Greece's government is, not surprisingly, asking for more time to implement further budget cuts.
It is in the balance if the real masters of Greece, the German dominated EU and the IMF, will allow for such time. There is much speculation that contingency plans have now been put in place to allow for an 'orderly' exit of Greece, from the Euro.
While this will cause additional pain for Greece, allowing their new currency the freedom to float (yes, it will sink initially but will then find a sustainable level), will get the Euro boot off of their throat.
And then what?
Spain is still fragile and my expectation is that as we move into September, both Spain and Italy sovereign debt offerings will come under increasing pressure. The current lull, is just that. the storm is right around the corner.
Things is, I don't see how Spain can 'tighten its belt' any further. They have initiated public spending cuts, how much more can they do, before they too throw in the towel?
Think about those Spanish unemployment figures. 25% unemployment! That's one in four people who are actively engaged in the workforce. It doesn't include stay at home mums and dads, nor retirees, nor students. No, just people who are eligible for employment. I think the true number would be one in three Spanish persons. Look around you! Imagine every third person being unemployed (don't do this if you work in the UK Public Sector as even though you are under-employed, you are still, technically, employed (for now!)).
Greece's numbers are no better.
We see TV shots of families living rough and scrounging around for food. These aren't lazy people, they're not people from the less developed world who are suffering because the rains didn't come. These are people living in the heart of a very rich continent who are being punished because their politicians have continuously lied to them and stolen from them and now try to tell them, it is their own fault!
The UK is outside of the Euro but is still feeling the pain of its never-ending misery and has its very own spending issues (more on that later) but maybe the time is coming for not just thinking about the break-up of the Euro but a complete re-assessment of the whole EU project, for all of the EU?
At what point does one stop squeezing a lemon - common sense says when all of the juice has been extracted but I get the sense that Frau Merkel just likes squeezing and her French poodle has to go along with her because maybe, just maybe, he senses that the markets just might see how fragile is France's economy and borrowings.
It is in the balance if the real masters of Greece, the German dominated EU and the IMF, will allow for such time. There is much speculation that contingency plans have now been put in place to allow for an 'orderly' exit of Greece, from the Euro.
While this will cause additional pain for Greece, allowing their new currency the freedom to float (yes, it will sink initially but will then find a sustainable level), will get the Euro boot off of their throat.
And then what?
Spain is still fragile and my expectation is that as we move into September, both Spain and Italy sovereign debt offerings will come under increasing pressure. The current lull, is just that. the storm is right around the corner.
Things is, I don't see how Spain can 'tighten its belt' any further. They have initiated public spending cuts, how much more can they do, before they too throw in the towel?
Think about those Spanish unemployment figures. 25% unemployment! That's one in four people who are actively engaged in the workforce. It doesn't include stay at home mums and dads, nor retirees, nor students. No, just people who are eligible for employment. I think the true number would be one in three Spanish persons. Look around you! Imagine every third person being unemployed (don't do this if you work in the UK Public Sector as even though you are under-employed, you are still, technically, employed (for now!)).
Greece's numbers are no better.
We see TV shots of families living rough and scrounging around for food. These aren't lazy people, they're not people from the less developed world who are suffering because the rains didn't come. These are people living in the heart of a very rich continent who are being punished because their politicians have continuously lied to them and stolen from them and now try to tell them, it is their own fault!
The UK is outside of the Euro but is still feeling the pain of its never-ending misery and has its very own spending issues (more on that later) but maybe the time is coming for not just thinking about the break-up of the Euro but a complete re-assessment of the whole EU project, for all of the EU?
At what point does one stop squeezing a lemon - common sense says when all of the juice has been extracted but I get the sense that Frau Merkel just likes squeezing and her French poodle has to go along with her because maybe, just maybe, he senses that the markets just might see how fragile is France's economy and borrowings.
Letting Greece, and the other periphery nations, exit the euro may allow them to regain some competitiveness in the near-term but would it enable the ineffective and inefficient political and economic institutions that are to blame for their current malaise to blossom again. Greece has been mired by corrupt politicians and monopolies that have stunted the ability of its economy to grow through the forces of innovation and creative destruction.
ReplyDeletePerhaps it's better for them to "tough it out" and reform their economies and learn to become more like the stronger euro economies like Germany.
It's tough when you have 25% unemployment (and 50% youth unemployment) so populist policies get votes. You can read about the extremist parties who are getting more of the vote now in Greece. However, do the Greeks really want to return to the old days when they were relatively poor by modern standards
John,
ReplyDeleteThanks for your comment.
I take your point and am not suggesting that life will be easy for the Greeks (or the Spanish) but I think that in protecting the interests of international banks, by securing their loans at the expense of the Greek peoples' interest, I believe that the Greeks are being made to suffer unduly.
That is, the international banks are heavily vested in the Euro. They have also over-extended loans to certain economies - e.g. Greece and Spain - and now rather than face the consequences of their (the banker's) folly, they are squeezing the people of those countries or calling on their political puppets to do so.
I don't think that Greece exiting the Euro is the perfect solution - they don't have great exports! and tourism? Well, less said - however, a Greece and Spanish exit will force some banking defaults and that just might lance the boil that is poisoning the credit markets and thus international business, at the moment. In short, until banks face-up to and accept the true position of the non-performing nature of their loan books, this economic mess, in which we ALL find ourselves, will continue.
And I don't think that the banking crisis is confined to a few banks in the West. China has a property bubble that is dangerously inflated.
Meanwhile back in the US, bank regulators are focused on penalising (foreign) banks for supposed money laundering and sanction busting. I can't help but feel that when investigating banks - foreign and domestic - they would do better to look at the banking fundamentals like risk management rather than peripheral, essentially political issues.