Come to Think of It.

New York. 24 June 2011.

The markets were hit by stunning news yesterday.

Imagine this: the Europeans decided to bail out Greece.

Wow. Nobody saw that coming.

The market was so impressed that it rallied on the news.

The Dow rallied to end down only 50 points or so in spite of more bad news on the domestic front.

When will Wall Street and the City of London get it?

The euro is here to stay.

Even Greece, Ireland and Portugal welcome the euro.

So do the Germans.

I explained why in a paper 10 years ago (available upon request) which should be revisited by any eurosceptic.

In a nutshell, the euro brings fiscal discipline, monetary discipline and free market reforms.

In the past, Greece would have defaulted, devalued and continued business as usual.

Instead, today, Mr Papandreou has the great fortune to be able to use the European pressure to impose modernisation on his reluctant fellow Greeks.

If only we had such a mechanism at home!

We would not be spending money like a drunken sailor.

We would not be printing money like there is no tomorrow.

And we would stop interfering with market forces.

Come to think of it, this is perhaps why we like to attack the euro.

After manipulating the bond market, the currency, the mortgage market, the car industry, the “clean” energy industry, the banking sector and now the oil price, having the Europeans becoming the standard bearers of the free market is maybe too much to swallow.

Forget Greece

New York. 21 June, 2011.

As the world is trying to cope with unsustainable debt and a trade war through currency devaluations, every now and then bulls try to distract the public about the causes of our enduring misery.
An easy distraction is Greece.
Here we go again: is Greece going to default?
Will the Greeks have to drop out of the euro?
Are Ireland, Portugal and Spain next in line?

The answers are no, no and no.
In the Anglo Saxon countries there is a total misperception of Europe’s commitment to the euro.
The European politicians all know that the end of the euro is the end of the European construction.
Which is bad in itself.
More importantly, it also would mean the end of their careers.
In short: as long as the European union is popular among the voteras, politicians will not let the euro go.

But, what about market forces?
Obviously, the first bailout package is already discredited.
So, how will Europeans once again avoid a run on the euro?
Reading the news, the answer here again seems obvious to me.
But nowhere have I seen it mentioned: the Greeks are defaulting secretly.

Everybody knows the Greek government will have to default on its debt.
However, if they do, Monsieur Trichet fears the euro will unravel.
So, Frau Merkel finally agreed with Sarkozy’s shrewd plan last week.
She declared that the private sector is encouraged to negotiate voluntary cuts.
Considering that the banks in Germany and France have all been bailed out and de facto answer to their governments, the word voluntary is quite humorous.
Anyway, Greece will not default.
And in a year from now we’ll learn that European banks have voluntarily taken a major cut on their Greek debt.
CQFD.
Stay away frome Credit Agricole.