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Euroland: Pouring gasoline on the fire or the hallmarks of failure

Funny to hear politicians rehashing time tested statements which were invariably followed by defeat: "we will defend the Euro whatever it takes", "fighting wolf pack behavior in the markets", that's what EU Monetary Affairs Commissioner Olli Rehn (have any idea who that is?) told the press.

Reminds me of the Mexican official warning he would "defend the peso like a dog (come un pero)" at the onset of the tequila crisis. He devalued it to a fraction of its former rate right after that statement.

A weaker Euro might be part of the solution rather than part of the problem. Similarly, maybe the Euro area is not an optimal currency area after all? Maybe lumping together Greek fishermen and German carmakers does not ensure a stable currency?

"Wolf packs" in the market have nothing personal against anyone in Europe, they're just messengers of news some do not want to listen to.

What’s this thing about a 750 Billion-Euro plan anyway? Fighting a sovereign debt crisis with another trillion $ of debt? Whom do they think they’re kidding? Of these 750 Bn, 250 Bn are IMF funds, meaning they plan to (Collectively?) go to the IMF. Is that meant to be a show of force? The rest is more deficits, which is what the market is worried about in the first place. Pouring gasoline on the fire is a strange way of taking care of the issue. Where is that money going to come from? There are only two options here: more bond issues to finance the purchase of existing bonds or printing money by the ECB? Europeans have decided to use both today. In either case, how is that supposed to help the Euro?

What the market is after is not deficit funded expenses or printing funny money, it is after serious moves to quench the gushing red ink generated by a social model where everybody wants to eat, but nobody wants to work. Greece was a caricature of this with government employees retiring at 50 and wealthy citizens evading taxes as a way of life, but most of the Euro model is some watered down version of it.

As long as there is nothing else than empty words about fiscal consolidation coming out of Brussels, there will be pressure on the Euro, not from wolf packs, but from investors looking at fundamentals and assessing the relative value of currencies.

Solutions exist, they take some political courage: postponing retirement is a win/win option: it does not weigh on growth and it cuts resources needed to fund benefits. It will happen, as the current model is unsustainable. It might take a good crisis to jolt politicians into action and citizens into waking up to reality.

In the meantime, don’t blame the messenger and get your act together. Pouring gasoline on the fire won’t help.




Disclosure: No position