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Mass Confusion in Europe

As Greece descends further into chaos, with riots on the streets and mass expulsions from the major political parties, its creditors in Northern Europe seem surprisingly nonchalant, a stark contrast from their anxiety only a few weeks ago. A report in today’s FT claims that Germany and the other creditor governments have reassessed the potential fallout from a Greek default and now believe that they could emerge relatively unscathed. Newly confident German ministers are pushing Greece to adopt much more stringent austerity measures than originally expected, including the possibility of technocratic governance, as in Italy.

Many analysts interviewed in the article, however, are skeptical about the recent change of heart. Two weeks ago, nearly everyone believed that a Greek default would wreak havoc on the European financial system and lead to a devastating credit crunch. Now, apparently, nobody is worried, but it’s not clear what, if anything, has changed. Some believe that this is merely a German bluff to wring more concessions from a recalcitrant Greece, yet the French government and the European Central Bank seem to think they’re serious.

One thing is certain: The world’s financial experts don’t understand the financial system nearly as well as they’ve claimed. The European debt crisis has dragged on for more than a year with relatively little change, and predictions for the future seem to vary wildly on a week-to-week basis. One week disaster is imminent, the next the crisis is nearly solved. Feckless European politicians have taken deserved criticism for dithering in the face of the largest crisis since World War II, but the brightest and best-paid experts who have utterly failed to comprehend or explain the situation deserve some of the blame as well.

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  • vanderleun

    “… creditors in Northern Europe seem surprisingly nonchalant, a stark contrast from their anxiety only a few weeks ago.”

    Of course they have. They’ve just figured out that with a return to the tattered drachma their vacation homes and hotels on the Greek Islands are going to be a whole lot cheaper this summer.

  • Jim.

    One problem here is a breakdown of transparency. Greek financial promises can’t be trusted. bad decisions are frequently papered over, or corrected in the dark to prevent people from knowing how bad those decisions really were.

    Honestly, I don’t think it’s possible to know, completely, what’s going on because it’s impossible to know what’s on the mind of every decision-maker.

    We just need to keep doing the right thing, and have faith.

  • WigWag

    Hank Paulson thought the United States could afford to let Lehman Brothers collapse; he was wrong and the results were calamitous. Those who think Europe could ride out a Greek collapse may very well be making the same mistake.

  • Luke Lea

    “predictions for the future seem to vary wildly on a week-to-week basis. One week disaster is imminent, the next the crisis is nearly solved.”

    Indeed. German and other European banks foolishly advanced these loans to a sovereign nation and certainly deserve to bear some of the losses, which apparently they will. I

    In Ireland meanwhile they made equally foolish loans to private developers and seem to have escaped scot-free. I don’t get it. Why are the Irish people left holding the bag?

  • Mrs. Davis


    Don’t you mean the President of the NY Fed thought he could afford to let Lehman collapse?

  • Jacksonian Libertarian

    Let’s face facts, Economists are all quacks, if what they really do is Science, then it would have some predictive value.
    The Scientific Method is clear, if your theories cannot predict results, then your theories are [without merit].
    Anyone with a brain can see that if a Government is sucking up much of the operating capital of its economy, there is little left for consumers or businesses to use. Practically every Government in the world is now sucking their economy dry, and the world economy is deep into Great Depression 2.0 because of it.

  • Anthony

    “…the eurozone is in deep recession, especially in the periphery, but now also in the core economies, as the latest data show an output contraction in Germany and France. The credit crunch in the banking system is becoming more severe as banks deleverage by selling assets and rationing credit…fiscal austerity is pushing the eurozone periphery into economic free-fall…”Greece descends further into chaos as more fiscal austerity induces greater political instability and civil unrest.

    The consequence of the aforementioned WRM forebodes Greek recession turning into Greek depression – perhaps exacerbating economic downturn for greater Europe and continued mass confusion (downsides everywhere).

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