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EU Deer Still Frozen in Truck Headlights

The oncoming European sovereign debt crisis continues to barrel down the road at 65 miles per hour, and European leaders are still frightened and frozen in the headlights like a hapless herd of deer.

That at least is the read on this weekend’s IMF summit in Washington DC, where apocalyptic warnings by the normally laid back US Treasury Secretary Tim Geithner and europhile investor George Soros failed to stir EU leaders into anything like effective action.  There was some progress toward increasing the size of the bailout fund and deploying it more effectively, but there was no political agreement on the proposals and German officials still seem ready to reject anything that violates the letter of restrictive no-bailout clauses in the relevant EU treaties.

In Greece, there are increasing signs that the country lacks the will for yet more austerity.  A Gallup poll shows a sharp decrease in Greek well being; the number of Greeks who say they are thriving has fallen from 44 percent in 2007 to 14 percent today and those who say they are ‘suffering’ has increased from 7 percent to 24 percent during the same period.  Taxpayer revolts, strikes and demonstrations are spreading across the embattled nation and it seems less and less likely that Greece can or will fulfill the conditions the IMF and its European partners are demanding in exchange for more aid.

Writing in the Financial Times, columnist Wolfgang Munchau puts it all together, saying that the European strategy has unraveled because what started out as a small crisis in peripheral economies like Greece has morphed into a major crisis involving countries like Italy, and instead of preparing for major shocks the Europeans have been living in denial.  “Stress tests” were so obviously flawed that confidence in the honesty and competence of European authorities has been seriously damaged; Munchau now estimates that European banks may need as much as $700 billion (€500 billion) in new capital to offset their losses. The political and legal barriers to quick action are formidable, especially but not only in Germany, and while solutions can still be imagined, it is increasingly difficult to see how they can be implemented in a timely fashion.

Concludes Munchau: “I have never seen European policymakers as scared as I saw them in Washington last week.”

The deer stare, horrified, immobilized at the truck; the truck grinds remorselessly on.

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  • Peter

    What’s the problem? Greece needs a big reduction in its standard of living.

    And look at the irony here, Mr. Mead. Greece’s traditional enemy, Turkey, is doing quite well economically what with its somewhat embrace of capitalism. That must hurt the Greeks.

  • Kris

    I would like to thank Obama for helping to reduce my stress level. For example, when I read that “European banks may need as much as $700 billion in new capital to offset their losses”, I say: “$700 billion? That’s peanuts! All is well.”

  • SC Mike

    I just can’t help thinking that the situation is so grim that at some point quite soon Merkel will lose all public support. The only question is whether that will come before she pledges German assets to a Greek rescue or not. She seems ready to do so in order to prevent a catastrophe, but sadly the catastrophe seems inevitable.

    It’s clear the Greeks are not serious, which means that French banks are at risk. With German pledges to Greece, Italy becomes the next target, or maybe Portugal. Regardless, time to resurrect the phrase “domino theory” because not even the Germans have enough money or patience to prevent the collapse of the rest of the Eurozone.

    I’m just waiting for the Fed or US Treasury to ride to the rescue. Hey, doom need not be something only Europe faces. Our fears of the unknown may be so great that we will speed ours along and try to drag in the Japanese too.

    “It’s the end of the Western World as we know it…”

  • SC Mike

    Yikes, to echo the Weekly Standard. Monday’s Telegraph is reporting this:

    “The head of the IMF has warned that its $384bn (£248bn) war chest designed as an emergency bail-out fund is inadequate to deliver the scale of the support required by troubled states.

    In a document distributed to the IMF steering committee at the weekend, Ms Lagarde said: “The fund’s credibility, and hence effectiveness, rests on its perceived capacity to cope with worst-casescenarios. Our lending capacity of almost $400bn looks comfortable today, but pales in comparison with the potential financing needs of vulnerable countries and crisis bystanders.”

    Who but the US can provide such financing? Okay, yes the Chinese could, but the odd of that are about the same as the Obami introducing a balanced budget.

  • Jim.

    Germans feel they are being taken advantage of, and who but the most ideologically blinkered Blue Social Model supporter can blame them?

    Germans will take whatever option is best for them, and the status of their country. Give them dominance in Europe, and they may stay; short of an arrangement that “befits” their financial superiority (involving the ability to guarantee a significantly better standard of living for themselves as they guarantee for the Greeks, and the ability to impose changes on less economically powerful countries they are expected to support), I suspect they’re looking for the exits right now.

    No one is willing to give them that sort of power and status, which is the only thing that they would accept as the price for a bailout. That’s why it’s not happening.

  • McLovin

    What I find amusing is that the entire Western World knew they were tap dancing on the edge of a razor blade and are now perplexed as to why the entire system is broken.

    And it’s not Capitalism it’s they dopes who are in charge.

    We must head Hayek’s wise word.

    “You must save to invest, don’t use the printing press or you will surely have an economy that’s depressed!”

  • Jacksonian Libertarian

    “Socialism is great until you run out of other peoples money” Thatcher

  • Greg Q

    I’ve got a suggestion for the Greeks; cut your government.

    1; Everyone below the age of 70 currently on a government pension loses it. No exceptions.

    2; Cut all government agencies number of workers, and the total size of the payroll, by 20%.

    Start cutting government corruption:
    Anyone working for the government who takes a bribe gets:
    1: Fired
    2: Permanently banned for ever working for the government.
    3: Permanently banned from ever receiving any government money, be it unemployment payments, pension, or anything else.

    Then start rationalizing the laws, so that people don’t HAVE to bribe government officials to look the other way, in order to get anything done.

    IOW, the Greek model is a failure. Acknowledge it, and end it.

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