In the wake of the bund auction failure, there is woe.
The problem is, no one believes the PIIGS will keep their promises. They’ve broken too many already. The new “stability pact” is a joke — oh, they’re suddenly going to start abiding by debt/deficit rules because… ?
Meanwhile, the Krug-eynesians keep insisting the PIIGS shouldn’t have to undergo austerity at all, which only exacerbates the concerns of the markets. Their notions of ECB guarantees and eurobonds are the equivalent of throwing open the henhouse doors in exchange for a promise from the foxes not to eat too many hens — they will further reduce the already too-weak incentives for the Euro polities to curb the welfare state excesses that brought on this crisis. That can only delay the inevitable, and at the cost of making the problem even worse.
There are now only two possible end-state solutions: a massive concession of sovereignty by the euro countries, or the end of the euro. The first is even less thinkable than the second, and might result in revolution anyway — the Germans are not going to hand over their own fiscal sovereignty in response to a problem created by the irresponsibility of the PIIGS, and the Greeks, Italians, etc, are not going to accept de facto rule from Berlin. The second will happen when it becomes clear the first cannot.
UPDATE: Some good thoughts here. Would the Fed really hitch our already-rickety fiscal wagon to the disaster unfolding in Euroland? A frightening thought.
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6 responses to “PIIGS And Troughs”
Two auctions today were surpisingly successful (from a euro-collapse-is-now-imminent perspective) although yields hit highs. Somebody is still buying. There’s a bigger auction tomorrow.
Somebody, indeed. Would the Fed buy up Euro-bonds? Sure: Call it QE3. The Fed might see it as a move to keep the dollar low in comparison to the Euro and other currencies; but, also see it as providing liquidity to European banks. Should they do it? Well…
The plane truth is that some EU countries are better than others. Germany has equally oppressive tax and labor schemes as PIIS. But Germany actually collects taxes to support it’s debt issuances quite adequately in the interest of a paternalistic society. PIIS are freeloading tax cheat nations that steal via the EURO and therefore steal from Germany. Merkel can not countenance this anymore.
I know links are bad form. But did you see this yesterday – the US is already very deep into the EU “rescue”. Alas, we are all PIIGS-connected.
http://www.bloomberg.com/data-visualization/federal-reserve-emergency-lending/#/overview/?sort=nomPeakValue&group=country&view=peak&position=560&comparelist=&search=
No proof of course, but I would no be surprised to see the feds or the ECB giving closet guarantees to the buyers of eurozone sovereign debt. Also could be china or the oil-sheiks.
“freeloading tax cheat nations”. I agree. How dare those slaves refuse to pay homage to their masters.