The Euro Hangs In

Not only did European markets hang in well given the late day drubbing on Friday and the "bad news" out of the G-20 but the Euro, everybody's favorite short position, has moved back to the flatline.

The "bad news" I refer to is the fact that the European countries are refusing the Greenspan/Bernanke solution of spending and printing their way out of debt. Instead they are choosing to get their budgets in order, much to the chagrin of Tim Geithner. Imagine that, people willing to take some pain now in order to secure a better future.

3 comments:

PJ said...

They waited until their interest rates were going up due to solvency concerns to start becoming fiscally responsible.

I suspect the US will start moving toward fiscal responsibility at exactly the same moment.

They are maximizing their ability to borrow. Europe has to lower deficits in order to maintain access to credit. The US is a year away from that.

Tsachy Mishal said...

Germany certainly did not need to cut their deficit as their borrowing costs have plunged yet they chose to.

PJ said...

Germany had/has a huge problem in that their banks are holding huge amounts of sovereign debt from other European countries. They are going to need huge bailouts. Germany needs to prepare for future needs, and also to persuade the rest of Europe to be fiscally disciplined in order to save its banks.

Germany negotiated fiscal austerity across Europe in exchange for its participation in the recent bailout. The situation still remains unstable however. It's not clear austerity will fly politically in many countries. These deals could come unravelled. And continued economic declines will make even stringest austerity insufficient to close deficits.