Friday, April 16, 2010

The End of a Dream?

Some people dreamt of a united Europe. Too bad the Europeans couldn't decide on a fiscal policy. Morgan Stanley fears German exit from EMU - Telegraph
a bail-out for Greece may be necessary to avoid a crisis for Europe's financial system, but warned that it also "sows the seeds for potentially even bigger problems further down the road".

Mr Fels said weak states cannot easily leave EMU because they would pay a stiff penalty in higher rates, would be stuck with euro debt contracts, and might need controls to stem capital flight. It is a different calculus for Germany, which would see lower rates and might view EMU exit as the only way to ensure monetary stability.
People made commitments when they joined the EU. Several countries have not really lived up to those commitments - Greece only being the first to hit the wall.

Germany is the economic powerhouse of Europe right now, and likely sees itself having to bail out a lot of spend-thrift nations. (I am more surprised the Germans ever thought the rest of Europe would follow its lead financially, than I am surprised they may opt out.)
Most governments in the advanced countries will exit from recession with the highest deficit and debt-to-GDP ratios recorded in times of peace. It is essential to prevent public finances from running out of control," he said.

Dr Stark said public debt will reach 88pc of GDP next year in the eurozone and the UK, 100pc in the US and 200pc in Japan. "There is no doubt that fiscal policies have been put on a path that is not sustainable," he said.
Don't tell that to Congress... they are all set to spend more.

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