Its Unfortunate

It is unfortunate that it will take  a larger crisis to spur the EU into action. A few weeks ago it seemed EU officials were getting serious about stemming the crisis. Since then the markets have rallied and that sense of urgency is gone. The stance of EU officials continues to be to hope things get better.

Critics have complained that Italy is doing too little on the austerity front. The proof they cite is the markets. Italy's deficit will only be 4% this year and new austerity measures are supposed to close the deficit completely by 2013. While that may be  too optimistic of a forecast, the deficit will be manageable. No matter what austerity measures Italy passes the market will not be satisfied. The reason is that EU banks are trying to delever and nothing will make them buy Italian debt. Greece is insolvent but Italy is having a liquidity crisis.

France and Italy do not need to go bankrupt but markets can make it a self fulling prophecy. Hopefully, EU officials will soon realize that the cost of inaction is greater than the cost of action.

1 comment:

Anonymous said...

whats unfortunate is what my portfolio looks like after yesterday and today