The creation of the euro has been flawed from the beginning; it’s most definitely not an optimum currency area. It has a tendency to expand differences, rather than diminish them through one-size-fits-nobody monetary policy and potential vicious cycles. However, there is one curious mechanism that sweeps much of these problems under the proverbial carpet and […]
Entries Tagged as 'Eurocrisis'
June 16th, 2018 · Comments Off on Meet The Perpetual Bailout Mechanism That Keeps The Euro Afloat
June 16th, 2018 · Comments Off on A Misplaced Rally
Markets reacted euphorically after the US job numbers and the installation of a new Italian government. We think they are misplaced on both counts, more especially on the Italian government. It’s really difficult to see anything positive coming from Italy embarking on reflating its way out of its debt trap. Source: A Misplaced Rally | […]
May 30th, 2018 · Comments Off on Italy’s Coming Stealth Eviction From The Eurozone
The fiscal plans of the incoming Italian government will trigger a bond crash, capital flight, a bank run and a clash with the EU. They are simply not compatible with staying in the euro. Since an Italian debt crisis is already a matter of time anyway, minds have to concentrate on orderly ways out of […]
May 29th, 2018 · Comments Off on 3 Vicious Cycles Threatening To Blow Up Financial Markets
Despite economic tailwinds and a massive bond buying program by the ECB, Italy hasn’t been able to even dent its debt/GDP ratio. When the ECB ends its bond buying program and/or economic tailwinds turn and the new government embarks on fiscal largess, things will turn pretty rapidly. The eurozone framework makes the situation that much […]
April 12th, 2018 · Comments Off on The Euro Tends To Worsen Economic Crisis, Can Anything Be Done About That?
Countries suffering from economic crisis have no recourse to normal adjustment mechanisms like devaluing or independent monetary policy tools. What’s more, there is no automatic redistribution through a big federal budget, and capital flows are likely to be perverse, going from the weak to the strong. On top of that, all the adjustment pressure is […]
December 5th, 2017 · Comments Off on Someone Should Explain To The Germans And Dutch How The Euro Works In Their Favor
The workings of the European Monetary Union are still not well understood by many citizens, especially in countries which are the main beneficiaries of the euro. The system is rife with dysfunctions that are only papered over by economic tailwinds and vigorous ECB action. But fundamentally, not much has changed and the system is very […]
August 11th, 2017 · Comments Off on The Next Eurozone Battle Is Shaping Up
The structural design deficiencies in the eurozone have been papered over by the cyclical tailwinds in the economy and balming ECB action. But at the first sight of headwinds, these will reassert themselves with a vengeance. Remedial action is already very difficult as it involves a leap forward in European integration for which there is […]
May 30th, 2017 · Comments Off on The Hard Euro Is An Assault On Democracy
The euro is basically unbreakable as the cost of leaving has increased. The amount of discipline necessary to keep the euro together is unprecedented. And countries have shown willingness to undergo that discipline, and others to function as the disciplinarian. This means that economically, the euro is a lot stronger than many probably think. However, […]
March 31st, 2017 · Comments Off on The Euro Can’t Break Up
The euro is highly dysfunctional, it confers few economic benefits, has been an economic disaster and is a source of political problems within the EU. It was never easy to leave the euro, but on balance, for countries like Greece, Portugal, and Italy, it seemed a good idea. But new collective action clauses in bonds […]
March 3rd, 2017 · Comments Off on Will Italy’s Lost Decades End With A Bang?
Italy’s economy isn’t expected to return to its 2007 output level until the mid 2020s. While Italy would benefit from an Italian Margaret Thatcher, there are few good options left to save its economy. Not even leaving the euro, now openly discussed, is without problems. Meanwhile, debt and banking problems persist and the risks abound. […]