CapitalistImperialistPig

It looks like the latest attempt to kick the Euro can down the road is not getting much respect from the markets. Or from market watchers . Bloomberg says Europe keeps trying the same thing and expecting a different result. To make Spain’s recovery possible, Europe must break the link between the banks and the government. Instead of lending the money for recapitalization to the sovereign, Europe’s bailout funds should agree to inject it directly into the banks -- as Bloomberg View has advocated. In return, European regulators should have a say in how management would be punished, and whether dividends and bonuses would be paid, at institutions that accepted the money. That alone won’t be enough. The recapitalization should be part of a larger process that would forge a common euro-area approach to dealing with troubled banks, require private bank creditors to share in losses, consolidate the debt of euro-area governments and create a mechanism to stimulate growth in hard- hit economi...

There is new talk of a Euro fix, but I don't understand it much. My impression is that the idea is a bad bank which will suck up all the other bad banks and stick the general taxpayer with the bill - Chapter 324 of hapless taxpayers bailing out reckless bankers. The worst part about this idea is that it's just another version of let's kick the can down the road and hope everything works out - or at least that some other poor bastard is responsible by then. The key problem, if I understand it, is the balance of payments between the rich center and the poor periphery. If that's not fixed, we might as well just fast forward to "Hunger Games: Frankfurt."

One might think that an emergency is not the right time to contemplate massive changes in governmental structure, but history tends to show that it's the only time for such changes. Thus, the depredations of the Barbary pirates triggered the formation of the United States and today's Euro crisis is provoking very serious contemplation of a major step toward fiscal union in the Euro zone . It won't be easy - or painless. TBD

Wolfgang asked me what Krugman thought should be done about the Euro. I guessed inflation. Krugman makes it official. ... as I emphasized in that post earlier today, that German success story was based on a (modestly) inflationary boom in much of the rest of Europe. Give the peripheral countries a comparably favorable external environment — or actually a more favorable one, since they’re much deeper in the hole — and maybe there is a way to make this work. Let Spain regain competitiveness by inflating more slowly than Germany, rather than by deflating, and this whole thing might, might, become feasible. But this means, yes, overall inflation in the euro area significantly higher than the less than 2 % target. It certainly means a lot higher than the 1.5% the market currently expects. Don’t like that? OK, so no euro. It’s that stark. If he's right, that means the choice is not between punishing borrowers vs savers, but between punishing savers vs everybody, including and mostl...

Not sure quite what to make of the coordinated announcement that major central banks (US, UK, ECB, Canada, Japan, Switzerland) will make available "swaps" at new lower interest rates. In effect, the Fed is allowing other central banks to trade their "play money" for dollars as people become less willing to hold Euros, Pounds, etc or accept payment in them. Not sure what happens when people stop being willing to hold dollars. Presumably that works the other way around, as long as people are willing to hold one of the currencies. The downside for the US is the possibility that it might get stuck with a big wad of useless Confederate money.

A fairly wide range of economists of both the right and left have now pronounced the Euro dead and gone. Markets, however, still seem to be responding ecstatically to every new stopgap thrown up by the European establishment. Who will turn out to be right?

Paul Krugman isn't the only one singing a dirge for the Euro today. Others seem to think that Germany and France are planning a mini-Euro, minus the Southern weakies . One senior German government official said it was a case of pruning the euro zone to make it stronger. "You'll still call it the euro, but it will be fewer countries," he said, without identifying those that would have to drop out. "We won't be able to speak with one voice and make the tough decisions in the euro zone as it is today. You can't have one country, one vote," he said, referring to rules that have made decision-making complex and slow, exacerbating the crisis. Speaking in Berlin, Merkel reiterated a call for changes to be made to the EU treaty -- the laws which govern the European Union -- saying the situation was now so unpleasant that a rapid breakthrough was needed. I predict that it won't happen. The Euro will undergo spontaneous deflagration before the sl...

On the Euro debt debacle : Nobody should be surprised that this is such a hard problem, of course. Fundamentally, someone is going to lose absolutely gigantic sums of money, and figuring out who that someone is going to be was always going to be a fraught affair. As near as I can tell, though, each rescue effort seems to advance asymptotically toward honesty about the scale of the losses, realism about the need to allocate those losses among the non-broke members of the EU, and acceptance among the broke members that they're going to be required to suffer fairly harshly in return for being bailed out. We obviously haven't gotten to the really truly final resolution yet — that won't happen until the European public truly accepts that they're screwed and they can't do much about it — but I suspect that last week's deal is one more step along the path of recognizing the grim reality of the situation. Either that or Europe is going to implode

Erik Kirshbaum via  Tyler Cowen : Chancellor Angela Merkel said on Saturday that the European Central Bank has just one mission — to ensure monetary stability. Merkel said in a speech to her Christian Democrats in Braunschweig on Saturday that treaties prevent the ECB from taking on any other tasks, such as those such as the U.S. Federal Reserve have. Meaning, I think, that the European Central Bank (ECP) cannot undertake stimulative monetary policies. Here we go again.