About Me

Oct 20, 2011

A Terrifying Lie : The Coming Collapse of Euro ?

Greece default is not a problem. What’s matter is what would happen after that default? European financial stability facility can cover well the losses resulting from Greece default. Will the market clam down? Will investor’s confidence remain untouched? Those are two important questions need to be addressed.
Why I think Greece is going to default again?  If one looks at bailout packages to Greece, the fund is relatively small. They demand that Greece implement austerity measures. I know that it makes a country more competitive. But those measures happen at the time when Greece is in crisis. Expecting strong economic growth from that climate doesn’t make any sense.
I come to the conclusion that they are buying time. It’s been two years that France and Germany postpone Greece default[1]. Two years time allows other troubled countries to get their houses in order. I think they want to make sure that Greece default won’t be a domino effect.
Why Greece is set to default? Europe is catching American disease. If Greece defaults, Euro will be devalued. What would happen to their export? Most importantly, what would happen to their debt? Greece default is Europe’s version of American political deadlock. It’s a monetization of their debt
It’s wise of Europe to use this style. But I think they may play too hard. It’s good for them that Greece is set default. But if they fail to convince they market, Europe will meltdown. Wall Street, Main Street and the Government are already in big trouble. Emerging markets are slowing as domestic challenges are increasing, United Sates still mires in anemic recovery. If Euro fails this time, there will be a deep depression.
They are playing with fire. If they catch the fire, it will burn not only themself but also the whole world. I don’t think that strong growth will exist in the age of austerities. Some try to challenge me by citing the example of Germany.
Germany is an exception. Labor in the West Germany is amongst the cheapest in Europe, thanks to historical factor. Most of Germany heavy industries are assembled there. Look on Germany's pension system and social benefits and you’ll understand.  More work for less pay!
I believe when Greece will be allowed to default. Perhaps when the US’s Fed floods the economy with money again!
Why each European Government didn’t food the economy with money when the crisis hit?
In a word, social safety net in Europe is better than that of US. The State covers most of the costs. So,  European Government’s debt is higher than that US’s. This may explain why they chose to tighten their belt first. More debt, by injecting more money into the economy, may make the situation worse, affecting the investor's confidence.  Save first and spend later! I hope that they are able to convince the market. Another exit strategy: debt write-down. If not : .... 
Leaders in Europe are saying Greece is not going to default. What a terrible lie!!!

[1] Technically speaking Greece defaulted on its debt already.