Where is Western Europe Headed?
Labels: Economic Outlook
Given this situation, global investors have stopped loaning money to the troubled PIGS group, while other nations on the cusp of trouble have seen their borrowing costs skyrocket. In the near-riot that has resulted in the European financial markets, counter-party risk is difficult to understand. Banks have curtailed mutual lending for fear of what debt the others might hold in their portfolios.
2 Comments:
Mitch, I think the agreement in Brussels, with Britain casting a veto, will lead to a continent-wide depression and the EU investments will take a bad hit. Germany is forcing all countries to reduce spending and debt, which would normally be a good thing. But these are not normal times. Belt tightening is already leading to depression in Greece and the other PIIGS will follow. Germany and other Northern European countries can't grow because they can't any more export to the Southern members of the EU or to China because of slowing economy there. The PIIGS need to grow, which can happen only with massive sale of bonds by the ECB to them. This won't happen and they will go into depression. The austerity program that Angela Merkel is forcing on Europe is plain pig-headed. European economies and the Euro are heading down.
I agree with you that now is not the time for strong measures of austerity. They must first get the economy on a stable path of recovery and then begin the gradual process of belt tightening over the next 5 years. I believe that the EU leaders have now realized this as well. This is why they shifted from demanding immediate cuts in spending to gaining control over future spending by taking control of their Treasuries. Once this is accomplished the ECB can bring liquidity to the dry markets.
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