into your eyes…again. 

Of course, Jim Morrison wasn’t writing about the Euro when he wrote The End.  And the Doors didn’t sing much about public finance.  But whenever a love affair ends it is painful.  Whether it be with your significant other.  Or a common currency that was going to change the economic order of the world.  Especially when foolishly rushing in mistaking desire for love.  The warning signs were there.  The lying.  And the cheating.  Fudging their numbers to meet the requirements of the Maastricht Treaty.  But what love can ever last when based on a lie (see Fitch Warns Euro Zone of Downgrades If Greeks Exit by Reuters posted 5/11/2012 on CNBC)?

Credit rating agency Fitch put the whole of the euro zone on notice on Friday that were Greece to leave the currency bloc as a result of its current crisis, the remaining countries could find their sovereign ratings at risk…

It said those countries were France, Italy, Spain, Cyprus Ireland, Portugal, Slovenia and Belgium…

The leaders of Greece’s once-dominant political parties were making a last push on Friday to avert a new election, which a poll showed would give victory to a radical leftist and doom an EU bailout — its second — agreed in March.

The majority of Greeks want to stay in the euro zone but voted last Sunday for parties that reject the severe terms of a bailout negotiated with foreign lenders.

European leaders say Greece will be ejected from the common currency [EUR=X  1.2914  —  UNCH  (0)   ] if it turns its back on the package of tax hikes and wage cuts.

Well, then, goodbye Euro.

You can’t stay in the Euro if you need a Euro bailout but reject the terms of that bailout.  For if you’re in need of a bailout you really can’t dictate the terms of that bailout.  That usually falls to the party who has the financial wherewithal to bail you out.  And that’s not Greece.  So sad considering so much of Western Civilization came from Athens.

So what will it take to learn that an ever expanding welfare state does not work?  How many more nations must fall?  All of Europe?  Will that be enough for the United States to learn the folly of their current economic policies?  Probably not.  They will follow Europe.  Who will follow Greece.  Buying votes with welfare spending.  Until they cross the point of no return.  Where the people will reject austerity.  And responsible governing.  Because their government taught them to.  Always assuming that the day of reckoning will come in some other generation.  Not in the current one.  But the day of reckoning has arrived.  Greece cannot borrow enough money to meet their spending requirements.  For when a government spends more than they can borrow it’s time to cut your spending.  They fudged their debt and deficit numbers to join the Euro.  And their numbers have only grown worse ever since.  And no amount of Keynesian math or class warfare can change that. 

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Spain is Taking Center Stage in the Eurozone Crisis

Posted by PITHOCRATES - May 5th, 2012

Week in Review

To be a generous welfare state requires one of two things.  Either a population making babies like bunnies.  To keep the base of the pyramid of the welfare state expanding greater than the top.  Or a booming economy that showers money onto the treasury.  If you have neither than you better have good credit (see Spanish borrowing costs to jump at auction, bank buying eyed by Paul Day posted 5/3/2012 on Reuters).

Spain has jumped to the forefront of the euro zone debt crisis due to concern over its public deficit and shrinking economy and pressure is growing for a plan to recapitalize its banks, which are burdened with bad debts from a property market crash…

Spanish banks, virtually cut out of wholesale debt markets after losing billions since a decade-long property bubble burst in 2008, snapped up cash the European Central Bank pumped into the euro zone banking system in December and February, in operations totaling more than a trillion euros.

Recent data from the Bank of Spain suggests that they used a portion of the ECB’s ultra-cheap three-year money to buy up high-yielding sovereign debt.

According to the central bank, Spanish lenders held just over 13 percent of domestic debt in November 2011, but that total soared to almost 30 percent by March. Non-residents held almost 56 percent of all Spanish debt in November, but by March, that proportion had fallen to 38.8 percent.

Spain has neither a population boom nor an economic boom.  Nor is her credit looking all that good.  Which does not bode well for the Eurozone. 

Too many countries look to the housing market as the panacea for all that ills an economy.  Keep money cheap to borrow.  To encourage people to borrow.  So they can borrow.  And buy overvalued houses.  This is the kind of government Keynesian tinkering that never ends well.  And there are so many examples in history you’d think we’d have learned this lesson by now.  Japan, Ireland, Spain and the United States.  And now even China is growing a little housing bubble of their own.  Bubbles are not good.  They are artificial economic growth.  And they always pop.  Just ask our good friends in Japan, Ireland, Spain and the United States.

And when those bubbles pop recessions set in.  To correct all of those overvalued prices.  There’s deflation.  Old debt that becomes impossible to repay.  So banks fail.  Just because government Keynesians had to tinker.  Playing with interest rates.  To keep them below what the market would have them.  It was good on the upside.  Great new government spending and benefits.  Which have to go away on the downside.  Because there isn’t the robust economic activity to pay for it.  Even the interest on the debt becomes difficult to pay.  And because all of this is in play no one wants to buy their sovereign debt anymore.  Which raises the interest they must pay on new debt to retire old debt.  And the vicious cycle just continues.

Trying to fix the debt problem is looking at a system and not the disease.  The disease is the welfare state.  And until they cut that spending the debt problem will never go away.

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France may be next to go in Crisis as the Weight of the Crushing Costs of her Social Democracy threatens the Euro

Posted by PITHOCRATES - March 31st, 2012

Week in Review

France is in big trouble.  Or is about to be.  For they have put the ‘social’ in social democracy.  And the French people are about to learn how all that government largess can kill an economy.  And take with it all the social benefits they’ve come to enjoy (see A country in denial posed 3/31/2012 on The Economist).

France has not balanced its books since 1974. Public debt stands at 90% of GDP and rising. Public spending, at 56% of GDP, gobbles up a bigger chunk of output than in any other euro-zone country—more even than in Sweden. The banks are undercapitalised. Unemployment is higher than at any time since the late 1990s and has not fallen below 7% in nearly 30 years, creating chronic joblessness in the crime-ridden banlieues that ring France’s big cities. Exports are stagnating while they roar ahead in Germany. France now has the euro zone’s largest current-account deficit in nominal terms. Perhaps France could live on credit before the financial crisis, when borrowing was easy. Not any more. Indeed, a sluggish and unreformed France might even find itself at the centre of the next euro crisis.

It is not unusual for politicians to avoid some ugly truths during elections; but it is unusual, in recent times in Europe, to ignore them as completely as French politicians are doing. In Britain, Ireland, Portugal and Spain voters have plumped for parties that promised painful realism. Part of the problem is that French voters are notorious for their belief in the state’s benevolence and the market’s heartless cruelty. Almost uniquely among developed countries, French voters tend to see globalisation as a blind threat rather than a source of prosperity.  With the far left and the far right preaching protectionism, any candidate will feel he must shore up his base.

In America they say no president can win a reelection with unemployment at 8%.  The French have been 1% below that rate for 30 years.  Their banking system is not that far away from cascading bank runs.  Their big cities are surrounded by tinderboxes of unemployed youth just waiting for something to set them off.  And a large current account deficit means they are uncompetitive in international trade.  Which means that their economy is not about to create a lot of new jobs to employ the unemployed.  And with the government already spending over half of their GDP they’re not going to be able to throw much at the unemployed youth to keep them from expressing their discontent at being unemployed.  And with France’s history of generous state benefits the unemployed will not take kindly to any austerity programs.  Nor will those who have jobs.

Could France be the country to break the Euro’s back?  Perhaps.  For they are definitely too big for Germany to save.  And if France goes the grand experiment of the common currency will come to an end.  For a common currency without a political unity is doomed to fail.  For there is no way to stop a member state from not meeting the requirements of the Maastricht Treaty (which created the Euro).  So their financial problems are everyone’s financial problems.  Because of the common currency.  And if you think the French are going to take austerity orders from Germany you don’t know the French.  Or Franco-German history.  For they will cooperate.  But one will never subordinate themselves to the other.

So don’t be surprised if the next round of austerity fills the streets of French cities and towns with discontent.  For it looks like it will soon be their turn in this unfolding saga of the decline and fall of the Euro.  Pity to see this befall such a great people.  For much of the Enlightenment came from French thinkers.  And to see her collapse under the weight of her social democracy is painful to watch indeed.

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Ireland needs an EU Bailout but doesn’t like the Austerity attached to it and may reject the New Spending Rules

Posted by PITHOCRATES - March 3rd, 2012

Week in Review

Just when you thought the Euro was safe again (see Future of the euro again thrown into doubt after Irish announce referendum on new EU cash rules by Jason Groves posted 2/29/2012 on the Daily Mail).

Efforts to prop up the euro were again thrown into doubt last night after Ireland announced plans for a referendum on whether to accept new European spending rules…

Public anger over austerity measures is running high in Ireland and many observers were last night predicting a ‘No’ vote. That would not prevent the strict budget controls coming into force, but would leave Ireland  unable to access future EU bailouts…

Ireland has twice rejected plans for EU reform in referendums, only for the votes to be overturned under intense pressure from Brussels.

Eurosceptics in Ireland are expected to use the latest referendum to highlight Ireland’s dire economic problems, which have required a £70 billion bailout from the EU and International Monetary Fund.

Ireland giving away control over its own destiny to others due to intense pressure from an outside power?  My, how times have changed.  Once it took an occupying army to wrest their sovereignty away.  Now all you have to do is to get a nation to spend itself into debt and they will eventually hand you the keys to the kingdom.  Will they do it again?  Time will tell.

Again, the problem with the Eurozone is the lack of a political union.  But getting a political union of countries having such long and rich histories is not easy.  For if it were they’d already have done it.  But they haven’t.  And probably never will.  Unless countries step forward and agree to surrender their culture and identity.  And give control over their destiny to a distant central power.  Something that just doesn’t happen.  At least, not so far in the history of this world.  Where the trend seems to be definitely in the other direction.  Where autonomous regions of countries yearn for their independence from the countries suffocating their culture and identity.

This is the risk of excessive government spending.  You spend too much and you either ask for help.  Or wreak havoc on your nation by destroying its financial institutions with bankruptcy.  Neither is good.  But one is less desirable than the other.  Better still would be never putting yourself in between these two choices in the first place.  And the path there is that dreaded ‘A’ word.  Austerity.  For this we know for certain.  If Ireland had no debt Brussels wouldn’t be dictating terms to them.

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The Eurozone Debt Crisis gets Ugly as the Greeks call their German Benefactors Nazis

Posted by PITHOCRATES - February 18th, 2012

Week in Review

Germany is the strongest nation in the Eurozone.  While they retain their triple-A credit rating other countries face credit rating downgrades.  Or warnings about future downgrades.  Which puts the Germans in the Euro driver seat.  Because they’re shouldering the biggest share of this Eurozone financial burden.  One would almost say they are doing the other Eurozone members a favor.  But the Greeks sure don’t feel this way (see Greeks brand Germans ‘Nazis’ for driving through painful cuts and ‘taking control of their economy’ posted 2/15/2012 on the Daily Mail).

Greek anger with the way they believe Germany has taken over their economy is boiling over on the country’s streets.

In recent days, protesters have burned German flags and defaced the Bank of Greece’s headquarters to make it look like the Bank of Berlin.

German chancellor Angela Merkel has also been depicted in Nazi uniform on the front page of right-wing newspaper Democracy above a headline alluding to Auschwitz.

Granted, Hitler did conquer Greece.  And he did so ruthlessly.  But not because he wanted to.  Mussolini attacked Greece.  And was humiliated.  This blunder threatened Barbarossa.  The Nazi invasion of the Soviet Union.  Hitler had to save Mussolini to keep the British (in and around the Mediterranean) off their southern flank.  While preparing the Greek invasion Yugoslavia threw a wrench into the plans with a military coup.  Shut down his free passage through Yugoslavia.  Threw Hitler in a rage.  So he was going to teach them a lesson.  And did.  He ruthlessly attacked Yugoslavia.  And kept his army rolling all the way through Greece.  But to do this he had to delay Barbarossa by about a month.  Which stalled his armies in the god-awful Russian winter at the gates of Moscow.  The same god-awful winter that destroyed Napoleon’s Grande Armée.  And sent the Nazis in retreat.  For the very first time.  Had it not been for the Greece ‘problem’ Hitler may have conquered the Soviet Union.  And won World War II.  So Hitler had little love for Greece.  Which may have made the Greece occupation a cruel one.

High levels of government spending in Greece to support a very comfortable and growing public sector created large deficits.  They had to finance these growing deficits with growing government debt.  Soon their debt grew so large they could no longer sell new debt to retire old debt.  Because few believed that they would be able to repay this new debt.  Which brought them to this crisis where they needed help from others to finance their debt.  Because they could no longer take care of themselves.

So there’s a bit of difference between the current debt crisis and 1941 Greece.  In 1941 the Greeks were victims of Nazi oppression.  In the current debt crisis Greece’s troubles are self-inflicted.  So comparing Merkel’s Germany to Nazi Germany is a bit unfair to say the least.  And unjust. 

The Eurozone was an ill-conceived plan to begin with.  A currency unity with no political unity?  What did they expect?  No nation wants to take orders from another nation.  Any who tries may be called, well, a Nazi.  And this is why the Eurozone was ill-conceived.  Because no nation wants to take orders from another nation.  They just want to keep on doing their own thing.  Like the Greeks did.  And now Greece’s problem is everyone’s problem in the Eurozone.  Because of that common currency.

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Moody’s teaches France, Austria and the UK that Debt Matters

Posted by PITHOCRATES - February 18th, 2012

Week in Review

Things are not well in the Eurozone.  After a series of credit rating downgrades Moody’s warns France and Austria.  And even one country outside the Eurozone.  The UK (see Moody’s warns UK, France, Austria over AAA rating by Rodrigo Campos and Walter Brandimarte posted 2/14/2012 on Reuters).

Rating agency Moody’s warned it may cut the triple-A ratings of France, Britain and Austria…

Moody’s move was less aggressive than rival agency Standard & Poor’s, but its action puts London’s prized top credit rating in jeopardy for the first time…

Germany’s top-tier rating was described as “appropriate” by Moody’s, and it affirmed the triple-A rating on the euro zone’s bailout fund, the European Financial Stability Fund (EFSF)…

The precarious state of European sovereign finances was underlined on Monday, when the head if [sic]China’s sovereign wealth fund brushed aside an appeal from German Chancellor Angela Merkel to buy European government debt, saying such bonds were “difficult” for long-term investors…

A retreat from European government debt has already been boosting relatively high-yielding Australian and New Zealand debt, as cashed-up Asian sovereign wealth funds and other major bond investors look for safe havens to diversify their holdings.

The two big countries of the Eurozone are Germany and France.  If they go so does the Euro.  So far Germany retains its triple-A rating.  But France may lose theirs.  Even the UK may lose its coveted triple-A rating for the first time.  Just like the U.S. did last year.  Neither of which is in the Eurozone.

Things are not well in the world of government finance.  Even the Chinese are refusing to buy European debt.  And they’re not the only ones.  And it’s because of the debt levels.  Australia and New Zealand debt is closer to 30% of GDP.  Compared to the European Union.  Which is closer to 80%.  Simply put, debt matters.  And the more you have the less perfect your credit rating.  And the lower your credit rating the higher the interest rates you must pay to sell your government bonds.  If you can sell them.

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The European Union retains its AAA rating from S&P for now but Member EU States can Change That

Posted by PITHOCRATES - January 21st, 2012

Week in Review

Things may be bad for some individual members of the European Union (EU) but the EU as a whole is doing all right according to S&P (see S&P Affirms The European Union’s AAA Rating, Outlook Negative by Sam Ro posted 1/20/2012 on Business Insider).

S&P just affirmed the European Union’s AAA rating.  However, the outlook is negative.

This comes a week after S&P downgraded nine eurozone countries, including France and Austria.

And directly from the S&P press release.

The outlook is negative, in part reflecting the negative outlooks on 16 of the 27 member states of the EU…

During 2011, eurozone member states accounted for 62% of the EU’s total budgeted revenues; budgeted revenues from Germany and France were 30% of total EU revenues, at 16% and 14%, respectively. On Jan. 13, 2012, we lowered the ‘AAA’ long-term sovereign credit rating on France and Austria by one notch to ‘AA+’, and affirmed the long-term rating on Germany at ‘AAA’. As a consequence of the Jan. 13 downgrades, the pool of ‘AAA’ member states contributing to the EU’s revenues has declined to 33% of 2011 budgeted revenues, from 49%. Nevertheless, in our opinion, the supranational entity known as the EU benefits from multiple layers of debt-service protection sufficient to offset the current deterioration we see in member states’ creditworthiness. We are therefore affirming the long- and short-term issuer credit ratings on the EU at ‘AAA/A-1+’.

So everything is hunky-dory.  As long as France and Germany don’t go broke trying to bail out the Euro.  And with the Greek problem about to be resolved by screwing the private bondholders out of 70% of their investment the Eurozone should be right as rain.  As should the EU.

Of course, there are still more than half of the member EU states sucking air.  That could be a problem.  But why worry about that now when we can worry about that later?

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The European Central Bank Policymaker says the Euro will be Leading Currency in 10 Years

Posted by PITHOCRATES - January 1st, 2012

Week in Review

Problem solved.  The Euro is saved.  And then some (see Euro could become world’s leading currency: Noyer by Vicky Buffery posted 12/31/2011 on Reuters).

The euro could become the world’s leading currency in the next decade if leaders of the single-currency bloc succeed in tightening fiscal integration, European Central Bank policymaker Christian Noyer said in an article to be published in the Journal du Dimanche…

Contrasting with Noyer’s nostalgia, an opinion poll also due to be published in Sunday’s Journal du Dimanche showed 50 percent of French people thought the single currency had been a bad idea, compared with 35 percent who approved.

A separate article in Saturday’s Le Parisien showed the price of an average shopping basket had risen 22 percent since the euro first came into circulation, with certain basic goods such as the baguette rising up to 30 percent.

I don’t know.  Without a political union the odds are not very good.  The Germans are anti-inflation while the French are all for printing more Euros.  And then you have the spendthrift nations of Greece and Italy.  That will require more taxes by the other member states to bail out them out.  As well as the Euro.

For the Eurozone to really work you may have to do more than get rid of national currencies.  You may have to get rid of nations.  Sort of like the Americans did when they drafted their Constitution.  Once currency.  Once government.  One nation.  And that’s not likely to happen when you have 50% of the French saying the single-currency was a mistake.

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