Tuesday, June 21, 2011
Greece on the brink.
One wonders how long Greece can hold on? When they are borrowing ten-year money at 17% and two-year money is approaching 30% (not a misprint) one thinks the end has to be near. Here's the problem...the Eurozone will never work as long as there is not also a fiscal zone as well. Think of it like this...here in the US when some poor regular guy loses his construction job in Vegas because the housing bubble was the worst there and thus popped the biggest, we help the poor Joe six pack out. You and I both write this guy checks for unemployment compensation and assist him so he can hopefully find a new job and get back on his feet. So, money flows from North Carolina and from wherever you are reading this to help out in Nevada. That is how our federal fiscal system works in our social contract with our fellow Americans and our government. Now, can Europe do this too? It will take nothing less to ultimately allow the Eurozone to survive in long-run equilibrium. That is, will the Germans write checks to help the Greeks and will the cheese eat'in surrender monkeys in Paris come off their three-hour lunch break and scratch checks to help out the good folks in Portugal when they hit the wall? I don't know but I'm not so sure about that. And that is the problem in a nut shell. A collection of countries on the same medium of exchange is not the same entity as the United States of America, one nation, indivisible. We do it for sure. The Euros, probably not so much. It would mean giving up national sovereignty and I don't see that as likely.
BTW, lest you think the US is off the hook I wish to point out that many of the credit default swaps held by French and German banks on Greek debt are backed by US banks. Have a great day.
Read more about it from two of the best economists walking or running here.