Category: Countries & Regions

[The] core problem at the heart of the euro zone is NOT a problem of “Mediterranean profligacy”. Many people, particularly in Germany, express the view that the Italian, Greek or Portuguese governments (and by association their people) are to blame for this crisis – accessing cheap loans from Northern European banks, not paying enough taxes, not working hard enough, etc…..

One thing is clear from the remarks that continue to emanate from Europe’s main policy makers. They do not understand basic accounting identities.

…….The European Monetary Union bloc as a whole runs an approximately balanced current account with the rest of the world. Hence, within Euroland it is a zero-sum game: one nation’s current account surplus is offset by a deficit run by a neighbor. And given triple constraints — an inability to devalue the euro, a global downturn, and the most dominant partner within the bloc, Germany, committed to running its own trade surpluses — it seems quite unlikely that poor, suffering nations like Greece or Ireland could move toward a current account surplus and thereby help to reduce its own government “profligacy”.

via New Economic Perspectives: ARE WE APPROACHING THE ENDGAME FOR THE EURO?.

For the advanced economies, there is an unmistakable need to restore fiscal sustainability through credible consolidation plans.

At the same time we know that slamming on the brakes too quickly will hurt the recovery and worsen job prospects. So fiscal adjustment must resolve the conundrum of being neither too fast nor too slow.

via Europe’s Fiscal Overkill – Ambrose Evans-Pritchard Telegraph Blogs.

The ECB can hold the line for now by purchasing €20bn of Spanish and Italian bonds each week. But once the ECB nears €150bn or so, the markets will brace for the next crisis.

via In Defence of PIGS – Ambrose Evans-Pritchard Telegraph Blogs.