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Fiscal Liasons

Are we just waiting for the last of the fix of hope-pium to fade?

Whether the ECB commits to some larger scale bond buying/yield limiting program (absence signed and sealed Treaties (with referendums) - not loose intergovernmental commitments - I find this very improbable) OR it simply continues to provided the banks with every which way to finance their (collateral) balance sheets (& they could & should cuts rates again) - does it change the underlying dynamic?

The ECB will liquify the system, buy time (& 'some' bonds) and attempt underwrite the worst of the austerity risks -  but it will not (can not) bail out any member states sovereign debt. One thing is abundantly clear - as far as the Germans are concerned - you borrowed it, you owe it and you will pay it back. However long it takes.

As an Irishman I feel somewhat informed as to how this type of fiscal adjustment will work. The Irish economy has shrunk by 15% since 2008. The government has cut spending and raised taxes by a similar amount. Unemployment stands @ 14.5%. Our deficit will be 10% of GDP in 2011. Best scenario we are looking at 3-4 more years of the same. And we mock our own quiet acquiesce. 

Not unsurprising the EU see's us as 'poster boys' for good ('take your well deserved medicine') behavior and takes solace in the robustness our external sector. They think austerity works. They think 'problem' was solely created by the extravagance of the peripheral. They resolutely defend their banks by forcing other counties taxpayers to make their lending whole.

Rightly or wrongly I am skeptical other nations (for example - Italy - with a growth potential of close to ZERO) can travel this road. But then I don't believe the Germans (& French) seriously expect anything like all 17 to survive a  souped up Stability Pact. History (study Latin America) suggests there will be defaults in coming years - but I doubt the ECB, the EFSF/ESM or - more particularly - the German taxpayers will pay for them.

So whenever happens - whatever the market wants to believe for 5 minutes - Thursday/Friday will bring further clarity. I strongly suspect the Euro will survive. But the number of members is to be determined. And the economic cost will be high either way.