The more I read about what people are doing about the euro the more I become convinced that it\’s going to crash and burn.
Yes, yes, I know, I\’ve been saying for near a decade now (that, at least, is how long I can prove I\’ve been saying it) that it was all a bad idea to begin with. And that we shouldn\’t have had it and after we\’ve not had it we\’ll be better off: despite the process of getting rid of it being most unlikely to be fluffy bunny time.
But right now, in the middle of the crisis, what\’s driving my thinking is the realisation that those trying to manage the crisis simply don\’t understand what it is that they\’re trying to manage. Sarkozy and Merkel: they didn\’t announce anything that could possibly take effect in under 6 months. It\’ll be done and dusted one way or the other by then.
To preserve the euro and the monetary union, they have to do one of two things: either Germany agrees to start shipping money around, taken from the taxpayers\’ pockets. Or Germany agrees that the ECB can go out and spend a few hundred billion to a trillion or more of newly created money on purchasing PIIGS secondary market debt. This would take the money in a disguised manner through inflation.
Those really are the only two workable solutions and as Ambrose points out, Italy has to roll over 100 billion of debt by late September. Those really are the sort of sums we\’re talking about.
If neither of those are done then either some of the PIIGS are going to have to leave or (or at the very least default which just means all these things happening anyway), better yet, Germany should leave.
And the impression I get is that none of those trying to deal with matters grasp these points. They\’re not dealing with \”bond vigilantes\” who can be awed into not betting against certain bonds: they\’re dealing with investment managers who are simply not willing to purchase new bonds. There\’s a huge difference between the two. It\’s not speculation, it\’s refusing the throw good money after bad.
They all really do think that politicians making a few speeches solve problems.