Finally, a solution to the Euro crisis

The Europeans have come up with a solution to the Euro crisis: threaten S&P and Moody’s. After all, if no one is allowed to point out that the emperor has no clothes, who’s going to notice?

Meanwhile, everyone with any sense is dumping Greek and now Portuguese debt as fast as they can. Hint to traders: now is the time to dump all of your Icelandic, Irish, Italian, and Spanish bonds, assuming you can find anyone foolish enough to buy them. Fools are quickly becoming harder to find. If someone offered me that junk at $0.10 on the dollar, I’d flee screaming.

To give you an idea of the scale of the problem, Greece, which is about the size and population of Ohio, is now close to $600 billion in debt. But the situation is actually much worse than those figures indicate. Ohio has a robust economy. Greece has no economy to speak of, and no prospect of developing one. Think of Greece as Ohio with a Soviet-style economy and you won’t be far off the mark. And Portugal, Iceland, Ireland, Italy, and Spain aren’t much better.

People are now talking about “partial default” and “temporary default”. There’s nothing partial or temporary about it. We’re looking at default default. One morning in the not-too-distant future, we’ll awaken to news that the dominoes are toppling and the Euro has gone down the tubes. Count on it.

16 thoughts on “Finally, a solution to the Euro crisis”

  1. I believe you are wrong to equate Irelands economy with that of Greece. The irish economy is much stronger than the Greek economy – indeed we wouldn’t be in the mess we’re in except for the stupid decision to nationalize all the bank debt. We are aggressively cutting costs and pursuing revenue collection as opposed to the Greeks who seem content to riot and complain.

    Painful as it is, we ought to be able to balance the books in the next few years and start the process of paying back the bailout. I don’t see Portugal or Greece doing that.

    unfortunately, if they go, they very well may take us with them.

    As an aside, not sure where you got a figure of 600 billion from….

  2. Yes, Ireland has a stronger economy than Greece, and I did not intend to imply otherwise. But much of Ireland’s economy depends on foreign multinationals with little holding them in Ireland. I’m afraid that Irish authorities are going to find it irresistible to increase taxes dramatically on those corporations, many of which will simply fold their tents and leave.

    The $600 billion figure refers to dollars, not Euros, and assumes an exchange rate of $1.45 per Euro. Obviously, that’ll change for the worse as the Euro is devalued relative to the dollar. Frankly, I don’t understand what’s holding the Euro up now. Just based on recent news, the Euro should already be at not much more than parity, if that.

    Unfortunately, I don’t think there’s any doubt that Greece and Portugal are going to go, and I suspect you’re correct that they’ll drag down Ireland with them, not to mention Italy and Spain. This is going to get really ugly really quickly.

  3. re the foreign multinationals, we have absolutely no intention of raising corporation tax rates. France is pretty much vetoing a reduced interest rate for our repayments as we won’t reduce our tax rate and Sarkozy is making a bid deal of it (greece pays less than us for its EU money) yet we still won’t reduce it – we know what keeps them here.

  4. Liam, don’t you mean that France is vetoing a reduced interest rate because you won’t increase the corporate tax rate?

  5. The I’s have it.
    “Portugal, Iceland, Ireland, Italy, and Spain”
    That would be Iceland, Ireland, Italy and Iberia, would it not?

  6. “If someone offered me that junk at $0.10 on the dollar, I’d flee screaming.”

    I’d consider taking it, I’d be bailed out by someone, perhaps even Uncle Sam himself.

  7. I see that Ireland just closed a deal to buy back about $3.7 billion of its own debt at, you guessed it, about $0.10 on the dollar. The swaps and derivatives folks are discussing whether this constitutes a default. Presumably, the sellers thought $0.10 on the dollar was the best deal they were likely to get.

    I also see that the Italian market is going from horrible to whatever’s worse than horrible. My guess is they’ll be next, and before much longer, with Spain quickly following. It’s one thing for the EU, read Germany, to bail out small economies like Greece, Portugal, and Ireland. That hurts, but it’s doable. But Italy and Spain between them account for something between a quarter and a third of EU GDP, so there’s no way they can possibly get bailed out, even assuming that Germany would hold still for it.

  8. The bull market in gold is still quite intact, and will remain so until the Euro is no more. THAT panic will signal a generational top. Or so I think…

    I’m trying another stab at a link to the last, current, seven days of spot gold:

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