Wall Street Journal (March 28)Wall Street Journal (March 28)
“Squabbling over the difference between €500 billion and €740 billion looks a lot like deck-chair management.” How big should the European Stability Mechanism (ESM) be? Angela Merkel now supports expanding the bailout fund to €700 billion from €500 billion. The European Commission seeks even more. “Even if the ESM had the €940 billion that the Commission wants, the fund still won’t likely be big enough to save Spain and Italy if they end up asking for rescue. The financing needs of Madrid and Rome alone are likely to top €1.2 trillion over the next two years.” “Squabbling over the difference between €500 billion and €740 billion looks a lot like deck-chair management.” How big should the European Stability Mechanism (ESM) be? The current €500 billion appears insufficient. Angela Merkel now supports expanding the bailout fund to €700 billion from €500 billion. The European Commission seeks even more. “Even if the ESM had the €940 billion that the Commission wants, the fund still won’t likely be big enough to save Spain and Italy if they end up asking for rescue. The financing needs of Madrid and Rome alone are likely to top €1.2 trillion over the next two years.”
Washington Post (September 27)
“If Europe goes bankrupt, taking the rest of the world down with it, it won’t be for a lack of ideas about how to fix the continent’s sovereign-debt mess.” Yet, Germany has applied the brake to any number of fixes. It looks like the price for this inaction will be “a brutal, global recession.” Hopefully, Europe’s leaders can still avert this by demonstrating “clearly and convincingly that they have a plan for restructuring insolvent countries (e.g., Greece) while shoring up salvageable ones (e.g., Italy and Spain).”
The New York Times (September 12)
Nobel Prize winning economist Paul Krugman believes “the euro is now at risk of collapse.” He warns that “we’re not talking about a crisis that will unfold over a year or two; this thing could come apart in a matter of days. And if it does, the whole world will suffer.” To avoid “an impeccable disaster,” Krugman believes the European Central Bank (ECB) must “lend freely and cut rates.” In addition, the ECB should be “buying up Spanish and Italian debt — that is, doing what these countries would be doing for themselves if they still had their own currencies.”
The Economist (August 20)
Europe’s leaders and, in particular, Angela Merkel correctly sense the lack of domestic support needed to fix the euro zone crisis. What they overlook is the need to cultivate this support. Half-measures will not work and a euro zone collapse would be damaging. “The current rescue plan for the euro is just not working. The markets continue to price in default…. A year ago it was said that the euro zone could take care of two or three small countries but that Spain was too big to fail. Today, with Italy and even France looming into the picture, the very survival of the euro is coming into question.”
Bloomberg (July 12)
In Europe, contagion is spreading from Greece. “Exploding bond yields in Italy and Spain brought the crisis closer to the heart of the euro area.” Europe’s leaders now look prepared to reconsider measures they had previously ruled out, such as buying back Greek debt at a discount. Whether they can avert disaster remains to be seen. Italy felt the brunt of the expanding crisis as 10-year bonds rose 326 basis points over Germany’s, “a euro-era high.”
