The limits of the Euro

The euro is reaching its limits. Now, not only the peripheral countries are questioned, also Germany is beginning to be under suspicion: German bonds have fallen into the turmoil of recent days.

Germany will not withstand this selling pressure on its bonds much more time.
Moreover, the euro is legally “unbreakable.” This is a desideratum, but the fact is that countries such as Ireland, Portugal, and Spain,  will cling to this clause as hungry beasts.
That will increase two sources of pressure on Germany: first, the pressure to continue to assist with its money to countries with problems; on the other hand, the increasing pressure from their citizens not to do so.
These two opposing forces will be irresistible at some point.
Before this, there are only two alternatives: 1) The ECB throws in the towel and begin to buy debt, expanding money. 2) the euro is broken by German decision. Perhaps Germans don´t like very much the first alternative…

Irish tragedy

Probably more than ever, the main newspapers are late. They have not concieved well the importance of the Irish Tragedy. They talk about problems that tomorrow will be a the end of last page -if they are.

Attention. The euro at serious risk

The Irish government‘s resignation is a severe blow to the euro. Before, there was a narrow line to hope.
Narrow, but existing … Now I fear the euro will be questioned by the markets, and everything will speed up when European leaders are seen in their nakedness of ideas

Bernanke talks on mercantilism

In http://federalreserve.gov/newsevents/speech/bernanke20101119a.htm, a very good explanation of why advanced economies(AE)  had not resume their historical pace of growth, whereas emerging market economies (EME) are near their peak.The main reason is the reluctance of EME to let their exchange rate to appreciate,  in the same measure the capital are flowing into them. In other words, this group of country, mainly Asiatic and leaded by China, are impeding the natural appreciation of their money by buying huge quantity of foreign money. The persistence of this strategy contributes to sterilize the movements that could rebalance the international desiquilibria.On the other hand, these countries are accumulating a huge volume of external reserve, so much as near $ 5500 billion, half of them by China.

It is not a problem of solidarity

Financial Times (http://www.ft.com/cms/s/0/da446f6e-f41e-11df-886b-00144feab49a.html#axzz15uMoJC4X) is completely wrong when it recommend more solidarity with Ireland. Because this is not the problem, and, on the other hand, Ireland has not been very nice with the IMF and EU. Ireland has been a country wich received a lot of money from the rest of EU countries, and it is a non sense that such a beneficiary of public aids will not remove its tax on profits ti get more entries and reduce its huge deficit.

We have got a lot of solidarity that has not get save the euro since the Greece case.  Greece is now on the verge of cutting its debt, because to pay  all the debt is impossible.

We are facing a Dantesque landscape, in which European authorities don´t know really what to do to stabilise the market and save the Euro. The countries rescued by EU and IMF had few possibility of growth, because one of the fundamental piece of the operation is to can devaluing.

Now, it is notorious that, a decade ago, poor countries that have bad managed its exchange rate and get excessive deficit, apply to IMF. Now we see our countries to in similar situation, in spite of euro. I spite of, or because it?

Spain has a severe problem, with or not Ireland rescue  is got. The problem is that Spanish debt is unknown. Many local entities don´t pay their suppliers and workers. Beside that, the true debt of Regional States is unknown. Perhaps the total debt is nearer to Ireland one (100% of GDP) than the official figures, a benign 60& of GDP.

What is the question mark?

What is the euro question? the question is the supreme paradox: the euro is stronger as Germany is stronger; but as Germany is stronger relative to the rest, the euro is flawed.The euro had borne as the new German Mark; But the rest of the countries are not  Germany. Now, Germany is the only member with enough resources to sustain the euro at a Mark level. But Germans don´t like to put money indefinitely to save other countries. The Germans cry for its old Mark.Merkel can not aid Ireland, Portugal, Spain, without losing a lot of votes. Now, Ireland is on the verge of being bailed out; but, as in the case of Greece, it seems it would not been  a haircut. That has been a great mistake for Greece, and it is a great mistake for Ireland. Sooner or later, hair cuts in the debt will be inevitable.All that mean that the solution is not near. EU authorities are divided, but all in all they continue being confident that rescue of all de debt is possible. But it is impossible that taxpayer in Germany pay for all the wrong made by the European banks.

Ireland says Nein

Ireland has said NO to the financial aid presented by de EU. That is a great headache, because it not is a Valium  for the market.
Negotiators team has gone to Dublin now, but Ireland has made clear that it answer will be no.
Ireland will resolve its problem alone, because “It will not lost the control of its resources” Prime Minister said.
What resources he is talking about, when its public deficit is near 30% of GDP?
The contradictions are growing in the Euro zone. The badly constructed euro money has stimulated the huge debt now impossible to sustain.
The three golden rule (No exit, No bail out, no hair cut) are impossible to defend if there is no a simple way to adjust prices and wages to external competence.
It is also impossible to defend if disequilibrium are not compensated by flow of funds from rich country to country with problems.  Now, Germans dosen´t like to invest in the lazy country, on the verge of been “hair cut”.
In others words, the euro has never been, and is not, an Optimal Monetary Area. There is no adjustment mechanism for prices between countries, no mobility of labor – the imperfect substitutes for  exchange rate adjustment. This rigidity impeach the perfect mobility of capital between Excess and deficit countries.
The arrangement until now made, are simply negotiations between nations, not true implement of markets law.
Sooner or later, the euro will no support these profound contradiction.

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