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Global recovery

The unanswered European question

Mar 7th 2011, 18:38 by R.A. | WASHINGTON

CALCULATED RISK publishes a list of downside risks to growth today. Second on the list is this:

The European financial crisis has been on the back burner, but yields are still elevated and there are key Euro Zone meetings scheduled in March - including a special eurozone debt crisis summit scheduled for Friday, March 11th. Ireland is asking to renegotiate the terms of their bailout, Greece debt was downgraded this morning, and Portugal is probably next in line. And the European Banking Authority has now launched the next round of bank stress tests.

I expect this to be front page news again soon.

The Greek downgrade is a lagging indicator; bond yields have been trending up in Greece, Ireland, and Portugal, and all are at or near crisis highs (as is Italy, disconcertingly, but not Spain, encouragingly). In the end, Greece, Ireland, and Portugal will all probably need to have their debts—not just their bail-outs—restructured. And Europe will also have to deal with the serious weaknes in some of its banks as part of this process.

Of course, you know what I'm going to say next: the ECB is making all of this worse. The euro has been rising lately thanks to Jean-Claude Trichet's signal that the euro zone will be offering higher rates than other large rich world economies within the next month or so. But that's not a good sign for struggling peripheral countries.

The good news for America is that it's probably less vulnerable to a euro-zone crisis than it used to be. The bad news is that there are other things on Mr Risk's list. But obviously, the poor policy unfolding in Europe will wind up being hardest on Europeans themselves.

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migmigmigmig wrote:
Mar 7th 2011 9:44 GMT

Only poor policy in the south, yo.

If you're German, you're stoked for it.

bampbs wrote:
Mar 7th 2011 11:24 GMT

Really, only two choices:

1. The original plan of a more politically united Europe. It's the only thing that makes sense of having included countries unfit for a strong currency without external discipline.

2. Cut Euro membership back to those countries that can handle it.

A J Maher wrote:
Mar 8th 2011 2:20 GMT

"The Greek downgrade is a lagging indicator; bond yields have been trending up in Greece, Ireland, and Portugal, and all are at or near crisis highs (as is Italy, disconcertingly, but not Spain, encouragingly). In the end, Greece, Ireland, and Portugal will all probably need to have their debts—not just their bail-outs—restructured. And Europe will also have to deal with the serious weaknes in some of its banks as part of this process."

Quite.

And the longer all this takes the higher the price is going to be - the price of the final bail out, the unecessary loss of output and demand, the fall in living standards and the explosion in the levels of unemployment.

Europe's day of rage will be exciting....

Jordy_A_ wrote:
Mar 8th 2011 11:52 GMT

What is hurting the most Europe nowadays is not so much this economic deficiency but the political and social crises endured in those countries, the same that have bring down the whole financial system a couple of years ago, this is not recent at all.
the rising conflict of interest coming in part from approaching elections, are tearing apart all time classical political parties like socialist in France or the ruling one in Germany, without mentioning the corruption and numerous mistakes comited by the ruling ministers and presidents (FranCe, Italy, Spain)

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