Saturday, September 17, 2011

Edward Hugh Links: On the Eurozone Crisis

Despite the misplaced hope of the stock markets this past week, the eurozone is headed towards a decision point the leaders of the eurozone do not want to face.  I heavily research the eurozone macroeconomic issues as well as China, because they have global implications.  The eurozone could quite easily unravel with a Greek default within the euro or the need to bailout Spain or Italy.  A currency crisis would ensue and European banks and, quite probably, banks globally could have significant liquidity problems as the interbank market freezes up with the possibility, if nations are not prepared to fund liquidity through their central banks and governments, of some banks failing.

Edward Hugh is an intellectually eclectic British born macroeconomic economist who lives in Barcelona.  Whether one agrees with his conclusions or not, he always has something important worthy of consideration to say.

Here are some observations on eurozone and China PMI showing slower growth.

Ireland is being advertised by the eurozone as a success story to sooth the egos of the newly indentured (to European banks) Irish people.  What is going to happen to Ireland, which is a trade surplus exporting country dependent on exports for its economic recovery, as the global economy continues to slow down?

High Noon is approaching for Greece

Italy has low growth, an aging population, and is the third largest economy in the eurozone.  Can they make the penalty kick?

I have repeatedly stated privately that the breakup of the eurozone into a High euro and a Low euro will only create two stage productions of the same play with different lengths of production and the same tragic ending.  Here is Hugh's take on the subject.

Here he discusses recession risks in Germany.

Here he reviews the recession warning on the eurozone periphery.

Here he covers the flashing red lights for eurozone growth.

Hugh correctly identifies Italy, not Spain, as the elephant in the room.

How can Greece devalue?

Eastern European growth is very dependent on Germany.

Why Spain's economy is more different than you think.

The eurozone crisis is imploding.  If it will not accept a democratic fiscal transfer mechanism the euro is doomed and the international bond markets have recognized this for some time.  The euro is not a fiat currency which can be devalued and as such is a foreign currency, economically, for each and every eurozone country, which means their national debt is denominated in a foreign currency (the euro).  Consequently, no eurozone nation can guarantee its debt.

Being informed on the issues involved requires reading many different viewpoints.  There is a debt crisis, because this is a currency crisis and it could lead to a bank liquidity crisis and potentially to a global depression.

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