random notes

A Survival Strategy for the Eurozone - Nouriel Roubini

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The crisis started with too much private debt and leverage, which became public debt and deficits as crisis and recession triggered fiscal deterioration and private losses were mostly socialized via bailouts of financial systems. Then, distressed sovereigns that had already lost market access – Greece and Ireland – were bailed out by the International Monetary Fund and the European Union.

But no one will bail out these super-sovereigns if the sovereigns prove to be insolvent. Thus, the current strategy of kicking the can down the road will soon reach its limits, and a different plan will be needed to save the eurozone.
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Waiting until 2013 to implement these restructurings, as German Chancellor Angela Merkel proposes, will destroy confidence, as it implies a much larger haircut on residual private claims on sovereign borrowers.

Thus, orderly market-based restructurings via exchange offers need to occur in 2011. Such exchange offers can limit private creditors’ losses if they are done early. That way, formal haircuts on the face value of debt can be avoided via new bonds that include only a maturity extension and an interest-rate cap that is set below today’s unsustainable market rates. Waiting to restructure unsustainable debts would only lead to disorderly workouts and severe haircuts for some private creditors.
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Finally, Europe needs policies that restore competitiveness and growth to the eurozone’s periphery, where GDP is either still contracting (Greece, Spain, and Ireland) or barely growing (Italy and Portugal). Without growth, it will be difficult to stabilize public and private debts and deficits as a share of GDP – the most important indicator of fiscal sustainability. Moreover, without growth, the social and political backlash against painful belt-tightening will eventually undermine austerity and reform.

Unfortunately, fiscal austerity and structural reforms are – at least in the short run – recessionary and deflationary. So other policies are needed to restore growth. The ECB should pursue a much looser monetary policy to jump-start growth, with a weaker euro to help boost the periphery’s competitiveness. In addition, Germany should delay its fiscal consolidation; if anything, it should cut taxes for a couple of years to boost its own growth and – via trade – that of the periphery.
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... that does not look too different than the US government bailout ...
... of wall street ...
... except that the US has no real choice ...
... because not only the currency is one ...
... but also the federal government is responsible in solid ...
... of the possible bankruptcy of the states of the union ...
... the real dilemma now is if Europe wants to finance ...
... the (possible ?) next seven years of jump-started final left over growth ...
... with titles backed by the unified currency ...
... or with the bankruptcy of its weaker members ...
... and that choice can change the history of humanity ...

... Europe is not America ...
... Europe has an historical disgust and repulsion for money changers ...
... most of Europe thinks more like UPS than like Detroit and J.P.Morgan ...

... what Europe actually needs is a complete internal market cycle ...
... where only energy and raw materials come in from outside the EC ...
... and only high quality, eternal products go out ...
... Europe "needs" "now" to enter a "new age" of production ...
... where the production is based on European logistic needs ...
... keeps in count the opening of the eastern market ...
... "and" is "completely separated" from the "free" market ...
... globalization as we understand it today will be dead in ten years ...
... the future is "local", "tribal", "technocratic" and "logistic" ...
... the production has to decrease units and increase quality tenfold ...
... to keep a flat value-added volume ...
... the age of perpetual growth is finished "forever" ...

... now if Europe move will be large nationalizations ...
... demolition of the banking parasitism and the Kristian mobbyism ...
... and large Governance control on every aspect of the market ...
... Europe can be the Goth empire ...
... a unified central european control of all bonds ...
... and a controlled devaluation of the Euro are prerequisites ...
... on the other hands with listening to wall street sharks and their puppets ...
... with getting the wall street banks "help" to refinance debt ...
... Europe is headed to be the next Palestine ...
... "let the die be cast" ...

... regardless of the outcome ...
... maybe the only one left as friends of the US in ten years ...
... may end up to be Britain and the Vatican ...
... god, god, god, capitalism, capitalism, capitalism ...
... too big to fail, too big to fail, blah, blah, blah ...
amun (ra)
:)