A Continent In Crisis: What Can We Do To Save Euro?

  

Double dip recession is the most frequent phrase I usually encounter while reading news. The stories developing in Europe are boring. Greece default, Greece default, Greece default and the need of contagion! It shouldn’t have made any headlines.

In last article, I suggest only a new bold action will solve the crises in Eurozone. I was puzzled by the ways Europe deals with global economic crisis. I recently heard of some proposed solutions to deal with the crisis in Eurozone, the introduction and/or another bailout.

Bailout has been a self-defeating strategy. I bet Eurobond won’t also work if Germany doesn’t in a position to help. I was shocked in 2008 once I learnt most countries in Europe chose to implement contractionary monetary policy. I’m convinced they will spend back at some day or the crises won’t be solved. They robbed their own people and will spend on right things to boost growth.

Actually, France and Britain have spent more already in the form of military intervention in Libya dubbed as Military Keynesians. Some friends asked me why Europe experienced anemic economic recovery. The strategies countries in Europe implementing are not supporting growth.  The growth was mainly driven by inventory investment. A new bold action is needed.[1] The card is now on Germany. No one can help Europe. I don’t think China is going to buy a large of amount of Europe’s debts. BRICS as a whole will also buy a small amount of debts too. It’s just a symbolic gesture.

More and more people are thinking the next recession is just around the corner. It’s regrettable that can’t avoid the avoidable crisis in 2008. Bailout is not helpful. It adds fuel to the fire. They bailed Greece out and demand that Greece implement austerity measures. The economy won’t definitely grow well? Greece is not able to pay out the debts again and the vicious circle begins again and again.

Please don’t wait until the Greece’s debts become gigantic. An orderly default should be considered. I know Germany has difficulties dealing with local voters. But it’s an effort worth trying. Germany has been capitalizing from the crises in Europe. Germany will also the biggest loser if the Greece did default.

Europe shouldn’t have played too hard. The fears stemming from Eurozone is a self-fulfilling prophecy. Politics brought back the already dead crises. Global economic crisis is actually ended in 2009. Satisfying local voters and expanding national interests in the time of great crisis is a dangerous game.

We need to talk to Germany how to solve the crises. There are things Germany needs to do and there are things we need to do. Don’t take the world economy hostage.  They are not going the most effected. Poor people in developing countries will die. It’s not a good way to reduce global poverty. Don’t do that!!!  

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[1] It will be elaborated in the next article. Keep visiting to get updated.  

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.

The War for Wealth: The True Story of Globalization, or Why the Flat World is Broken

War for Wealth is a provocative book written by Gabor Steingart, a Germany journalist. He begins the book by comparing two experts on globalization. Naomi Klein, a Canadian authored The Shock Doctrine: The Rise of Disaster Capitalism has been skeptical of globalization.

 Henry Paulson argued Globalization is doing the West good, a view that Klein didn’t share. Is globalization a force for good, or is it a policy that is sure to destroy the economic foundation of the United States and Europe while exporting our wealth and prosperity overseas? He probably answers Yes. He wrote Globalization was striking back.

Please click on the pic to download it. 

The rest of the world is on the rise as the West is on decline. He criticized the ways Americans see the Globalization. US investors are moving to other countries contributing to unemployment and social crises in America. And one needs to buck the trend.

At the same time, he praises Germany’s growth model, giving labor union and middle class workers sustained purchasing power. Germany government sees the globalization as an opportunity rather than an exit strategy. The middle class in Germany is given more attention that one in the United States.

I don’t agree with some of his ideas. Anyway, his book is very though provoking. Just don’t want to point out our differences because I’m writing a review only. You guys can download for free. Just click on the pic located on the right side. You might want to click on ad below.  

Domino Effect: Europe’s Dangerous Economic Game

Just read an article by The New York Times and my computer is downloading a documentary. So, I’m decided to write an article to buy the time. That article said Greece is the epicenter of the Europe’s financial disarray. Not really! It’s the Germany that is the epicenter of economic problems in Europe.

The situation in Europe is bad and it was worsen by politics and the moves of Germany and France. Greece disease is rampant in Europe. The upside of the downside is that Euro is cheaper than it otherwise would be. But I think Europe plays to hard.  The crises are spiraling out of control.

The crises were worsen by politics.[1] I wrote in a few articles that Greece should be allowed to default on its debt. I have noted many times already that Greece problems, later or sooner, will come back again. Borrowing dents to compensate the debts is not the best solution.

 France and Germany should allow Greece to default at the very first time when the crises hit and fix it once and for all. Alas, they didn’t. They agreed to bail out Greece instead. Now, Greece is holding a larger amount of debts. And the economic growth is of course very bleak. So do the chances of compensating the debts.

France and Germany should have sacrificed short term growth for long term one. It was in their interest to bailout Greece. But it was in Europe best interests. Germany has been capitalizing from the crises in Europe. So, it’s clear that she doesn’t want the crises to stop.

The fears have spread to other major economies, making clear the crises are far from over. For now, Germany is more of a problem that a solution to debt crises in Europe. Germany’s strong economic growth is, for a part, at the expense of that of Europe. Germany exports unemployment to the already troubled countries.

I think Germany should make a concession for the sake of the whole Europe. If things stay unchanged, Germany will fall into troubles too. And Europe would probably fall into a deep recession.

Interest rates are on the rise, investor’s confidence is eroding and growth itself is waning. . Act now before it’s too late. It may be naïve to say Europe can compete with the United States neck and neck in term of currency depreciation. Politically speaking, Europe is not the United States of Europe. As far as I know, Europe has three sticking points needed to be addressed.

Europe doesn’t have three main things in common. 1. Common fiscal policy 2. Common defense policy 3. Common foreign policy. If we all stop the currency war, I don’t think United Sates will have another pretext to keep it up.

Solve the Greece syndrome now given the fact it’s getting bigger and bigger.  Why do care much about Europe and US? My country is more than vulnerable to global shock.  It’s not going to make any big changes but at least I already let my voice be heard.

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[1] http://sengkongses.blogspot.com/2011/09/secret-war-between-united-states-of.html

The Invisible War Between The United States of America and The United States of Europe

  I used to argue America is not in decline but in transition. For this article, I’m trying to make a similar case. The world is not in decline but in transition. But in transition to a disastrous future. In 20^th century, most countries employed military war game as the cornerstone of their foreign policies. In 21th century; we are playing economic war game.

 So, the history of 21th century, at least for the first half, should be characterized by financial crises.  At the first decade, we already got one. Most economists agree on the notion that the Great Recession was officially ended in 2009.

 I’m really uncomfortable with the words “Great Recession”. If one takes all everything into account, it will be more than a recession. There are factors needed to be considered. We have housing mortgage meltdown, ideological crises, income trap, and especially household debt dilemma.

Professor Ken Rogoff of Harvard University prefers the words The Great Contraction and Dr. Pual Krugman coined the words Lesser Depression. Some economists used the words Great Depression 2.0. For me, I would love the words Great Depression 1.5. It’s not as bad as the depression in 1929. Unemployment rate, the confidence of investor, and economic recovery are not that bad.

The great economic crisis is over as the global political crisis is beginning. The political affairs of each country have derailed global recovery. Gordon brown hits the nail on the head we need global recovery pact. The political crisis in US was a big blow to global economy.[1] And now, it’s Europe’s turn.

The woes in Europe are mainly caused by the selfishness of France and Germany. They supported second Greece bailout, without allowing Greece to defaults on its debts.[2] It doesn’t make any sense. Later or sooner, the problem will come back unless Greece receives economic concession. The best solution is to allow Greece to default and to fix it once and for all. And the fears of being default on debts can be felt across Europe.

Germany, the locomotive of Europe, still grows fast. The problems are to do with politics. The politicians of Europe and US fight because they want to debase their currencies. Not so long time ago, there was a rumor that US Fed was considering another QE3. Days after that news was revealed, Italy was reported of being having problems paying the debt. I don’t think it was a coincidence.

It is a global political crisis. Global economy looks bad because of politics not because of poor economic performances. Yen and France Swiss are now the safe heaven. Their currencies are on the rise.  This would force Japan and Switzerland to play currency game too.

We need to reverse that transition. Top global leaders and thinkers have called for that course. But their warnings seem fall on deaf ears. I’m a member of a group on Facebook, Beat The CFA Exams. Some members predict another recession in US by the end of this year. And I said US won’t enter another recession unless its leaders want it to be.

If so, don’t blame the economy. Please blame politics. If the recession comes, my country, Cambodia, will pay the most again.  This is the tragedy of superpower politics.

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[1] http://sengkongses.blogspot.com/2011/08/lost-battles-but-win-war-on-what.html

[2] Because their banks hold a large amount of Greece debts.