Gloomy Outlook

Quite interesting stuff from Michael Pettis here. I’d subscribe to most of his analysis, though I’m not so sure whether the Eurozone will really break up or whether we will get that nasty “Fiscal Union”. it’s so easy to leave the Eurozone even if there is no Fiscal Union soon.


2 comments on “Gloomy Outlook

  1. Michael is an expert on China, not on monetary policy or EU affairs

    • Basically he’s right. Current European politics are not sustainable. Radicalization is the logical next step in European politics. Also correct is his analysis that Germans will have to bear the costs of adjustment either way, be it through direct fiscal transfer or through adjustments in trade surpluses in markets. The latter is of course more obscure and thus much easier to sell to German voters. However, the risk is that the peripheral countries will not stick it out, as such a process could last over more than one decade.

      Where Michael may not be right is the issue of exiting the Euro. This option is only feasible for countries who can largely finance their non-interest expenditures by themselves. Countries like Spain, Portugal or Ireland risk a total collapse of government AND hyperinflation if they choose to exit the Euro now. Only Italy is currently in a position to leave the Euro without inflicting too much pain on its economy. Greece may be the second country.

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