Wednesday, June 1, 2011

"We really are in meltdown territory"

Euros all in a row... Look, ma! No solvency!
Krugsandra claims that we are in a slow-motion run on European banks and the center cannot hold.  Citing a column by Martin Wolf (free reg. required) he asserts that
The Bundesbank is already very upset about its large claims on troubled debtors, which are backed by sovereign debt as collateral. Yet if financing stops in the wake of a debt restructuring, the result will be to collapse the debtor nations’ banking systems, a process Martin believes would lead to their ejection from the euro. (He makes me look like an optimist!)
Germany continues to fund the shortfalls in other Eurozone nations through the productivity of it's economy.  But this cannot last.  Eventually, sovereignty will win out, even in Eurocentric Germany.  And when that happens, it's game over.  The rise of anti-European right-wing parties in France and Denmark is a foreshadowing of what is to come, even in Germany.

Wolf writes that
Government insolvencies would now also threaten the solvency of debtor country central banks. This would then impose large losses on creditor country central banks, which national taxpayers would have to make good. This would be a fiscal transfer by the back door. Indeed, that this is likely to happen is quite clear from the striking interview with Lorenzo Bini Smaghi, a member of the board of the European Central Bank, in the FT of May 29 2011.
Capitalism on the precipice.  Will Marx be vindicated in the end?  Stay tuned!

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