Euro and climate change
April 28, 2010 § Leave a comment
The comparison is educational. The fiancial ecology is coming apart. MAHB has a lot to learn from the way this is happening, and the continuing and potential contotinuing dominance of the financial institutions in keep ing their balance while the rest lose theirs..
By Simon Johnson, co-author 13 BankersMost days we can coast along, confident that tomorrow will be much like yesterday. On a very few days we need to look hard at the news headlines, click through to read the whole story, and then completely change a large chunk of how we thought the world worked. Today is such a day.Everything you knew or thought you believed about the European economy – and the eurozone, which lies at its heart – was just ripped up by financial markets and thrown out of the proverbial window.While you slept, there was a fundamental repricing of risk in financial markets around Europe – we’ll see shortly about the rest of the world. You may see this called a “panic” and the term conveys the emotions involved, but do not be misled – this is not a flash in a pan; financial markets have taken a long hard view at the fiscal and banking realities in Europe. They have also looked long and hard into the eyes – and, they think, the souls – of politicians and policymakers, including in Washington this weekend.The conclusion: large parts of Europe are no longer “investment grade” – they are more like “emerging markets”, meaning higher yield, more risky, and in the descriptive if overly evocative term: “junk”.This is not now about Greece with 2 year yields reported around 20 percent today or Portugal up 7 basis points or even Spain 2 year yields up 27 basis points; wake up please or even Italy up 6 basis points. This is no longer about an IMF package for Greece or even ring fencing other weaker eurozone economies.This is about the fundamental structure of the eurozone, about the ability and willingness of the international community to restructure government debt in an orderly manner, about the need for currency depreciation within or across the eurozone. It is presumably also about shared fiscal authority within the eurozone – i.e., who will support whom and on what basis?It is also, crucially, about stabilizing the macroeconomic situation without resorting to more unconditional bailouts. Bankers are pounding tables all across Europe, demanding that governments buy out their position – or bring in the IMF to do the same. We again find ourselves approaching the point when the financial sector will scream: rescue us all or face global economic collapse.The White House did not see this coming – and the Treasury’s attention was elsewhere. The idea that we can leave this to the Europeans to sort out is an idea of yesterday. Today is very different and much more scary.President Obama is wide awake and working hard. Someone please tell him what is really going on.