Going Dutch: One Possible Solution to the Euro Debt Crisis [View article]
Edward Hugh hit the nail when he mentions the fact that the "euro design contained no crisis-prevention or crisis-resolution mechanism and no line of accountability when things went wrong". This is the heart of the issue and things have gone drastically wrong. Breaking the Euro into 2 pieces may solve thing temporarily but will not address the next crisis. Do we keep breaking it apart which is equivalent to extrication. Who will want tier 2 Euro bonds? Not me? Not German or French banks?
As the global economy slows even more PIIGS will face the simple fact they can't even accept 1% growth in government debt. They need an absolute decrease in annual deficit spending if not 0% or a negative increase. It would also serve the US well and make China take notice that getting what it wants is decidedly bad for their growth economy. The simple fact is no government will do this which is why S&P is correct to downgrade all government debt. The issue is not ability but no political will.
We have been taught that negative GDP and monetary contraction is the disease. It is not the disease. It is the symptom and result of a misaligned economy. Not correcting it means to allow the imbalance to grow to the point where it destroys your economy all together which has been the reason Greece, Italy, and inevitably the US will run into ruin. Without the EU Greece and Italy would have had to face their issue when it was solvable with some austerity. Now it has grown to the point they need extreme austerity and a punishing prolonged downturn. They are a victim to the success of the Euro protecting them from reality for too long. The US is the victim of being the global reserve currency that has allowed it to mask its profligate spending and hide inflation for too long. When the Middle East starts demanding oil to be paid in gold the US becomes a 3rd world country instantly (well at least after it exhausts its gold reserves which won't last long). Every country should beware and focus on fixing its systemic problems including government debt and trade deficits before things get much worse than what they already are.
Going Dutch: One Possible Solution to the Euro Debt Crisis [View article]
As the global economy slows even more PIIGS will face the simple fact they can't even accept 1% growth in government debt. They need an absolute decrease in annual deficit spending if not 0% or a negative increase. It would also serve the US well and make China take notice that getting what it wants is decidedly bad for their growth economy. The simple fact is no government will do this which is why S&P is correct to downgrade all government debt. The issue is not ability but no political will.
We have been taught that negative GDP and monetary contraction is the disease. It is not the disease. It is the symptom and result of a misaligned economy. Not correcting it means to allow the imbalance to grow to the point where it destroys your economy all together which has been the reason Greece, Italy, and inevitably the US will run into ruin. Without the EU Greece and Italy would have had to face their issue when it was solvable with some austerity. Now it has grown to the point they need extreme austerity and a punishing prolonged downturn. They are a victim to the success of the Euro protecting them from reality for too long. The US is the victim of being the global reserve currency that has allowed it to mask its profligate spending and hide inflation for too long. When the Middle East starts demanding oil to be paid in gold the US becomes a 3rd world country instantly (well at least after it exhausts its gold reserves which won't last long). Every country should beware and focus on fixing its systemic problems including government debt and trade deficits before things get much worse than what they already are.