Lurching Toward Recapitalization and
a Subsequent Default by Spain and Italy
US Treasury Secretary Tim Geithner said today that the plan the European Union presented to the G20 partners contains the "right elements" for dealing with the European debt crisis. His statement said it provided "encouraging news" and a "much more substantial firewall" as well as "sustainable interest rates," and "a broad recapitalization of banks" and "further support for a sustainable program in Greece."
Geithner said adamantly that the International Monetary Fund has adequate resources without expansion. This is important as previous news stories have discussed additional funds be added to the IMF from the United States, Germany, China and Australia. Geithner has also suggested that western economies stimulate growth and China loosens controls on its currency.
More at: http://economictimes.indiatimes.com/news/international-business/european-debt-crisis-plans-contain-right-elements-us-treasury-secretary-tim-geithner/articleshow/10369083.cms
Spain’s credit rating has been downgraded from AAA to AA. The Eurocrats and the European Financial Stability Facility (EFSF) do not have the resources to combat the default of a major economy like Spain or Italy, let alone both.
A small upcoming default from Greece is not being met with vigor and wisdom by the German and French financial sectors. They need to tell the Greeks to go back to the basis of their own soft currency, the drachma, or show the financial stability of their government by carrying through with tough decisions about the financial irresponsibility of that government. This tough talk is not being made forcefully. Greece is unable to tighten its belt enough to meet the standards because of political unrest.
Therefore the crisis is only beginning, and with further guarantees provided to Greece, Spanish and Italian defaults will be more probable. Should those happen, the IMF would be unable to assist without great additional funding, especially from Germany, the United States and China. Geithner is saying the IMF has enough resources to resolve the problem – what he meant by that is that the IMF has enough resources to resolve the current problem, assuming there is no escalation from a bank default by a larger Euro member.
Geithner is effectively bluffing. The United States has its own financial problems, and these are in the hands of a "supercomittee" of extremely partisan hacks, selected for their stubbornness and lack of ability to compromise. It’s unlikely that there will be any agreement on US federal cost cutting, and when that happens later this fall, so the alternative will be percentage cuts department-by-department. It will be interesting to see how these cuts affect Social "Security" and Medicare. The United States will undergo a financial tempest in a teapot that will continue through 2012 and the presidential election. No American money will flow to the IMF or to the irresponsible Euro nations along the Mediterranean. Geithner is covering for this by asserting that the IMF has enough resources as it stands.
He’s not being very candid. Although America is in a box, Geithner wants to look strong and calm.
The Europeans who are in the driver's seat -- France and Germany -- aren't winning any awards for financial wisdom, either. By kicking the can down the road, they invite a Spanish or Italian default, or both, which invite a continental banking and currency crisis.
a Subsequent Default by Spain and Italy
US Treasury Secretary Tim Geithner said today that the plan the European Union presented to the G20 partners contains the "right elements" for dealing with the European debt crisis. His statement said it provided "encouraging news" and a "much more substantial firewall" as well as "sustainable interest rates," and "a broad recapitalization of banks" and "further support for a sustainable program in Greece."
Geithner said adamantly that the International Monetary Fund has adequate resources without expansion. This is important as previous news stories have discussed additional funds be added to the IMF from the United States, Germany, China and Australia. Geithner has also suggested that western economies stimulate growth and China loosens controls on its currency.
More at: http://economictimes.indiatimes.com/news/international-business/european-debt-crisis-plans-contain-right-elements-us-treasury-secretary-tim-geithner/articleshow/10369083.cms
Spain’s credit rating has been downgraded from AAA to AA. The Eurocrats and the European Financial Stability Facility (EFSF) do not have the resources to combat the default of a major economy like Spain or Italy, let alone both.
A small upcoming default from Greece is not being met with vigor and wisdom by the German and French financial sectors. They need to tell the Greeks to go back to the basis of their own soft currency, the drachma, or show the financial stability of their government by carrying through with tough decisions about the financial irresponsibility of that government. This tough talk is not being made forcefully. Greece is unable to tighten its belt enough to meet the standards because of political unrest.
Therefore the crisis is only beginning, and with further guarantees provided to Greece, Spanish and Italian defaults will be more probable. Should those happen, the IMF would be unable to assist without great additional funding, especially from Germany, the United States and China. Geithner is saying the IMF has enough resources to resolve the problem – what he meant by that is that the IMF has enough resources to resolve the current problem, assuming there is no escalation from a bank default by a larger Euro member.
Geithner is effectively bluffing. The United States has its own financial problems, and these are in the hands of a "supercomittee" of extremely partisan hacks, selected for their stubbornness and lack of ability to compromise. It’s unlikely that there will be any agreement on US federal cost cutting, and when that happens later this fall, so the alternative will be percentage cuts department-by-department. It will be interesting to see how these cuts affect Social "Security" and Medicare. The United States will undergo a financial tempest in a teapot that will continue through 2012 and the presidential election. No American money will flow to the IMF or to the irresponsible Euro nations along the Mediterranean. Geithner is covering for this by asserting that the IMF has enough resources as it stands.
He’s not being very candid. Although America is in a box, Geithner wants to look strong and calm.
The Europeans who are in the driver's seat -- France and Germany -- aren't winning any awards for financial wisdom, either. By kicking the can down the road, they invite a Spanish or Italian default, or both, which invite a continental banking and currency crisis.
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