Who Gains From The Eurozone Fiasco? China

By Simon Johnson

Ireland will get a package of support from the EU and the IMF.  Will the money and the accompanying policy changes be enough to stabilize the situation in Ireland or more broadly around Europe?  Does it prevent Ireland from restructuring its debt – or move the Irish (and other parts of the European periphery) further in that direction?

And who gains from the delay and mismanagement we continue to see at the highest European levels?

This is complicated economic chess within Ireland, across Europe, and at the international level.  In my Bloomberg column this morning, I suggest we look several moves ahead, recognizing the underlying political dynamic:

There is a much more general or global phenomenon in which powerful people cooperate to build an economic model that provides growth based on a great deal of debt. When the crisis comes, those who control the state try to save their favorite oligarchs, but there aren’t enough resources to go around

…..

Here is the present problem: It’s not just the Irish elite that is under pressure and struggling to sort out who should be saved. It’s also the European bankers who funded them.

If the Europeans continue to fight among themselves, regarding who bears what losses – and who has to face what kind of public accountability – which other countries gain on the global stage?

Who has the ready money available to recapitalize the International Monetary Fund, if needed?  And it will be needed if Spain comes under serious pressure.

Who understands the strategic concept that piles of “reserve currency” can give you great political leverage?  It is hard to find such thinking among today’s generation of American politicians.

And who is already playing international economic chess at the highest level?

China.

For my full assessment, please follow this link: http://www.bloomberg.com/news/2010-11-19/ireland-crisis-might-give-china-break-it-seeks-simon-johnson.html

46 responses to “Who Gains From The Eurozone Fiasco? China

  1. Nowhere left to colonize.

  2. It’s shuffling deck chairs, Simon, imho.

    The global fiancial system is completely bankrupt because of unpayable debt, collusion, fraud, and rank criminality. There can’t be a “recovery” under such abject conditions.

  3. Ireland Aid Plan Expected Next Week

    Nov. 19, 2010 7:58AM EST — Reuters – excerpts

    “A financial aid plan to help Ireland cope with its battered banks will be unveiled next week, EU sources said on Friday, but experts warned a rescue may not be enough to prevent contagion in the single currency bloc.

    Ireland’s central bank chief has acknowledged that the country needs a loan running into the tens of billions of euros to shore up an extremely fragile banking sector that has grown dependent on ECB funds.

    Sources have told Reuters Ireland may need assistance of between €45-billion and €90-billion, depending on whether it needs help only for its banks or for public debt as well.

    The head of the euro zone’s temporary fiscal safety net, from which funds could come, said aid could be raised in five to eight days if needed, notably from investors in Asia.”

    http://tinyurl.com/38owvj8

  4. And, what will China use to bail out Europe?

    Dollars…

  5. China always seem to be in the center of any kind of financial conversation… No wonder everyone wants to do business there.

  6. From the Bloomberg piece:

    Presumably about now, big German and French banks are pointing out to their governments that when Ireland defaults, they will face big losses too.

    Presumably? Germany trotted Deutsche Bank CEO Josef Ackermann (the hero of Greece) out at the last meeting of EU finance ministers to deliver the message!

    Underlining the importance of a decision on Ireland for the banking sector in the wider eurozone, Josef Ackermann, the chief executive of Deutsche Bank AG, also attended Wednesday’s meeting of finance ministers.

    “A breakout of any state on the markets right now would lead to contagion and we want to avoid this with all means,” Ackermann said. “We have to do everything to catch every country that runs into trouble.”

  7. ‘Who understands the strategic concept that piles of “reserve currency” can give you great political leverage? It is hard to find such thinking among today’s generation of American politicians.’ is exactly the point made in this month’s Atlantic magazine, but about clean coal and the energy systems of the future. China is building new clean coal plants so fast that they are learning how to do better faster than any Western country can. Wherever there is a confluence of money and political will to persevere to solve large problems, there they will be solved. China has horrible human rights and corruption issues, but they have a government that can order and execute 10-year megaplans to completion, unlike the West and particularly the US, which can’t even think beyond the next fiscal quarter and won’t consider anything that affects that quarter’s profits. The West does have a role to play in the new energy and economic order, but it is a transitional one only, imparting what good we have learned and serving as an object lesson to our replacements. Just like England in the growing shadow of the can-do US early in the 20th century, we have already ceded the future to China and India. This is not necessarily a bad thing, but we must manage this transition with some modicum of maturity and perspective or fade to irrelevance.

  8. Simon Johnson wrote:

    Nov 18, 2010 9:00 PM ET – Bloomberg – excerpt

    “As an alternative, Europe could place a call to Beijing to find out if China would like to commit some of its $2.6 trillion in reserves to keep European creditors whole. This would be an enormous opportunity for China to vault to a leading global role. Perhaps it was a good idea to place Min Zhu, a top Bank of China official, in a senior position at the IMF.

    If China offered to recapitalize the IMF, become the largest shareholder, and move the organization to Beijing (according to the Articles of Agreement, the IMF’s headquarters should be in the capital of the largest shareholder), wouldn’t that make for an interesting chess game?”

    http://tinyurl.com/27ujbtr

  9. Chances are good that China sees the current situation as a great opportunity.

    Just who depressed the long end of the US yield curve back in 2004 – as the Fed started to raise rates – and kept the long end depressed as long as possible so that the party wouldn’t stop? It was really between then and 2007 that the excesses accumulated to their current staggering degree.

    On the other hand, the Western world came and saw go the Soviet Empire. Remember when the great fear was the Soviets? The Soviets, like the Chinese, pulled every possible propaganda lever to convince the West of their invincibility. Since, to paraphrase Sun Tzu, to win without fighting is best.

  10. Excellent Bloomberg article. The basic problem here is Bernanke’s biggest flaw: He thinks this is only a credit contraction recession, so he can fix it with credit expansion tools. He doesn’t realize that he is up against (1) a generational shift to the Gen Xers who got buried in student loans, and view credit very differently from the Baby Boomers, (2) the retirement of said Boomers, the pig in the python with the largest cohort turning 48 (the year of peak consumption per Harry Dent) in 2005 – did something change after that? And (3) technology, which slashes prices every year (OMG – deflation!)
    .
    SurviveTheGreatInflation.com the book launched this week – Bernanke isn’t going to change – given his history, he can’t – and Obama doesn’t have any idea how awful his appointments were. It’s inflation coming, not deflation. Don’t ever bet against the Fed.

  11. Rickk,

    Excluding the scenario that you have suggested, which seems very unlikely, but possible in the context that all things are possible, China providing discount loans to Europeans makes little sense. The Chinese are not blindly offering the ‘only a few bad apples’ explanation for the recent downturn. They know full-well that foreign inflows, which consisted mostly of ‘their’ dollars, combined with risky leverage ratios to cause the big bad bubbles.

    The Chinese too are not pretending not to notice that global AD is now not where it should be because capital that should have been invested toward global development was instead wasted in the USA. Wasted on foolish wars and on usurious schemes serving only Americans.

    Discounted loans as bailouts to a Failing Euro-zone will be seen by the Chinese as an extension of the mess that they were lured into by the Americans. Had there not been a ludicrous effort by the US to shift as much blame on the Chinese as possible, for a mess which is so obviously the exclusive fault of the US, as part of what was obviously an attempt by the US to depreciate its debt on to others, then, perhaps the WTO and the IMF would still have enough credibility to be worthy of their concern. But now, it seems pretty obvious, with China establishing direct trade deals all over the planet, that they are circumventing the Bretton Woods II framework. And why wouldn’t they? Why continue to support the West’s corruption? Yet the hubris remains, this post for example.

  12. Completely agree!
    Fool me once shame on you, fool me twice shame on me!

  13. Like one commento rightly noted, they are playing go.
    I immensely appreciate reading’s Simon and Pete’s analysis of the European crisis, beecause they are forward looking- the great Tony Judt in the last text
    published before is death was a Der Spiegel column mourning the loss of leaders in Europe, and we are
    not taking about the ‘global governance’idea with Mr
    Trichet with the whip. There was one Guy Verhofstadt,
    who saw it coming,and they would not listen to him,
    and his vey early proposal of Euro-bons which would have shored up Europe instead of witnessing this
    pathetic situation.
    As for the Chinese in Europe, it is just one more step on the road they started paving in Africa, quietly unnoticed, and it is no surprise that they are negotiation with Portugal and Greece and overtaking their harbors, at least in Greece…

  14. I find it quite ironic (puzzeling) that the political pudits, and purveyors of their message’s, calling the Chinese a “State-Run-Enerprise” totally funded by a communist government? These harsh, and terrible (unfair & anti-capitalist free marketeers) Chinese trade practices must be (the rhetoric is heating up folks?) crushed! Thus, at the other end of the propaganda megaphone are the poor American MNC’s who deal with pure democratic capialism having gotten absolutely no government “Assistence”? Wow…am I loosing my mind, or is it the full moon’s tidal wave effecting my conscious thought process? I feel dizzy…who is/are these “State Sponsered Entities”, and who is the “What”? I believe Mr. Simon Johnson has got it better than half way right. China will love the prestige of bringing (home the bacon?) the IMF too their shores, but the United States, and UK will fight to the end, too not make it happen! JMHO PS. China doesn’t need anyone anymore – South America loves them as do the African countries, with Putin’s Russia finding them a best bet – Iran loves selling their huge “Blue Gold Reserves” for the next century and beyond to their new found comrades…such a beautiful love affair?

  15. Roubini Maps Out Nightmare Scenario of Domino Debt Collapse in Europe

    Friday, 19 Nov 2010 – CNBC -excerpts

    “We have too much private debt in the case of Ireland,” according to Nouriel Roubini.

    But the nub of the crisis is this: “We have decided to socialize the private losses of the banking system. Now you have a huge increase in public debt—going from 7 percent to 100 percent of GDP. Soon it will be 120 percent.”

    And, turning more broadly to the rest of Europe, “Greece is already at 120 percent.”

    Roubini believes that further attempts at intervention have only increased the magnitude of the problems with sovereign debt. He says, “Now you have a bunch of super sovereigns— the IMF, the EU, the eurozone—bailing out these sovereigns.”

    Essentially, the super-sovereigns underwrite sovereign debt—increasing the scale and concentrating the problems.

    Roubini characterizes super-sovereign intervention as merely kicking the can down the road.

    But if Spain falls off the cliff, there is not enough official money in this envelope of European resources to bail out Spain. Spain is too big to fail on one side—and also too big to be bailed out.

    He says wryly: “There’s not going to be anyone coming from Mars or the moon to bail out the IMF or the Eurozone…”

    http://www.cnbc.com/id/40271476

  16. China’s model is equally unsustainable. Unless global AD is raised then the entire structure will collapse. Simon should address this rather than comment on pointless chess matches aboard a Titanic.

  17. Re: @ RickK___I’m wondering if Mr. Roubini has,”run his course” in regards to predicting any more future collapses in the market’s? He seems to be always crying wolf, and to me that’s a contrarian indicator. There seems to be blood in the streets regarding “EuroLand” and that tells me all the hard work behind closed doors has been done. If Italy, Spain, or Portugal most likely has a problem “Vatican City’s Sovereign Bank (Wealth Book)” will quietly come to their rescue along with many private banks through the urging of the Vatican. The only caveat that concerns me is the “Bretton Woods” – IMF Article (1); (2); (3) Rule VI…but this goes back to the G7, and probably null-n-void today. PS. Excellent digging, thanks :-) Ref: “IMF Bailouts and Global Financial Flows” (4/1/98)

    http://www.fpif.org/reports/imf_bailouts_and_global_financial_flows

  18. When Nations and Systems Forget the Real Game

    http://seekingalpha.com/instablog/566027-james-gornick/113088-when-nations-and-systems-forget-the-real-game

    or

    http://www.project-syndicate.org/commentary/shiller74/English

    One can assume the Power Elite can affect a nation or an single retirement fund to become squeezed and somewhat oppressed in this current Austerity Environment. They say, market forces cleanse wasteful investments, innovative business models make existing ones obsolete, and the economy roars forward all the stronger for it–or do the Magicians of the Oligarchy running the show from behind the curtains blind us?

    Make no mistake of these well crafty Magicians trying to control the currency and banking systems of the world behind the backdrop of the world’s curtain. Enough money to invest and control nation’s choices and to bring nations to be introduced to the New World of Austerity Investing rules. However, while market entrepreneurs generally prosper during times of great dislocation, ultimately to the benefit of all participants in the economy, today political entrepreneurs have hijacked the economic system.

    The politically connected elites have used this downturn to carry out a massive wealth transfer from the people, to the public, and private sectors; fleecing the middle class for their own enrichment. In their hypocrisy, the long ago small businesses that grew large because of free markets have helped chain these markets through lobbying for regulations and subsidies to shield themselves from competition and their own errors.

    In these times of greater uncertainty, messages are sent to play on the field with rules of engagement. This message was sent with Ben Bernanke on Friday November 19 to China and the Asian Rim. There is even a more important message being sent to Congress and the President of Barack Obama from these uttered concerns.

    It is a siren to the governments around the world to hold accountable, the corporations filing their 10-Ks, and other formal filings showing they have achievable documented earnings reaching the highest level on their books in the history of their businesses since the stock markets opened their doors.

    Understand the dominator of Abyss factor keeps the housing recovery from total collapse is based upon 2 1/2 million unemployed just in the United States keeping their benefits extended in Unemployment and COBRA for another 12-month period. The catch for Congress and the President Obama is to charge this off to the corporation structures revealing their buy back of shares and upping their dividends at the expenses that dislocated all these millions of folks in the first-place.

    The facts are clear; you take out the one direct source of pure stimulus of home-modification support for payments extended through the unemployment and COBRA, Extended Medicaid benefits. These benefits staying in the equation, getting these folks still supporting an economic consumption of basic necessities, and combining part-time dollars from possible one working individual, may be the only piece of the puzzle working right through this whole mess.

    The basic facts are simple in keeping as many Americans within their homes may play out to be crucial to a housing and economic recovery. Keeping them out from under the foreclosure mess of to many units flooding the markets and the up keep would cause the markets to depress even further than the 25% expected by Case-Schiller within Professor Robert Schiller most recent written responses giving solutions on-going for the housing and unemployment problems.

    This Is a Real Game for Keeps

    If these extension for benefits to these 2 1/2 million folks on the table of the United States approving or disapproving could add up to be an Atom Bomb. Atomic bomb of inviting the Abyss theme as bantered about by so many brilliant minds. If these 2 1/2 million folks are not approved, as calculated within the Coase Oppression (Austerity Theorem), by well respected and renowned formulas. We all face cataclysmic failure of collapsing the China and Asian Rim and other nations by the mere fall-out of the bomb becoming lit and sent flying like an missile with all nations becoming the target of its wrath.

    An Atomic Bomb accidentally lit by ignorance of an Oligarchic miscalculation in timing of letting these unemployed folks, numbering well into around 2 1/2 million. These folks no longer stay within their homes under pre or post foreclosure or home modification status.

    These same folks with the additional folks from other nations supporting the delicate consuming economies of CPIs, GDPs and other essential growth metrics based upon the wellbeing of the Human unit bantered about by noted Professor Joseph Stiglitz. His theorems are well versed to be incorporated in measuring the wellbeing of economic survival of a nation. Nations ensuring a recovery can be substantiated.

    Greece, Ireland, and eventually other nations pressing the ECB an IMF need to stretch multi-trillion dollar debt restructures until the balance of the “New Third Wave Austerity Industries” bring many of the nations to become self supportive again, based upon an increase, and not a decrease, in Birth rates; as Demographic Economics is also more than at play.

    In plain English; these folks going to lose their, Unemployment and extended COBRA benefits starting in December of 2010 are the match that will be remembered around the world that a Tea Party, Republican, Democratic, and/or independent did not think long and hard about what history is going to write about them in the Year of December 2010. The collapses that occurred henceforward going into 2011 and steering full speed ahead into 2012s and collapsing China and all the other Emerging Growth Nations to hyper-deflation to try to allow for basic survival needs to be met by all under Coase Oppression (Austerity Theorem).

    Far-fetched, No, not this time. I wish it were! However, the math does not lie on the affects of 2 1/2 million Americans coming into the free-fall of losing their benefits. Benefits toppling the balance as stated hopefully as clearly as can be stated, causing the fall of many home modifications and contractual holding patterns of debt structural easing as seen demonstrated by QE1, QE2, and eventually, QE3.

    Collapses further denigration of the homes coming into the status of foreclosure deeming the effects of a downward pressure of the current markets supporting all the Municipal Bond Issues stemming from Cities, Counties, and States. No differences from the issues of Greece and other nations being no larger than California or Texas combined.

    I announced onetime as attached article answering the origins of creation and Stephen Hawking claims of some concerns for many. To get to know Teleios and the “I am” of your origins of what makes you the you or your “I am”.

    May the peace of the coming days be with all reading this plea for sending a message straight to Washington and the World leaders…

    It can work…

    J.G.

  19. There is no way Mr Roubini can forecast the outcome of the complex games played among the PIGGS states and private debts. For some reason no one talks about assets and taxation potential. If all of this was just about Ireland following the rules and going cap in hand to Bonn -sorry, Berlin, sorry, Brussels and lobbying the other member states for some sympathy, there would be no problem.

    There is an economics problem with these bailouts but it is not one of lack of liquidity (or of inflation risk). It is one of insufficient theoretical plausibility for one or the other approach to macroeconomic management.

    The principle on which the ECB was founded (and the principle that the strong economies in the system are unlikely to abandon, is that money creation should be kept out of reach of politicians and if politicians want to do things that make them electable, the should be punished by an independent, bureaucratic organ of the state using monetary bias counteracting fiscal bias. No rational politician in such an environment would embark on populist ventures knowing that detection and punishment would be certain (Dr Kohl did so, but those were unusual circumstances unlikely to repeated until the Dutch, Danes, Austrians and yet to be enfranchised Flemish see the light and join Germany as ersatz Bundeslaender. Germany has no intention to absorb the Gypsies from across the Irish Sea (they should fix their roads first) and as a result will only help if the price is right. The public in this prospective Greater Germany is resigned to their form of macroeconomic government and has no problem in letting the prospective losers leave the show.

    The other form of economic management, trying to influence economic growth by the coordinated use of fiscal and monetary policy looks nice in theory but has so far, failed to produce results in the countries that tried it this time, and the cases where growth did coincide with that type of policy (like Australia) lack causality.

    If we did not believe in modern macroeconomics, we might believe that the growth problem (and then the banking problem would solve itself because the asset side of those banks balance sheets would become more valuable: most of these Irish loans are long puts on real estate having moved out of the money). In a barely developed country like Ireland, as far as physical infrastructure and assets are concerned (no roads, lack of housing, hospitals etc), that process could go very quickly. This is probably also what the Irish gangleaders hope, because they would escape further scrutiny (except a few thrown to the wolves for plausibility’s sake).

    As it is unlikely that the ECB cs will change beliefs, relevant EURNorth audiences are already in rational expectations territory, and the Irish have no choice (even if China would increase its EUR component, it would want EU guarantees -remember that they dumped their Agencies when there was a bit of a problem there -why would they lend to Ireland on a subordinated basis) to accommodate their demands. The Irish have one card, that is to commit suicide and drag the EU along with them.

    Only someone not used to intra EU bargaining would believe they would use it.

  20. There is plenty of discussion about China on Michael Pettis’ blog (who happens to be a specialist):

    http://mpettis.com/

  21. It is alarming just how important to the propaganda that misinformation has become. The media, professors, public officials, even the Nobel committees, and consequently the population, all convinced of falsehoods. And most of them certain of being informed due to how widespread their ignorance is.

    I spent a few months in Central America during the Iran/Contra scandal and when I returned to the states I was shocked at how misinformed the US population was about Central American issues. Then though, the distortions were required to be more elaborate, now it all seems to be a matter of course. Folks just don’t have time for issues, mostly due to so much time being ‘committed’ to their being entertained. Entertainment has become a compliance pill.

  22. You got it Ray! When American labor got the shaft from management and China, that’s reality, but when the elite get the same, Oh,they’re cheating. Well, suck it up.

  23. Yes, no more expansionism in sight. Investing in ourselves stopped being an option when we traded virtue for egotism.

    I’m afraid, the current one is bigger even than what the Chinese can afford. Krugman, Stieglitz, Bernake are crying stimulus, but that only goes to show there are no options. Unless people(s) choose to believe our paper so that we can collectively kick the proverbial can down the road.

    Something tells me that arms dealers/manufacturers will be doing very well, lest the populace wakes up to smell the decay of democracy (http://imotion.blogspot.com/2010/11/lincoln-or-roosevelt-moment.html ).

  24. Re: @ James Gornick___I always enjoy reading your comments, especially this one James. Last week (or was it this week?) Hillary Clinton gave away $3bn to Israel (20 F-35 Fighter Jets “Free”) along with 20 that Israel purchased way below the market price. Just a couple weeks prior…Hillary ‘baby’, gave Pakistan $2bn in free money (oh yea…technically called foreign aid, or whatever their corrupt jargon is bandied about today?). Funny, but in less than a months’ time the United States has given away $5bn without blinking an eyelash? Now, back to unemployment, and extending benifits for another ~26 weeks or whatever the figuritive length of time is – the cost for these people whom can’t find work will cost the taxpayers ~ $12.5bn! Let’s do the math, and get the overall pc,…$5bn/$12.5bn = 40% – but that’s OK? PS. Have you any ideal what some of these advanced aircraft cost the taxpyers – it will blow your mind…and the billions upon billions of subsidies we pay out the back door at the pentagon to supplant their mercenary army (X- something), pathetic! JMHO “Peace Brother”

  25. Bernanke Calls On Congress To Help The Economy — For At Least The Fourth Time In Five Months

    11-20-10 01:55 PM – excerpt

    NEW YORK — “For at least the fourth time since June, Federal Reserve Chairman Ben Bernanke publicly urged Congress to combat the lackluster recovery by increasing government spending, a recommendation that has gone unheeded by lawmakers.

    In a speech at a conference of central bankers in Frankfurt, Bernanke once again said the Fed cannot save the economy on its own.”

    http://tinyurl.com/24bmz22

  26. Bayard Waterbury

    Imho, it’s the world’s citizens against the bankers, who’ve been allowed to run roughshod over the proletariat because of plutocratic ineptitude. There are two possibilities, I think. The first is that somehow the political portion of the plutocracy is willing to let their best financial buddies go tube city, in which case, after lots of economic scrambling, the smaller banks and central banks are able to resurrect some meaningful progressiveness and get things running. In this case it might take a few years, at least five or so. However in scenario two, the bankers hold sway and the world economies grow further and further out of balance to the breaking point. In this case, rebuilding will take decades, if it’s possible, and the greater risk is the generating of armed conflicts, both within and without the world’s nations. We already have millions in the US under threat of perminent economic displacement and many other developed nations are in a similar bind. If much more displacement takes hold, there will be severe consequences. Sadly, through prudent governance and having the proper parties experience deserved losses, the entire potential international fiasco could be avoided. The can has been kicked down the road so long that it is severely crumpled and rusty, and can’t really be booted any more. So, the ultimate question is, who will suffer, the few thousand who stand to lose billions, and the many millions who stand to lose lives and a perminent reasonable standard of living.

    It just amazes me that the American public has been persuaded by the media oligarchs that the deficit is a greater threat than the stranglehold by the bankers and other oligarchs. Is anyone paying attention at all?

  27. Bayard,

    Yes, I am paying attention. But then nobody is paying attention to me either.

    It must get worse before it can get better. I have been to countries where things got bad enough to give the people the ‘nothing left to lose’ attitude. That was in Nicaragua in the 80’s and ‘things’ were very, very, bad. Americans are of course accustomed to a much higher standard of living, but just enough people are still franchised. For now. But Americans are spoiled, relatively speaking, and they are easily mislead due to the MSM being so pervasive, but, the flaws are more and more difficult to hide.

  28. What on earth can a bailout do? A typical programme cuts spending and raises taxes, with an offset from a currency devaluation. Where does the offset come from in this case? It treats the problem as one of liquidity when it is solvency. A restructuring is inevitable, it is just a matter of time. With half of trade going to the UK, and the UK tightening policy and likely crushing Sterling, Ireland will simply cease any economic activity at all. It is time to contemplate the unthinkable: those currency rates are not so “irrevocable” after all.

  29. Ireland Asks For Bailout From European Union, IMF

    11/21/10 07:22 PM | – AP

    “Lenihan said Ireland needed less than euro100 billion ($140 billion) to use as a credit line for its state-backed banks, which are losing deposits and struggling to borrow funds on open markets. He said the loan facility could last anywhere from three to nine years.

    This country of 4.5 million now faces at least four more years of deep budget cuts and tax hikes totaling at least euro15 billion ($20.5 billion) just to get its deficit – bloated this year to a European record of 32 percent of GDP – back to the eurozone’s limit of 3 percent by 2014.”

    http://tinyurl.com/2872oxz

  30. I thought it was:
    “Fool me once shame on you,
    fool me twice… er… you’ll never fool me again.”

  31. Yet, my question is: what does it happen to a country if its public and sovereign debt is being sold massively to another country like China?

    While Italy’s debt is at present still mainly held by Italians, its debt/GDP increasing ratio is not sustainable and sooner or later Italians might ask help to Chinese to place Italian bonds.

    Will some lipstick make PIGS fly?

    Will PIGS be Chinese pigs?

    PS:
    If PIGS countries could read the Chinese horoscope for 2009, year of the PIG in Chinese calendar, they could learn some lessons for 2010…

    “Horoscope for Pigs advises these people to be cautious with their spending habits this year. It will be best, if these people could make a proper budget for 2009 to save themselves from overspending, as there are chances of getting some real financial problems for the Pigs in 2009″.

  32. Will Ireland life jacket keep others in euro zone from sinking?

    Nov. 22, 2010 8:35AM EST – Globe & Mail – excerpts

    “As Ireland comes to terms with a brutal bailout package imposed by Brussels and Washington over the weekend, European capitals are anxiously waiting to see if almost a hundred billion euros in loan guarantees are enough to stop panicked investors from turning against other countries – and whether the package will help or further injure Ireland’s economy.

    EU officials made it clear that the rescue was not specifically intended to help Ireland – whose Prime Minister, Brian Cowen, argued as recently as last Tuesday that his country could manage on its own – but rather to reassure bondholders and prevent panicked capital flight from spreading to other countries such as Portugal and Spain.

    “Providing assistance to Ireland is warranted to safeguard the financial stability in Europe,” Olli Rehn, the EU’s economic affairs commissioner, said Sunday night.

    Before Europe can know whether the rescue was a success, Ireland’s bailout will face a series of tests over the next few days.

    The first test will be whether Ireland needs to borrow directly from the fund. Dublin and EU officials hope that the mere existence of the bailout will reassure investors and cause bond rates to fall to normal EU levels, allowing Ireland to borrow on the open market – an especially crucial test as it prepares to pass a budget on Dec. 7.

    (In a dark irony, Ireland, as a member of the euro zone, will continue contributing its share of the €110-billion Greek bailout package while receiving its own rescue).

    If that test fails, and the economy falls further into collapse, it could further panic investors, leading to just the sort of Europe-wide crisis the bailout was meant to prevent.

    http://tinyurl.com/26yvaud

  33. Re: @ RickK___Nice link…as always. Thanks :-)
    Quote from the French Quack: “when you tackle a deficit, you have two levers, spending, and taxes” end quote
    Note: “The one-time cost of bailing out the banks?” – It seems nothings changed, RickK…or am I missing something?
    Five words for the “Twitter Crowd” – “The Maelstrom Fait`Accompli Affair, Syndrome !”

  34. It is mainly the German and French banks that come under intense pressure since they play an important role of creditors. That’s why the leaders of France and Germany call for a concerted effort to stabilize the situation in Europe.

  35. To say nothing of the fact that China exports more to Europe than to the US, and certainly won’t suffer if the euro weakens against the dollar a bit more…

    http://www.market-melange.com/2010/11/21/outlook-review-22-november-2010/

  36. ______
    | O
    | / | \
    | /

    _ I G _

    OK, let’s think… Greece, Ireland,…

  37. We so easily read,

    “… global phenomenon in which powerful people cooperate to build an economic model..”

    However, if we ever point out the issue of “class” underlying our social problems, we are castigated. Yet, there it is, the “powerful people” calling the shots.

    Just a hint about solving our underlying social problems. The word “democracy” scares the powerful people.

  38. Who benefits from the break up of EU? Ans: the US

  39. I think Simon forgot that US could print any amount of money if it so wishes.

  40. Thats correct its all americas fault. They lured everybody into high leverage starting with Iceland. All of the debt created in the Eurozone ws all the fault of the USA. What kind of idiot are you? The US has made a lot of mistakes but they are by no means alone. The greed and corruption is pervasive throughout both continents. To blame it all in the US is what someone who doesn’t want to take responsiblity for their own actions would say.

  41. China is looking for alternatives to U.S. dollars to maintain its export-led growth, which depends importantly on an undervalued renminbi, which requires official capital outflows from China. So it makes sense that China would be open to new opportunities to lend. Whether they ae properly cognizant of the limits to this strategy is an excellent question. I have always maintained that the limits would be set by the capital importers, as the negative effect on AD becomes apparent. You’re right that the strategy is unsustainable, but with a wider pool of official capital purchases (besides U.S. dollars), it can be extended for a longer period.

    In the case of China helping the indebted euro fringe, the capital inflows would move the euro area toward trade deficit. The PIIGs and the European financial sector (and its creditors) would gain, but the workers would lose as AD would be reduced. I think the political fight over this will end as it has in the U.S. where Treasury has refused to brand China a currency manipulator. (Now, with Ben’s QE strategy, it might be a case of the pot calling the kettle black.)

  42. I’m puzzled by your statement. A dollar appreciation against the euro can’t help China’s European export prospects, assuming China keeps its peg to the dollar.