AppenzellSwitzerlandA Daily Compendiumof Free-Market Thought
Tuesday, September 21, 2010
Markets Reject EU Austerity?
The IMF itself has become the problem as Europe's woes return ... Once a quorum of big names says the game is up in a debt crisis, events move fast and furiously. Portugal neared the line on Friday when Diario de Noticias cited three ex-finance ministers warning that the country might have to call in the International Monetary Fund (IMF). One spoke of a "reckless reliance on foreign debt"; another spoke of "runaway public spending". No matter that all were complicit in euro membership,the policy that incubated this crisis and now traps Portugal in its depression. Portugal was a net foreign creditor in the mid-1990s. EMU has turned it into a net foreign debtor to the tune of 109% of GDP. That is what happens when you cut interest rates suddenly from 16% to 3%. Be that as it may,the comments struck a nerve. Yields on 10-year Portuguese debt surged to 6.15%, back to May crisis levels when the EU faced its "Lehman moment" and launched a €750bn (£625bn) rescue blitz.António de Sousa, head of Portugal's bank lobby, said his members are in dire straits. Banks cannot raise funds abroad, remain "extremely fragile", and "quite simply" will have nothing more to lend unless foreign capital returns.– UK Telegraph
Dominant Social Theme:
There is still a long ways to go.
The UK Telegraph remains a mainstream anomaly; articles by Ambrose Evans-Pritchard often do notbuttress the dominant social themes that the power elite is trying to promote. On the other hand, Evans-Pritchard is no free-market monetarist. He seems to believe in paper-money and central banking and does not necessarily advocate a moneymetals standard. Thus, his non-thematic views on the EU and the euro provide him with a credibility that burnishes theunfortunate monetary authoritarianism that he espouses elsewhere.Evans-Pritchard is not alone in presenting this sort of stance. Many good mainstream financial reporters take eminentlysensible stances on numerous issues but then, unfortunately, cannot find it within themselves to confront the reality of centralbanking – that is it a money-fixing exercise that inevitably distorts the larger economy with ruinous consequences.And yet ... having made the above points, we regularly doff our collective cap to Evans-Pritchard and those like him when theyturn their ferocious intellects on targets that they are not reluctant to confront. Evans-Pritchard especially has been mercilessin his analysis of the quagmire that is the European Union – and in the above article-excerpt on the IMF as well.He correctly noted the stresses and strains that the EU is subject to financially and has been in the forefront of predicting theadditional dilemmas generated by this unfortunate experiment. As far as the IMF goes, here is trenchant criticism indeed: "Inany case, the IMF itself has become the problem, operating as an arm of EU ideology under Dominique Strauss-Kahn (aboveleft). It offers no remedy since it acquiesces in the EU's ban on debt-restructuring."Additional relevant statements come later in the article as follows: "The brutal truth is that Portugal lost competitiveness on agrand scale on joining EMU and has never been able to get it back. ... Ireland has shown what happens when you grasp thefiscal nettle, slashing public wages by 13pc – to applause from EU elites – without offsetting monetary and exchange stimulus.Irish bonds have spiked even higher to a post-EMU record 6.38pc. ... Citigroup's Willem Buiter said Ireland 'may not be able tomake whole' creditors of both sovereign debt and the bank. Dr Buiter has also said a default by Greece is a high probabilityevent'."So there we have Evans-Pritchard's condensed perspective: Portugal, Ireland and Greece continue to struggle with theoverwhelming public debt and austerity is not the solution to public debt. In fact, the fiat-money distortions that the PIGS sufferfrom run like fault lines throughout the entire economy; devaluations are an appropriate solution but not one that the EUcontemplates. Why not? Comes the answer at the end of the article: "In fairness to EU policymakers, perhaps the problemreally is so big that if they let Greece, Portugal, or Ireland restructure debt they risk instant contagion to Spain, and from thereto Italy. Perhaps they really have no choice. If so, monetary union has created a monster."Of course this gloomy assessment is offset by others. Here's an excerpt from a much more upbeat perspective by Michael
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