One of the odd things about the European Union and the creation of the Eurodollar was the implicit assumption that all member countries would behave in a fiscally responsible manner and would even subject themselves to a set of covenants ostensibly designed to make sure that no single member would debauch their currency. Now that some of the EU members have been found to be the fiscal philanderers many suspected them to be, the whole arrangement seems to be falling apart. Via The Market Ticker comes news that all is not well with Team EU.
European Union finance ministers meeting to consider ways to prevent the Greek debt crisis from spreading across Europe have hit a roadblock, with Britain announcing they will refuse to underwrite a bailout fund worth some $60 billion.EU leaders are worried that financial markets will continue to lack confidence in countries with high deficits.
Officials and diplomats in Brussels hope that a stabilization mechanism will calm the international markets' fears about default in Europe.
But the loan guarantees are too much for the UK to swallow, and the UK Treasury will have nothing to do with them. Without the UK onboard the package looks pretty thin.
Political acceptance from European countries is critical, but British officials say that the stabilization mechanism is something old, that is already been used to help Hungary, Latvia and Romania , and something new - a set of potentially huge loan guarantees.
German PM Angela Merkel has a similar problem. MarketWatch frames Merkel's dilemma this way:
The election in North Rhine-Westphalia, Germany's most populous state, was the first electoral test for Merkel since she was re-elected last September.The results reflect public anger over the bailout for Greece at a time when local governments in Germany are struggling with severe budget shortfalls.
Get used to hearing that sort of message both here and abroad. Skeptics of the EU have doubted from its inception that one sovereign nation would debauch its currency to prevent another sovereign nation crisis. Denninger points out the obvious:
That, in turn, means that it is very likely that Germany has provided the last support it is going to be "contributing" (more accurately, being extorted from German citizens at gunpoint) to Euro "stability" as well.Here comes the fun folks, pretty much exactly as I expected.
Anyone want odds on the Germans returning to the Deutchemark?
This is all so interesting because it is a precursor to the drama I suspect awaits the American taxpayer when they find out that the fiscally responsible state they reside in may be called upon to bail out the fiscally irresponsible state next door. There are enough states rights advocates in this country to raise some serious hell about this if it comes to pass. As the EU disintegrates into chaos Americans will undoubtedly draw the same parallels even as a "hear no evil, see no evil" establishment media tries to ignore the story. This is going to be quite a show over there and over here.
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Filed under:
Economics
Tags: EU Demise, Euro Stability Fund, european-union, government-and-politics, Greece Bailout, international-financial-crisis, Merkel Majority Lost, PIIGS Default, united-kingdom, world-politics
Comments (13)
This is why Fannie, Freddie... (Below threshold)1. Posted by retired military | May 9, 2010 7:38 PM | Score: 13 (13 votes cast)
This is why Fannie, Freddie, GM and Chrysler, and AIG should have been allowed to go bankrupt with NO bailouts.
Sure the hurt short time is umm HURTFUL but you dont wind up dragging everything else down with it.
Next up is California. Which if Obama has anything to say about it will get a bailout. Why? Because other than the dem politicians who have been spending like there is no tomorrow (In Calif and elsewhere) the large majority of California's problems are the union pensions. Cant let those dem money bags go under now can we.
And since California politicians have proven they cant reign in spending and get rewarded by it then that sends a signal to every other state to line up at the trough with the US taxpayers not getting the hind tit but being the hind tit as well as all the reset of them.
1. Posted by retired military | May 9, 2010 7:38 PM |
Score: 13 (13 votes cast)
Posted on May 9, 2010 19:38
2. Posted by Jay Guevara | May 9, 2010 7:48 PM | Score: 11 (11 votes cast)
This is why Fannie, Freddie, GM and Chrysler, and AIG should have been allowed to go bankrupt with NO bailouts.
Retired military is absolutely correct. And, as a native Californian, I oppose any bailout for California too. Liberals moved here and crapped the bed, and now they should be made to lie in it. Unfortunately, so will we conservatives who have tried in vain to stop the madness, but it's important to make an example of California. Now.
2. Posted by Jay Guevara | May 9, 2010 7:48 PM |
Score: 11 (11 votes cast)
Posted on May 9, 2010 19:48
3. Posted by Maddox | May 9, 2010 8:06 PM | Score: 10 (10 votes cast)
With my apologies to the author:
One of the odd things about American society and the creation of the safety net called welfare, combined with affirmative action, was the implicit assumption that all members of the country would behave in a fiscally responsible manner and would even subject themselves to a set of covenants ostensibly designed to make sure that no single member would debauch their currency. Now that illegal immigrants, some citizens, and politicans have been found to be the fiscal philanderers and opportunists many suspected them to be, the whole arrangement seems to be falling apart.
3. Posted by Maddox | May 9, 2010 8:06 PM |
Score: 10 (10 votes cast)
Posted on May 9, 2010 20:06
4. Posted by Jim Addison | May 9, 2010 8:15 PM | Score: 7 (7 votes cast)
Germany, UK, France, and Belgium will be the ones footing the bills, and their populations probably won't stand for it - especially the Germans. The Brits have lost almost all nerve as they surrender and accept their new role as Dhimmi, and the French and Belgian governments are so heavily invested in the EU philosophically they will have to be thrown out of office to effect a change. But the Germans . . . they're not going to take it.
The Greeks won't help, either, by rioting at the hint of a shadow of a sacrifice. Not only will this kill the bailout for them, but also for Portugal, Spain, and Italy (Ireland appears to have swallowed the bitter pill of austerity and may be on the way to righting its own ship).
4. Posted by Jim Addison | May 9, 2010 8:15 PM |
Score: 7 (7 votes cast)
Posted on May 9, 2010 20:15
5. Posted by kathie | May 9, 2010 9:02 PM | Score: 5 (5 votes cast)
We already bailed out the states with the "jobs stimulus", giving them another year to get their houses in order. Did they do it? The answer is no. It is time to let them figure out what they need to do.
5. Posted by kathie | May 9, 2010 9:02 PM |
Score: 5 (5 votes cast)
Posted on May 9, 2010 21:02
6. Posted by TexBob | May 9, 2010 9:52 PM | Score: 5 (5 votes cast)
It's safe to say that the Germans have had enough of taxes. They were forced to pay the Solidaritätszuschlag back in 1991 to cover the cost of the German Unification. They said this temporary tax would only be for one year.
Like all temporary taxes, the Germans are still paying it till this day.
Ask them to foot the bill for Greece and they will ask for the Island of Lesbos and a few more in return.
6. Posted by TexBob | May 9, 2010 9:52 PM |
Score: 5 (5 votes cast)
Posted on May 9, 2010 21:52
7. Posted by epador | May 9, 2010 11:11 PM | Score: 3 (3 votes cast)
I believe we already have wealthy and responsible States bailing out the fiscally irresponsible ones, and folks are slowly beginning to wake up to this decades-long phenomenon. Note the recent Republican primary in Utah.
7. Posted by epador | May 9, 2010 11:11 PM |
Score: 3 (3 votes cast)
Posted on May 9, 2010 23:11
8. Posted by Geoffrey Britain | May 10, 2010 12:03 AM | Score: 4 (4 votes cast)
Without real spending cuts, which won't happen, every Western nation is going to go bankrupt. Virtually every Western democratic government is insolvent
At current expenditures, sovereign bankruptcy is mathematically unavoidable. It's a matter of when, not if. They'll try the short term fix, inflation will set in and in a relatively short time, the whole house of cards will collapse.
It's going to be really messy and because there's so little consensus as to what the problems even are, agreed-upon solutions are non-existent. That opens the door to megalomaniacs. Yet without visionary leadership, the chorus of competing opinions will be too chaotic for consensus to emerge.
8. Posted by Geoffrey Britain | May 10, 2010 12:03 AM |
Score: 4 (4 votes cast)
Posted on May 10, 2010 00:03
9. Posted by Brett | May 10, 2010 12:07 PM | Score: 2 (2 votes cast)
And why wouldn't they riot? They have been told that they are OWED and have A RIGHT to all the things that might be sacrificed. Someone comes to take my rights away, I might riot, too.
That's why socialism is a downward spiral - the larger the fraction of your life owed by the government, the more people become dependent and the more they demand the next time. All of which would be dandy except for the fact that the government "skim" (overhead) from the operation is on the order of 75-80% meaning the more you get the behinder you get.
9. Posted by Brett | May 10, 2010 12:07 PM |
Score: 2 (2 votes cast)
Posted on May 10, 2010 12:07
10. Posted by Jay Guevara | May 10, 2010 1:47 PM | Score: 2 (2 votes cast)
every Western nation is going to go bankrupt.
FIFY.
10. Posted by Jay Guevara | May 10, 2010 1:47 PM |
Score: 2 (2 votes cast)
Posted on May 10, 2010 13:47
11. Posted by Constitution First | May 10, 2010 3:25 PM | Score: 3 (3 votes cast)
Can we PLAESE learn from someone else's mistake for a change;
Socialism is a FAILED experiment.
11. Posted by Constitution First | May 10, 2010 3:25 PM |
Score: 3 (3 votes cast)
Posted on May 10, 2010 15:25
12. Posted by 914 | May 10, 2010 6:37 PM | Score: 0 (0 votes cast)
Can We please as Americans, well not sure about O, get an annulment from the jac ass in chief.
12. Posted by 914 | May 10, 2010 6:37 PM |
Score: 0 (0 votes cast)
Posted on May 10, 2010 18:37
13. Posted by GarandFan | May 10, 2010 9:19 PM | Score: 0 (0 votes cast)
Maybe if we offer it as a PRIZE, we can convince Barry and company to move to Europe. Hell, Nancy always wanted to be queen of something. And Joey can finally get his own country.
13. Posted by GarandFan | May 10, 2010 9:19 PM |
Score: 0 (0 votes cast)
Posted on May 10, 2010 21:19