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ECB Rejects Idea Of EU Fund To Bail Out EU Members
So much for a FDIC-like entity (with a limitless Treasury line of credit mind you) being set up in Europe. The ECB's board member Juergen Stark flatly rejected the idea of setting up a monetary fund to bail out troubled EMU member states. I think we all know who these are.
Market News cites Stark from a radio interview given earlier:
"I take exception to the consideration [being given] to granting additional means, even under strict conditions, for an instrument that is not necessary," Stark told German public radio Deutsche Welle. "And it is also not compatible with the rules on which we agreed at the start of the currency union," he stressed.
Greece has made an important step by recognizing the need for budget consolidation, Stark, the ECB's chief economist, said. He acknowledged that Spain, Portugal and Ireland are also not in a good position, be he argued that the problems of those countries "are of a different nature" to those of Greece.
"Especially Ireland has undertaken effective measures to get its public deficit under control," Stark noted. By cutting public sector wages it has increased its credibility, he argued. "I think that is a very important step."
"Once the situation has gradually stabilised we must also gradually unwind these measures. Firstly, this applies to central banks, secondly, this applies to governments," he elaborated. "They must start already this year to consolidate public budgets and must intensify this in 2011," Stark demanded.
It seems the ECB can't wait to see euro-dollar parity, Greece be damned. And they are well on their way: the euro just touched a $1.35 handle.
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No soup for you!
EU zone is going to come flying apart at the seams, the PIIGS badly need to print to service their socialist "obligations" or run the risk of riots in the street.
It's never been about socialist obligations.
Anyone that thinks this crisis is about social spending, has missed the entire crisis. (not saying you are, but your analysis of what happens if it were to happen is right)
But spending on social serivces are only symptoms being nailed as causes when really they are just along for a ride in the boat of crappy economics.
They may exacerbate the problem, after it's already on it's deathbed, but the problem was never social spending. It was the wealth transfer of too much away from the people who buy the goods who keep the economy running. (see tax cuts, bogus war spending, and derivatives)
Guess what, when social services are cut in any country, even here in america, people will riot. The thing is, we haven't seen the scope of social service cuts that will be or currently are being cut for well, a few generations. The cuts made (to pay for the bailouts) will have to be large indeed, because we all know we could stop ALL social spending everywhere in this planet, and the world economy would still be 'bankrupt' and going down.
It was never social spending that brought us here. But in it's weakened state it cut be the straw that broke the camel's back. Just like the bankers wanted. A reason to steal even more.
Open your eyes, the bankers talk about social spending, instead of their monetary policies. They get you to turn on yourself, and you wonder how we get here? Simple. People are quick to blame the poor, instead of the people that actually brought them here.
I wonder what this headline means to the volume in sovereign bond markets (bold mine):
FTSE falls on recovery jitters; ICAP slumps
http://www.reuters.com/article/idCALDE6141KM20100205?rpc=44
I am very surprised by this development. I am still giving it a 65% chance that EU bails out the PIIGS. This is a game of chicken. ECB is trying to get PIIGS to cut as much as possible before extending a lending hand. I think when CDS spreads get out of control and when banks start to get taken down there will some type of knee jerk reaction bailout move.
On the other hand EUR devaluation is a goal. As TD says, Dollar/Euro parity is the goal.
By which development are you surprised ?
These are all nice words and blablabla, we all know they will be bailouted. I'm really tired of these german politics because 1.they never do what they say 2. Germany is probably not in a much better shape than the PIGS.
It will be interesting to look at the car sales from BMW and Daimler....
If I were European, I would buy gold now
We'll be well on the way to a one-world currency when that happens.
Which is why I've been saying China might be the last resort for bailing out the entire EU with their monsterous dollar reserve
China's got their own problems. And even if it didn't, it doesn't have the firepower to get these imbalances under control. That and really why would they even if they could? Getting out of dollars into euros does not sound like a good plan. Now if they nations were willing to sell China their gold then maybe that would be a different story and China would be willing to toss them some of their reserves.
When even your own won't save your ass, there's no reason to roll out of bed in the morning. I guess there really is no honor among thieves.
They will print and bail them out. They just haven't lied about it enough yet.
It's print or dig graves for rioters. In the end, they will print.
Why euro/usd parity, if Greece doesn't get bailed out? Isn't that good for the euro as its not being debased to bail out basket cases?
Why euro/usd parity if Greece doesn't get bailed out? Isn't this good for the euro as it is not being debased to bail out basket cases?
Greece is currently facing the prospect of bankruptcy, which could threaten the euro. In an interview with SPIEGEL ONLINE, Peter Bofinger, a prominent economic adviser to the German government, explains why he believes Europe's common currency would survive a Greek collapse and calls for a new global monetary order.
SPIEGEL ONLINE: The European Commission has prescribed a strict program of austerity measure for Greece. The government in Athens needs to cut its budget deficit by 75 percent by 2012, and EU aid is not planned. But it is unclear whether Greece will be able to steer its way out of trouble on its own. Is Brussels risking a state bankruptcy?
Peter Bofinger: To the contrary. The tough stance against Greece is the only correct approach. A cash injection from Brussels would have set a dangerous precedent -- it would have signalled to other problem countries like Portugal or Spain that when the going gets tough, the European Union will rescue them.
SPIEGEL ONLINE: But isn't that precisely what is needed right now? The financial problems of the southern European members are putting pressure on the entire euro zone. Some of your fellow economists fear a crash would trigger a domino effect and cause a rapid plunge in the value of the euro.
Bofinger: Some of my fellow economists are going too far. Compared to other currency zones, the euro zone is doing a lot better than many claim. The national debts and new state borrowing is lower than in the United States. And in an emergency it could also cope with a Greek bankruptcy. The country produces just 2.6 percent of the euro zone's GDP.
http://www.spiegel.de/international/world/0,1518,676157,00.html
A little perspective on Greece and Portugal compared to three US states in big trouble:
Calf 49.3% budget gap: $1.92 trillion GDP, 37 million pop.
Ill 47.3% budget gap: $610 billion GDP, 12.8 million pop
Az 41.1% budget gap: $206 billion GDP, 6 million pop
Portugal: 233 billion GDP, 10.7 million pop
Greece: 133 billion GDP, 11.0 million pop
The whole EU system is impenetrable to ordinary humans brought up on anglo-saxon logic and cause and effect science. Believe me, the EU beaurocracy will wait until there is a real crisis (a la Lehman) and then step in to buy up/stitch up the defaulters with beads/loan guarantees that ensure the defaulters are forever beholden to the EU beaurocracy.
All done by private sector banks with off balance sheet side guarantees...
Bingo!
OOPA!
Best summary of the situation and likely outcome.
And the best explanation of the EU system:
"The whole EU system is impenetrable to ordinary humans brought up on anglo-saxon logic and cause and effect science."
What? The Germans don't want to go to work to support what they see as a bunch of overspending tax cheats with no sense of discipline? Who could have guessed such a thing?
Certainly nothing in history points to such and attitude. Right?
Hyperinflation and then a crazy dictator will put monetary and fiscal discipline to a nation of people.
The people of US, on the other hand, forgot what happened in history to their last two currencies and their last two central banks.
PIIGS default would be the start of the Great Unwind. Make it so.
Rules? Rules are so...18th century. Get with the 'flexibility' program, EU.
</sarcasm>