Sunday, July 8, 2012

Are the Odds of a Euro Crackup Increasing?

Paul Krugman has written a post that is factually correct (This is progress for Krugman)
At the end of last week, Spanish 10-year bond yields were close to 7 percent — actually higher than they were last fall, when the ECB stepped in with its big LTRO lending program, a program that bought time that European leaders proceeded to waste:
The Spanish government is, understandably, sounding a bit desperate:
Spanish Prime Minister Mariano Rajoy said euro-zone countries must urgently implement decisions including government bond purchases agreed to in June as the country can’t finance its deficit under current conditions.
And the European Central Bank, which is the only entity really in a position to do what’s necessary, is, well:
The ECB lowered its benchmark rate to a record low 0.75 percent on July 5, disappointing investors who had predicted it might restart its government-bond buying program to ease stress on Spain and Italy. The central bank will only buy government debt if it considers it necessary to keep inflation on track, Benoit Coeure, an executive board member, said yesterday.
“If the governments decide to do it they should go ahead,” Coeure told a meeting of the Circle of Economists. “That doesn’t mean the ECB can’t buy Italian and Spanish debt on the market, but they’ll do it if it needs to for reasons of monetary policy and not otherwise.”
No sense of urgency. Amazing.The odds of euro crackup are rising by the day.
The ECB is playing a dangerous game and Krugman has spotted it. The bank is only providing life support at the last minute. The euphoric reaction in the eurozone markets to what was announced at the recent EU summit was a major over-reaction. One false move by the ECB (by, say, coming in with bailout money an hour too late) could crackup the entire system. This would not be a bad thing from my perspective---though Krugman would likely view it as the end of the world.

The ECB game, though, is in line with the thinking of the banksters and Germany: keep the pressure on the F' PIIGS in an attempt to force them into a more unified banking and fiscal zone. That means keeping rescue attempts at the edge, only when it appears a country is going over the edge.

1 comment:

  1. Re Krugman: Evan a blind pig finds an acorn now and again.