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One of the best discussions on the Eurozone Financial Crisis I have seen yet

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May 23, 2012 – Comments (10)

Seriously, watch the video below.

And while you are at it, watch this one too:

10 Comments – Post Your Own

#1) On May 23, 2012 at 8:28 PM, awallejr (81.20) wrote:

Great watches.  Auerback so gets it.  I was of the view that Greece should just be booted.  I didn't consider the whole "bankjog" ramifications.  But I am in the Eurobond camp and you can tie those bonds to treaties, which could address German concerns and the weaker economies' concerns.

The other alternative would be to create a United States of Europe.  But as I argued elsewhere it wouldn't surprise me if many nations wouldn't want to lose their national sovereignty which could happen if all borders are opened and anyone could go anywhere with no restrictions.  France, for example, has already hinted at wanting to reduce migrations.

 

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#2) On May 23, 2012 at 11:10 PM, portefeuille10 (98.79) wrote:

United States of Europe

Do eurozone voters really want a 'United States of Europe'?

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#3) On May 23, 2012 at 11:40 PM, NOTvuffett (< 20) wrote:

everybody wants a united states of europe... as long as germany pays for it, lol

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#4) On May 24, 2012 at 1:28 AM, awallejr (81.20) wrote:

ultimately, we have no idea how voters in the eurozone – and Germany in particular – will respond to proposals for a fully-fledged political and fiscal union

I'd bet dollars to donuts nationalism would preclude a fully-fledged political and fiscal union.  So stop ditzing around and go the Eurobond route.

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#5) On May 24, 2012 at 9:47 AM, binve (< 20) wrote:

awallejr ,

Agreed. Auerback has had some of the most intelligent things to say on this issue.

awallejr  and portefeuille10

Regarding a 'United States of Europe'

I don't think there is much political will to from a 'USE', or that the opinions on this matter are so split among voters that any attempt to pass an idea like that will be met with failure.

But the fundamental problem, like Auerback says, is that Europe currently has a monetary union without a fiscal union. You can't be 'half-pregnant'. And Eurozone has been half-pregant for awhile now. It was okay in the good times, (90s and early 2000s) but it is unworkable in the bad times. Because government spending is largely *non-discretionary*. When the private sector takes out large bets (such as on housing) and economic activity can't sustain those positions, the bubble bursts and a recession / crisis / deleveraging ensues. The EZ governments aren't running high deficits primarily due to 'profligacy' it is due largely to transfer payments (which are non-discretionary) because tax receipts fell off a cliff due to the recession dynamics just mentioned. And so when the government is capped from running deficits (due to austerity rules) to try to prop aggregate demand because the private sector is delveraging then the whole economy suffers. Unemployment rises which lowers tax receipt which requries a government response via deficit spending which it is not allowed to due via austerity which creates a vicious cycle.

All because EMU member nations are currency users, and there is no central European fiscal authority authorizing a spending in a counter-cyclical fashion.

So I agree that that Eurobond buying program by the ECB to put a floor under EMU national bonds is the first step to managing this crisis. I think that has to be done.

The crisis has to be managed in the short term before long term issues can be addressed, and Europe will need to consider the next step in it's 'half-pregnancy' carefully. I think this crisis is showing precisely how unworkable a monetary union is without a fiscal union (in exactly the same way US states were unworkable as currency users without a US fiscal authority during the early stages of the USA).

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#6) On May 24, 2012 at 1:43 PM, JaysRage (90.10) wrote:

Great video.   I really enjoyed it.   Thanks for posting!   I wish the host would have stopped cutting off the German representative, because I thought he had some quality things to say too, but overall, very informative.  

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#7) On May 24, 2012 at 2:42 PM, leohaas (32.73) wrote:

Well worth watching, although the German guy gets cut off all the time.

Clearly, non of the FED-haters have seen this (or bothered to comment). They'd be yelling "don't let the ECB print money to buy sovereign bonds" right now.

The whole thing brings an interesting question, though: do the Europeans want a union like the US? As someone who used to be a European, lived on the continent for well over 3 decades, and still has regular contact with folks who live there, I can answer this question with a resounding NO!

It just isn't going to happen. The European countries are way too different to accomplish this. My former fellow-countrymen were known to be very tolerant towards foreigners, until those foreigners started to immigrate into the country en-masse. Nowadays, a new nationalism has taken hold. All bad things going on in the country are blamed on the foreign "invasion" from Muslims and eastern Europeans. Fascism is rampant: new (proposed) laws are aimed at groups of the population for belonging to the group, rather than at behaviour of individual members of the group. And I'd be vilified in the country in which I was born for saying so, if they'd ever found out.

Let's see if we can apply this knowledge to our investments. To say it in pregnancy terms already used in the video and following discussion: we are heading for an abortion. The EU will not become a fiscal union, and thus it will start falling apart. Better avoid Europe as an investor for the coming couple of years.

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#8) On May 24, 2012 at 5:17 PM, walt373 (99.83) wrote:

The European countries are way too different to accomplish this. Chart

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#9) On May 24, 2012 at 7:16 PM, Foolhe (< 20) wrote:

Save the fetus.  The mother is happier than she has been for a long time dispite her morning sickness.  Bonds are the prescription for now.  Get Mom healthy and prepare for the delivery of a maturing Europe that can have closed borders for the States that need them for now--for as long as it takes for the child to grow up.  Better to wait for maturity at each step of the way.  Remember banks are not the head; but, the people are.  In parenting Europe, remember maturity comes gradually with criticle thinking, the Golden Rule, and gradually letting go of the problematic beliefs that have heuristic but limited value--and are sometimes dangerous.  Over time, let more and more discordant beliefs be replaced by the knowing of generations of criticle thinking--(letting go of those beliefs of identity that spoil the process). In time maturity, but enough for now; life, learning and maturity take time.

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#10) On May 25, 2012 at 1:04 AM, awallejr (81.20) wrote:

Bonds are the prescription for now.

Tell that to Merkel.

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