Wednesday, 10 August 2011

Europe in Crisis

The above is the title on AEP's piece in today's DT business which broadly covers the same points I made in my blog yesterday. He quotes the German economics Professor Grossman as saying, "The debt crisis will be resolved through higher inflation.That will hurt everybody and raise the borrowing costs for Germany". Hissing Sid Issing, former chief economist at the Bundesbank said, "the EMU project is spinning out of control".

"Far from evolving into an authentic fiscal union controlled by a European parliament elected according to democratic principles it is turning into a deformed creature where moral hazard is unchecked and the EU is intruding on sovereign matters". All pretty much the points I made yesterday.

"By subverting the no bail out clause the EU is drowning hitherto solid countries in over-indebtness" Its exactly the same as the UK banking crisis where a solid retail bank, Lloyds, was encouraged by Brown for short term political expediency, the Glenrothes by-election,  to take over an indebted bank, HBOS turning Llyods into a basket case as well.

The markets realised today this is what is happening to France with its huge holdings of PIGS debt and huge commitment to underwrite the EU stability fund. Hence the sell off particularly in French bank shares and Sarky having to cut short his holiday.

AEP writes, 'Berlusconi lashed out at the EU after a leaked letter showed how the ECB had dictated the exact details of Rome's new austerity policies as a condition for ECB Italian bond purchases'

Berlusconi told the Italian paper Il Messagero, 'They make us look like an occupied government. They bought the bonds to save themselves not Italy'. Exactly! That is the quid pro quo I referred to yesterday and Berlusconi now realises they are ruled by Germany. The markets rightly see France as a busted flush with worse economic fundamentals than the recently downgraded US.

The King of Threadneedle Street was today backtracking on his growth forecasts inflation forecasts and recanting on his inflation targeting remit. Not surprising then the FTSE took a dive.

Plenty of hot air is forecast for Westminster tomorrow.

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