Market Currents
Alcoa (AA -3%) CEO Klaus Kleinfeld, arguably 'in the trenches' of the euro crisis, says fears...
-
Tuesday, November 16, 2010, 3:42 PM ETAlcoa (AA -3%) CEO Klaus Kleinfeld, arguably 'in the trenches' of the euro crisis, says fears are way overblown. Political will to stabilize the euro "is very, very strong," he tells CNBC.
Other date
Latest Articles
This news story has 17 comments:
Let me have a few of those.
The old song of 'I owe. I owe, so off to work I go!' Only problem is - there are no jobs to go off to! Its the debt. Debt every where. Private debt. Public debt. Unpaid debt. This is the biggest bubble ever seen - DEBT.
Maybe, that might shed some light on why a single currency has some benefits, whatever other difficulties may be presented.
It is a classic economic problem. During the boom the "system" (Eurozone) borrows money against inflating assets. Once the assets deflate they "discover" they do not have enough income to service the debt.
Spain, Ireland, Portugal, Greece, and maybe Italy and Belgium, are different versions of the sup-prime borrowers in the US. It has happened before and it always ends the same way.
Sorry, it's not like before because Europe has a single currency and the fathers (Germany) of that currency are willing to maintain it and print more, if necessary. It's vastly different than previous times when creditors and borrowers used different currencies, and the short sellers could short the weak currency into oblivion. Now, they can't do that, but they do their best to instill fear and make money on folks panicked out of other positions.
In this respect, it's just like California, Illinois and New York all using dollars, the Federal Government isn't going to let those states go under any more than Germany is going to permit similar events with its satellite states.
The euro will just get inflated, like the dollar, perhaps less. The fact that the U.S. is printing dollars willy-nilly just provides Germany cover for some printing of its own because if both currencies expand, then the relative exchange rates will be impacted less. What we will get is price inflation, measured both in dollars and euros.
You're right that the single currency has huge benefits; but unless the Eurozone nations are willing to agree to some sort of structure that makes the Euro viable, without creating major economic distortions, the PIIGS are better off going back to their former currencies. And I see no evidence that Germany or France or any of the others are willing to do that. So, it seems like we just watch and wait till some nation finally goes bankrupt.
Only wish I could fast forward 100 years, read about this in the history books, and see how this turns out that way, rather than have to observe it in real time.
I think you need to study previous currency unions. There is nothing new about the euro.
Why is it not the same as California and NY?
1) There is no equivalent in Europe to the Federal government in DC.
2) Californians are interchangeable with New Yorkers. Germans are NOT interchangeable with Greeks.
The deflationary adjustment will be pushed until it blows up. It always does.
In my humble opinion, you have it backwards.
The Germans are not doing the Greeks or Irish a favor by bailing them out. They're doing themselves a favor by keeping their potential export competitors tied to the euro. The amounts that pay for bailouts are just a form of "insurance," paid to insure their supremacy as the world's second ranked exporter.
Remember, not very far back, when Ireland became a dynamo for high-tech production and biotech research because of its monetary attractiveness, being so much cheaper than continental alternatives. The same can apply to a Spain or an Italy, if they have a depreciated independent currency and under cut the Germans.
The euro will never fail because Germans tire of bailouts --that's a cheap tax for the monopolistic gains they achieve with one currency. No, if the euro fails, it will be because the bailed-out nations finally realize that they've been bought off rather cheaply with bailouts and severely constrained by the euro.
So, far, we're not seeing any rumblings by the "bailees," wanting to secede.
Just like there are Americans who complain about government spending while getting medicare, there are Germans who think it is unfair that they have to subsidize the Greeks.
In any case, I do not know whether "the euro will fail." It could, for instance, become a neuer DM which is hardly a failure. What I do know is that Spain, Ireland, Greece, Portugal, and the rest will eventually have to restructure their debts and most probably leave the euro as we know it today.
Best regards.
Most ideas thus far simply re-distribute funds ('bailout money') to the troubled states. But the trouble states are "troubled" because the Euro creates gross trade imbalances that destroy the economies of the PIIGS and enrich the economies of Northern Europe (Finland, Germany, Netherlands, and Austria). So, essentially, you're giving them more money, so that it can once again be destroyed by the underlying economic imbalances.
It's sort of like buying shares in GM post-1970. The money just goes into a big, black hole. You can keep throwing more money at them, but eventually, they're all going to go bankrupt anyway unless you address the underlying problems. And doing that is something that European policymakers seem rather averse to.
Yet, we're still here. NYC, too.