It's hard to generate great interest in the interest rates in the Netherlands, but the possible implosion of the euro and the collapse of the entire post-Second-World-War project is now imminent. Yesterday, the markets started punishing Holland, a state, after Germany, with a usually stellar fiscal reputation. A downgrade of France's debt now looks unavoidable. Growth is at 0.2 percent across the euro zone. Italy hangs by a thread, and is now essentially run by someone unelected with foreign monitors watching his every move. Ditto Greece. And the odds of the combined austerity programs in France, Italy, Portugal, Ireland and Greece creating a debt trap from which it is impossible to emerge is also very real. If this doesn't scare you, check out this analogy:
Dhaval Joshi, at BCA Research, delved into the world of physics to explain Europe's predicament. "Approaching a black hole, cosmologists define the event horizon as the point beyond which it is impossible to escape a guaranteed ultimate annihilation," Joshi said. "The fascinating thing is you can cross this point of no return without realizing that your doom is certain. So the question is: has the euro area unwittingly crossed its own event horizon? We believe not, although it is getting dangerously close."
The only way to stabilize this situation is for the European Central Bank to commit sufficient resources to avoid the black hole. The longer the wait the higher the cost. Or the euro zone can simply disintegrate into two halves, with all the fiscal and financial chaos that would mean.
Does the ECB have the funds? Did the Fed? It can print money. And so Germany faces an existential crisis: do we return to printing money as we did in the past to save Europe? Or do we allow Europe to fail? I can see why Merkel doesn't want to choose. But if she doesn't soon, the markets will choose for her.
0 comments:
Post a Comment