Quote:
Originally Posted by BigNick
I think this is a bit of an over-simplification. Spain was running the best-balanced budget of the Eurozone until, like Ireland, they had to cope with bailing out their banking sector (Ireland's got into trouble over CDOs etc, Spain's over a property bubble). And Italy owes most of its debt to its own citizens, so there's a limit to how willing the creditors will be to pull any particular trigger. All three of those countries, plus Portugal, seem to be taking their austerity medicine without too much complaint.
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I agree that Ireland is taking "austerity" reasonably well but Spain and Italy are having some serious
riots demonstrations against it. How well their economies were doing before they went into the crapper is pretty much irrelevant. None of them show any signs of coming back to life anytime soon. Based on the current euro "rules," budget deficits must be controlled within limits none of these countries except Germany are meeting. The bond vigilantes are issuing their verdicts on the likelihood of success of these countries efforts. This is despite very liberal rules on using sovereign debt as collateral with the ECB. Without this, I doubt any country on the euro except Germany could sell any bonds.
You can get over 6% on Spanish and Italian bonds. How many have you picked up?
Quote:
Originally Posted by BigNick
There are two reasonably simple solutions to the Euro's problems: inflation and Eurobonds. Both are currently anathema to Germany (inflation because of what it led to for them in the 1920s, Eurobonds because Germany does not want to end up de facto running the fiscal policy of 16 other countries), but at some point, Germany will work out that these are less bad than the alternatives.
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It's already been demonstrated that these countries (except Ireland) won't let Germany run their fiscal policy. Eurobonds would "solve" this problem just until people figure out that this eliminated the need for "austerity" and unlimited spending was back in order. At that point it would be obvious to all that Germany can never pay back everyone's debts.
With the totally disjointed fiscal policies, how is inflation to be controlled? Does every government just decide to print their own excess euros ala the US Federal Reserve? Does the ECB just magically increase everyone's bank balance by 50% or so and raise everyone's pay?
Unfortunately, this is a very simple issue. The euro was created as "fixed" currency every country supported with balanced (or nearly balanced) budgets. If they can't do this, the euro will not survive. The only way to make it work is the "United Europe" with a single government controlling all aspects of their "federal" government. That will never happen.
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