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Sep 18, 2011

Animal Spirits and the Great Crises in Euro Zone: What Does It Mean?

What do the United States and Europe have in common for now? A short answer, confidence crisis.  Animal spirits literally means confidence in economic sense. There are warnings about Eurozone confidence crisis.
 IMF, World Bank, veteran investor George Soros and most recently Gordon Brown said the crises in Europe have more potential to be devastating than the collapse of Lehmon Brothers. Europe in general and Greece in particular are under international speculation, making the situation worse.
An article published in The Telegraph interestingly puts: Mr. Brown called for a revival of the "global growth pact" agreed at the G20's London Summit in March 2009, combining stimulus from America, Europe and Asia to create a multiplier effect that breaks the vicious cycle
Make or Break
Gordon Brown has fought hard for that course. But it doesn’t gather much attention. The world with which we are living should be recession-free if the superpower powers did coordinate policies in response to global economic crisis.
The currency war has prolonged the recovery of global economy and now it is entering into another dangerous zone. Moody's Analytics recently downgraded two French banks citing their high exposure to Greece debts.
Interestingly, the same source also said France banks have the abilities to absorb the losses resulting from Greece default. It may be wise to allow Greece to default to contain the fear in Eurozone. On the contrary, allowing Greece leaves the Eurozone is not really a best solution.
Technically speaking, Greece has defaulted on its debts a few times already. Greece received bailouts mean that Greece doesn’t have the abilities to pay debts on time. As I said before, Europe may play too hard, debasing the Euro too hard.
But I think everything is still controllable. From the start, the crises in Eurozone were worsen by each member’s politics. Recently, Finland demands collateral for helping bailing Greece out.  But for now, it is getting worse and worse by speculation.
If the Euro collapses, the world will definitely fall into a deep depression. Why? Banks, Governments of all countries are now in big troubles. They can’t do more as they did in 2008. No one can help Europe but Europe itself.
China is not a solution. Mr. Wen has made it clear that his country will help Euro unless Europe puts its house in order first.  Primarily, Chain’s investment in foreign currencies emphasizes on three main points: Safety, Liquidity and Return.
I said it again and again: France and Germany must make concession to save Euro and of course themselves. Euro can’t get out of troubles unless it spends more. I’m sure that it’s a matter of time that they will spend more. Their savings will turn to spending.