Several seriously misguided socialist fools sent me links to a Michael Moore video clip appearance on the Rachel Maddow Show. They thought the video was some kind of "proof" that public unions were being mistreated.
Michael Moore is enraged after the Wisconsin State Senate voted to strip public unions of the ability to collectively bargain. Speaking on MSNBC's "Rachel Maddow Show," Moore said "they think they can get away with this."
Moore also calls for a "student walk-out" across the nation on Friday in response to the Wisconsin vote.
"This has to continue day after day and these governors have to step down," Moore declared.
"The rich have committed these crimes and the people will demand your ass is in jail," Michael Moore said with a pair of handcuffs on the set of Maddow's show.
Moore also shocked the audience by telling the rich and bankers that "we have a right to your money!"
Self-Serving Claptrap
Please click on the above link to see the video.
The sad reality is Moore makes hundreds of millions with his self-serving political claptrap and students are all the worse off for it. Student loans and public unions drive up the cost of education.
Moreover, public unions drive up taxes and that is why parents of many of these kids are in serious economic trouble.
European leaders agreed early Saturday to new measures intended to end the euro zone debt crisis, offering the debt-laden Greece a cut in its interest rate and injecting more flexibility into the way a bolstered bailout fund for the euro can be used.
The deal, which went further than had been expected at Friday's meeting of 17 euro zone leaders, came after a fierce dispute over corporate tax — pitting France and Germany on one side against Ireland on the other.
Because of the standoff, Ireland, which like Greece has accepted a bailout from the European Union and the International Monetary Fund, has not been offered a reduction in its interest rate, now about 6 percent.
The early morning agreement came alongside a deal on a pact called for by Germany and France to tighten discipline in the euro zone.
As expected, the current, temporary fund will be extended to allow it to lend its full 440 billion euros ($608 billion). The permanent fund that will replace it in 2013 will grow to 500 billion euros.
Under the latest agreement, the European Union's bailout fund will be able to buy bonds on the primary market but not on the secondary one.
However, those seeking a more comprehensive solution had pressed for more far-reaching changes, such as allowing the bailout fund to extend lines of credit to countries or letting it be able to buy bonds on the secondary market. Those ideas were not accepted.
Greece was given a concession on the length of its loan repayments to 7.5 years and agreed to a package with the European Union under which it would raise around 50 billion euros through privatization to cut its debt.
Trichet's Rulebook Two-Step
In clear violation of the "no-bail-out clause" in the Maastricht Treaty, the group voted to allow the ECB to directly purchase sovereign bonds.
Note that the ECB is is already stuffed with sovereign bonds. It bought them in the secondary market because buying them in the primary market was against the rules.
While the ECB is prohibited from buying assets directly from authorities, it can buy them on the secondary market. Trichet said on May 2 that "at this stage, we have absolutely no decision on the purchase of government bonds."
I said at the time "No Decision" means pussycat-hearted Trichet is considering it. And so it was. "No decision" quickly became a decision, in clear violation of the intent of the treaty.
With strong objections from German central bank president Axel Weber, Trichet started loading up the ECB's balance sheet with garbage.
Now the EU has voted to allow the ECB to buy bonds in the primary market but not the secondary one.
As noted above, this bond buying debacle is not part of the Maastricht Treaty. Thus German voters need to ratify this provision. In effect, German Chancellor Angela Merkel just sold Germany down the river to meet her political goals. She will not survive this.
Euro-area leaders retooled their rescue fund to stamp out the debt crisis, authorizing the facility to spend its 440 billion-euro ($611 billion) capacity and enabling it to buy debt in primary markets, while cutting the cost of bailout loans to Greece.
The officials rejected Ireland's bid for relief as Prime Minister Enda Kenny refused to yield to calls to raise its 12.5 percent company tax rate. The leaders also declined to permit the fund to finance bond buybacks of debt-strapped states.
The accord was unexpected, coming at the end of a session that began after 5 p.m. following daylong talks among the 27 European Union heads on a response to the uprising in Libya. Officials in Germany and France this week said they didn't expect a comprehensive agreement until a summit March 24-25.
In return for the euro region acceptance of her conditions on controlling debt, Merkel swung Europe's biggest economy behind plans to allow greater flexibility and firepower in the EU rescue fund, the European Financial Stability Facility.
With two weeks to the March 24-25 summit endgame, Merkel and Sarkozy clashed with Kenny over corporate taxes. They had insisted on a common corporate tax base as the condition for agreeing to ease the terms of Ireland's 85 billion-euro bailout. Kenny rejected that position, calling it "harmonization of taxes through the back door."
Ireland's main corporate tax rate is 12.5 percent, compared with an EU average of about 23 percent and even higher rates in Germany and France, which it has used to lure companies such as Hewlett-Packard Co.
The European Commission, the EU's executive body, will present a proposal on a common corporate tax base in the coming weeks, the agency said. Ireland will think it over and come back to the rest of the EU within two weeks, Merkel said.
Talks on a deal for Ireland "will be difficult and detailed but I am convinced and remain convinced that there will be that we can find a way forward," Kenny said.
Kenny Holds The Line
Will the real Kenny please stand up? The previous article makes it appear Kenny is about to collapse. A second Bloomberg article below makes it appear otherwise.
Euro-area leaders rebuffed Irish Prime Minister Enda Kenny's bid for easier bailout terms, demanding that Ireland raise tax rates in return, as they rewarded Greece with a cut in its rescue-loan costs.
"We weren't really satisfied yet today with what Ireland pledged," German Chancellor Angela Merkel said after a summit that ended about 1:30 a.m. in Brussels. "We can only offer the interest-rate cut when we have something in return."
Kenny, arriving for his first summit as Ireland's leader, refused to buckle under pressure from Merkel and French President Nicolas Sarkozy as he pushed for relief on the 5.8 percent interest rate the country pays on the 85 billion-euro ($115 billion) rescue package it received in November.
On raising the tax rate, "I made it perfectly clear on many occasions that this is not something that I could or would contemplate and didn't this evening," Kenny said. He said talks would continue through a summit scheduled for March 24-25.
Ireland's main corporate tax rate is 12.5 percent, compared with an EU average of about 23 percent and even higher rates in Germany and France, which it has used to lure companies such as Hewlett-Packard Co. to set up in the country.
"We're not asking Ireland to put up their corporate taxes to the European average, but to make some effort," Sarkozy said.
Raising Corporate Taxes a Foolish Tradeoff
Kenny is a fool for putting himself in this position. Somehow the discussion is about pissy reductions in interest rates in return for unwise corporate tax hikes. The discussion ought to be on how big the haircuts will be. If Kenny comes to his senses, which is by no means certain, he should put the issue of haircuts to a vote.
I think somewhere in the neighborhood of 15 cents on the dollar is about right. If put to a vote, German and French banks would be lucky to see anything at all.
Watered Down Proposals
In spite of all this talk about agreement to a new deal, no real issues were solved.
It makes little difference if the ECB stuffs itself with garbage via the primary or secondary market. Neither way makes any sense.
Moreover, Germany wanted strict rules on raising retirement ages, aligning corporate tax rates and on debt limit enforcement mechanisms.
Instead, "after objections from a host of smaller countries, the proposals were loosened to allow countries to set their own targets. Sanctions are not envisaged, and the commitments nations enter into will be subject to peer pressure instead."
Agreement To Do Nothing
One way to get agreement is to agree to do nothing, which is essentially what happened.
There is no agreement on tax rates, on retirement age, or on sanctions. As before, everything boils down to "peer pressure". Yet one of the reasons Europe is in a mess is that peer pressure does not work.
Also note that we have not yet heard from Irish citizens who will be irate over favoritism to Greece. Perhaps they will force Kenny to get a backbone.
The same applies to Merkel's willingness to play loosey-goosey with German voters and the Maastricht Treaty.
Thus, for all the brouhaha about a "New Deal", nothing has changed except Greece has a slightly lower interest rate, and a few more years in which to "not" pay back its debts. Odds are still high that Greece and Ireland default. The only question is whether default occurs sooner rather than later.
Your Weekly Address: Women’s History Month and Fair Pay
The President pays homage to former First Lady Eleanor Roosevelt, commends the great strides that have been made to create a more equal American society, and reaffirms his resolve to pass the Paycheck Fairness Act.
Earthquake in Japan and Tsunami Preparedness: The President and First Lady express their deepest condolences to the people of Japan as the President meets with senior officials to discuss how the US can help, and how it may affect U.S. states and territories.
Conference on Bullying Prevention: The President and First Lady host the first-ever White House Conference on Bullying Prevention dispelling the myth that bullying is just a harmless rite of passage or an inevitable part of growing up. See their video message on the issue.
Chat About America's Great Outdoors: Join Secretary of Agriculture Tom Vilsack and Secretary of the Interior Ken Salazar for a live chat about conservation and getting involved.
A New Voice for Students: The Consumer Financial Protection Bureau (CFPB) creates an office for students to provide you with tools for you to make the best decisions about credit.
It costs a ton of time and money to go to something like SXSW. Other than having a blast, why go?
Here's an interesting way to think about it, something I've used to change the way I attend events (I don't do many, and won't be there, so have fun without me):
Think back a year ago to the last time you went. What do you remember?
Do you remember the presentations that were later on videotape? Do you remember the special screenings of movies? Do you remember the crowded cocktail parties? Bumping into a net celebrity? I don't.
So I don't do them. At the last TED, I didn't attend a single session. They're fabulous, but I can always watch them later, on video.
Instead, I focus on what I do remember: the engaged conversations. The one on one discussions of what someone is working on. Helping a friend design a book cover or solve a thorny entrepreneurial problem. Sneaking out to go to a taco stand for lunch with a very cool CEO...
These are the reasons it is worth going. (At least for me). So do more of that, I think.
This isn't easy to do. Most conferences are organized around mass, not around individual interactions that last. It takes an effort to seek out conversations that matter.
Will people miss you if you don't show up next year? Why?
Some people work overtime to make their jobs smaller.
If your job is smaller you're less likely to make a mistake and more likely to please your boss.
But that's a pretty dumb bargain. You're exchanging your upside, energy, opportunity, growth and excitement for the freedom from thinking and a decrease in self-induced anxiety.
Food prices continue to soar in China and the overall prices are up 4.9% officially. Nonetheless, the Chinese central bank has ruled out currency appreciation and has also ruled up curtailment of credit.
China's February inflation stayed elevated on a double-digit rise in food prices, adding to pressure for communist leaders to cool surging living costs they worry could fuel unrest.
February consumer prices rose 4.9 percent while food price inflation accelerated to 11 percent from January's 10.3 percent increase. That exceeded Beijing's 4 percent target for the year and defied forecasts by analysts who expected the rate to ease.
Inflation, especially in food prices, is dangerous for China's leaders because it erodes economic gains that underpin the Communist Party's claim to power. Poor Chinese families spend up to half their incomes on food.
Speaking at a news conference held in connection with the annual meeting of China's legislature, central bank governor Zhou Xiaochuan said inflation is stable, though at a "relatively high level."
Zhou ruled out major changes in credit or exchange rate policy. Analysts say Beijing has fueled inflation by keeping interest rates too low to ward off the global crisis and could cut import costs by letting its tightly controlled currency rise faster against the dollar.
"The main instrument for managing inflation is not the exchange rate regime," Zhou told reporters. He added later: "When we make adjustments to interest rates we cannot think about the consumer price index only. We have other objectives, such as the impact on liquidity in the market."
Beijing has tried to mollify the public by paying food subsidies to poor families and ordering local leaders to see vegetable markets have adequate supplies.
China's Impossible Dream
China does not want to hike rates
China does not want to curtail bank lending
China does not want the Yuan to rise
China does not want inflation to exceed 4%
China does want 7-10% growth
China is going to overheat to the point of implosion unless it does something it does not want to do. Sustained 10% growth, or even 7% growth is no longer possible.
China refuses to come to grips with that reality. Instead, Chinese banks keep making real estate loans for properties no one can afford and no one even lives in.
Central Planning Idiocy
So, what does China do to curb inflation?
Increase food subsidies
Orders vegetable markets have adequate supplies
That is so funny. It is also typical of central planning buffoons.
The only way to ensure adequate supply is to let the free market set prices. Otherwise, if prices are set too low there will be shortages, and if set too high there will be an abundance of sellers willing to supply the government with produce.
Ordering vegetable markets to have adequate supplies shows stunning ignorance about simple supply/demand issues.
A ferocious tsunami spawned by one of the largest earthquakes on record slammed Japan's eastern coast Friday, killing hundreds of people as it swept away ships, cars and homes while widespread fires burned out of control.
Hours later, the tsunami hit Hawaii but did not cause major damage. Warnings blanketed the Pacific, putting areas on alert as far away as South America, Canada, Alaska and the entire U.S. West coast. In northeastern Japan, the area around a nuclear power plant was evacuated after the reactor's cooling system failed.
Police said 200 to 300 bodies were found in the northeastern coastal city of Sendai, the city in Miyagi prefecture, or state, closest to the epicenter. Another 137 were confirmed killed, with 531 people missing. Police also said 627 people were injured.
The magnitude-8.9 offshore quake unleashed a 23-foot (seven-meter) tsunami and was followed for hours by more than 50 aftershocks, many of them of more than magnitude 6.0.
Dozens of cities and villages along a 1,300-mile (2,100-kilometer) stretch of coastline were shaken by violent tremors that reached as far away as Tokyo, hundreds of miles (kilometers) from the epicenter. A large section of Kesennuma, a town of 70,000 people in Miyagi, burned furiously into the night with no apparent hope of being extinguished, public broadcaster NHK said.
The quake was nearly 8,000 times stronger than one that struck New Zealand late last month, devastating the city of Christchurch.
"The energy radiated by this quake is nearly equal to one month's worth of energy consumption" in the United States, U.S. Geological Survey Scientist Brian Atwater told The Associated Press.
Even for a country used to earthquakes, this one was of horrific proportions because of the tsunami that crashed ashore, swallowing everything in its path as it surged several miles (kilometers) inland before retreating. The apocalyptic images on Japanese TV of powerful, debris-filled waves, uncontrolled fires and a ship caught in a massive whirlpool resembled scenes from a Hollywood disaster movie.
A giant whirlpool, an airport inundated by tsunami waves, and a refinery ablaze are among the myriad images coming out of Japan after a massive earthquake hit off the coast of the heavily populated island of Honshu on Friday.
Among the videos from Japanese television posted via YouTube by the Associated Press and the Daily Telegraph (see below): muddy waves taking over the runways of the Sendai Airport, flames engulfing a refinery, and a giant whirlpool formed off the island's east coast.
Tsunami Strikes Airport
URL if above video does not play: http://www.youtube.com/watch?v=6FvJ62qvLBY&feature=player_embedded#at=19
Refinery Burns After Japan Earthquake
URL if above video does not play:http://www.youtube.com/watch?v=hK6uOU6Z0hQ&feature=player_embedded
Houses are swept by water following a tsunami and earthquake in Natori City in northeastern Japan March 11, 2011.
Vehicles are crushed
Vehicles are crushed by a collapsed wall at a carpark in Mito city in Ibaraki prefecture, Honshu island, after a huge earthquake rocked Japan on Friday
People watch aftermath covering port
People watch the aftermath of tsunami tidal waves covering a port at Kesennuma in Miyagi Prefecture, northern Japan, after strong earthquakes hit the area Friday, March 11, 2011.
Scientist points to seismograph
A scientist points to a seismograph registered for the 8.9-magnitude earthquake in Japan.
Houses swept out burn
Houses swept out to sea burn following a tsunami and earthquake in Natori City in northeastern Japan March 11, 2011
Japan Quakes Force Evacuation Near Reactor; Oil Refinery Burns
Residents near a Tokyo Electric Power Co. nuclear reactor were ordered to evacuate because of a possible radiation leak as Japan's strongest earthquake in a century shut power plants and oil refineries.
Millions of homes were without electricity as utilities shut 11 nuclear power reactors. The shutdowns amount to about 20 percent of Japan's 4.6 million barrels a day refining capacity and about 20 percent, or 12 gigawatts, of Japan's total installed nuclear capacity, Sanford C. Bernstein analysts including Neil Beveridge said in a note today.
Tokyo Electric shut seven reactors at its Fukushima Daiichi and Daini atomic plants while three reactors at Tohoku Electric's Onagawa station were halted, the trade ministry's Nuclear and Industrial Safety Agency said in the e-mailed statement. Japan Atomic Power shut the No. 2 reactor at its Tokai plant, the agency said.
European reinsurers stocks fell sharply Friday on the prospect of being hit by big losses after a powerful earthquake with a magnitude 8.9 struck Japan, causing damage in Tokyo and sending a tsunami toward the country's northeastern coast and Pacific Rim countries.
Shares in Munich Re, the world's largest reinsurer, were 4.7% lower at €111.30 ($153.47), Hannover Re was down 4.2% at €39.13. In Zurich, Swiss Re, the second-largest reinsurer worldwide, plunged 5% to 50.90 Swiss francs ($54.61). Scor, a French reinsurer, fell 4% to €19.49.
Reinsurance stocks dropped much more than those of primary insurers. That was because reinsurance companies typically act as insurers of last resort for their clients, primary insurers. This means that in the event of a big natural catastrophe they often take the bulk of the losses, as their insurance clients can claim some of their costs back from them.
This year has already seen a higher-than-usual number of costly natural catastrophes. The recent earthquake in Christchurch, New Zealand alone could cost the insurance industry up to $12 billion, Swiss Re estimated.
Siwss Re expects its own pre-tax loss from the New Zealand earthquake to be around $800 million. Coming on top of floods in Australia recently, this means the reinsurer has pretty much used up the $1 billion budget for big natural catastrophes after little more than two months into 2011.
Swiss Re has market exposure in Japan and investors are worried about big losses, said Georg Marti, an analyst with Zuercher Kantonalbank. Swiss Re said it was too early to comment, while Zurich Financial Services AG said it was too early to provide estimates.
Best wishes to all my friends in Japan and anyone affected by this tragedy.
Leaders of 17 eurozone countries meet on Friday in Brussels to discuss the sovereign debt crisis and the stabilization pact, but don't expect much of anything to come from it. Instead, expect to see a lot of bickering interspersed with agreements to agree on non-critical issues.
Faced with financial turmoil that has resisted every emergency fix the European Union has adopted, European leaders are considering a radical step: giving up some of their independence to set domestic economic policies and cutting back many of the wage and welfare benefits that have defined the region's politics for decades. In return, the European Union would provide funds to shore up the weakest member states, including Portugal, Greece and Spain.
The proposals, originally pressed by the newly assertive German chancellor, will be debated Friday in what is expected to be a contentious session of the leaders of the 17 countries that use the euro.
Germany is calling for several measures: raising retirement ages to reduce the burden on pension funds, ending the linking of wages to increases in the cost of living, committing to debt reduction and submitting to a level of budget scrutiny that was until recently considered anathema — and is still viewed by many as a step too far.
But a comprehensive deal will be difficult to reach. The proposals under debate now have already been watered down from a more robust program of integration and monitoring first put forward by Germany, and will be subject to further negotiation before a full European Union summit meeting on March 24-25, two days before an important German state election.
Among the measures it is pressing is an agreement to raise retirement ages closer to Germany's, where access to government pensions begins at age 67, well above the European average. Germany would also like others to stop pegging wage increases automatically to inflation. That is a necessary step if wages are to shrink in absolute terms, which some economists argue is necessary if bitter medicine to inject some competitiveness into the economies of Europe's southern tier.
The Germans would also force private bondholders who bought the high-yielding debt of the most troubled euro-zone countries to bear part of the burden if countries defaulted or needed to restructure their debt — and not be protected by taxpayers.
The most important is a "permanent regime" — the so-called European Stability Mechanism, which will replace the temporary bailout fund called the European Financial Stability Facility, set up during the Greek crisis last May. That fund ends in June 2013, and the Germans want a permanent fund of perhaps 500 billion euros ($695 billion) to show the markets that the euro zone is prepared for future problems.
But that fund must also show Germans that private investors will not be bailed out by taxpayers, that no country will assume the debts of another and that there will be collateral offered and penalties for bad behavior.
German officials contend that commitments remaining in the pact are important, that retirement ages and benefit systems should be adjusted to fiscal and demographic realities and that each country must find a way to make debt limits binding, as Berlin has done.
Mrs. Merkel is insisting that all three levels represent a package, and that there will be no increase even in the temporary bailout fund unless there is a deal on the pact.
With sovereign debt spreads and yields exploding to record highs in Greece, Portugal, Ireland and Spain, how much longer the ECB and EU can get away with its fairy tale fantasy of no sovereign debt haircuts remains to be seen, but the market has expressed its opinion loud and clear already.
ECB Stuck in Sovereign Garbage, Looks for German Bailout
German central bank president Axel Weber did not want the ECB buying sovereign debt. ECB president Jean-Claude Trichet went ahead anyway. Now the European Central Bank Wants to Unload PIIGS Bonds and expects the EU Rescue Fund to bail out the central bank.
During the crisis, the European Central Bank began buying up bonds from debt-ridden countries like Greece. Now the bank wants to transfer responsibility for those securities to the EU's euro rescue fund. Meanwhile, the parliamentary group of German Chancellor Angela Merkel's conservatives have issued a resolution opposing such bond purchases.
At the peak of the debt crisis in Europe, the European Central Bank committed a break with tradition that many at the time considered to be a cardinal sin. The bank began buying up massive amounts of sovereign bonds from euro-zone countries that faced the risk of insolvency and which were having trouble selling their bonds on the public market.
Calls are being led by ECB President Jean-Claude Trichet of France, who wants to free the bank of the burden, the sources said. The ECB is seeking to transfer a package of bonds valuing a total of €77 billion ($107.5 billion), but so far the member states have expressed little enthusiasm for the idea.
Senior members of parliament in Merkel's CDU, its Bavarian sister party the Christian Social Union (CSU) and the business-friendly Free Democratic Party (FDP), are already warning the chancellor not to take their message lightly. "We have made it clear that we reject any form of a buying program for state bonds -- there is no room for interpretation," said Michael Meister, deputy chairman of the joint CDU and CSU party group in parliament.
Initially, firmer language had been planned in the resolution, with a call for an explicit ban on such bond purchases. But after Merkel intervened and went to the chairman of the parliamentary group, Volker Kauder, the language was watered down. Instead of a blanket ban, the parliamentary group states only that it "expects" such a ban to be implemented.
The CDU's Meister, however, cautioned that the implementation of any deal would still require the approval of both Germany's federal parliament, the Bundestag, as well as the Bundesrat, the upper legislative chamber that represents the states and also has the right of co-determination on many important issues. Merkel's coalition government does not currently hold a majority in the Bundesrat. "The federal government would be well advised not to disappoint us too much," he said.
Michael Fuchs, likewise a deputy chair of the conservatives' parliamentary group, has also expressed his opposition to such bond-buying programs. He warned that Greece cannot become the model for how European countries can "inexpensively dispose of part of their debt."
Meanwhile, FDP finance expert Hermann Otto Solms has said he is also "strictly opposed to allowing the rescue fund to provide loans to indebted nations to buy back their state bonds." He said it was questionable whether such actions could be reconciled with Germany's constitution. "What is being proposed here is nothing other than a transfer union through the back door," Solms claimed.
Trichet's Self-Imposed Problem
My opinion, not that it matters, is easy to explain: Trichet foolishly bought the bonds, he can sell them if he no longer wants them. By the way, precisely what good did it do to buy them?
Before you answer, recall the goal was to reduce sovereign debt yields. Here are a few charts I created last evening.
Greek 10-Year Bonds
click on any chart for sharper image
Irish 10-Year Bonds
Portuguese 10-Year Bonds
Spanish 10-Year Bonds
Anger in Greece, Ireland
I keep waiting for Ireland to tell the EU and ECB where to go. With anger rising in Irish citizens, hopefully we will see some action. The Telegraph reports EU paralysis drives fresh bond rout
Portugal edged closer to the brink yesterday, having to pay almost 6pc to raise two-year debt. The yield on 10-year bonds briefly surged to 7.8pc after the Chinese rating agency Dagong downgraded the country's debt to BBB+.
"These levels of interest rates are not sustainable over time," said Carlos Costa Pina, secretary of the Portuguese Treasury, blaming the latest upset on the lack of a coherent EU debt strategy rather any failing by Portugal to deliver on austerity.
Mr Costa Pina rebuffed calls by leading economists in Portugal for an EU-IMF bail-out rather than drawing out the agony. "It is not justified. Portugal doesn't need external help, it needs urgent measures by the EU to restore market confidence."
There is no sign yet that Germany, Holland, and Finland will agree to expand the remit of the bail-out fund (EFSF), letting it buy the bonds of debtor states pre-emptively, or lend to these countries so that they can buy back their own debt in a "soft-restructuring".
If anything, the mood is hardening in Germany. The regional Länder have begun to demand a say over any EFSF deal. Hesse's justice minister Jörg-Uwe Hahn said he "categorically rejects" all moves to an EU 'Transferunion', debt pool, or fiscal fusion.
The Greek crisis is going to from bad to worse. Ten-year yields spiked to 12.78pc yesterday and unemployment jumped sharply to 14.8pc in December, a reminder that the social trauma of austerity has yet to hit.
Greece is undergoing the harshest fiscal squeeze ever tried by a modern Western economy, yet public debt will end above 150pc of GDP by 2013 even if it complies with EU-IMF terms. "We should default and return to the Drachma to punish foreign loan sharks who have bled us dry," said Avriani, a paper linked to the ruling PASOK party.
There was similar anger in Ireland yesterday where Socialist MP Joe Higgins denounced "the poisonous cocktail of austerity concocted by the witchdoctors in Brussels and in Frankfurt".
Premier Enda Kenny said Ireland was at "the darkest hour before the dawn." He has so far played down talk of a clash with Germany over the terms if Ireland's bail-out, but Irish politics may force him to default on senior bank debt if the EU refuses to yield.
Chancellor Angela Merkel and I will never let the euro down, never," President Nicolas Sarkozy said at the World Economic Forum in Davos. "To those who want to bet against the euro, watch your money, because we are fully committed to defend the euro, in a structural way."
Now, both France and Germany must walk the talk. Still, the question remains: How?
Except for wartime and its immediate aftermaths, the public finances of most eurozone countries are in a worse state today than at any time since the Industrial Revolution.
In the United States, the 2010 midterm elections occurred in a single day. In Germany, a series of seven elections in the 16 federal states is a multi-month marathon, which will continue until September 2011.
The outcome of these elections will determine the composition of the Bundesrat, the country's upper legislative chamber. As a result, it will have a direct impact on Angela Merkel's ability to conduct policy — in Germany and in the euro area.
The current polls do not favor Merkel's Christian Democratic Union (CDU) and its coalition partner, the Free Democratic Party (FDP), whose support has already collapsed from almost 15% to less than 5% in barely two years.
As the government is increasingly divided about what to do next about the euro, coalition lawmakers are distancing themselves from the government. While Merkel's former coalition partner, the social-democratic SDP, has signaled that it is more prepared to undertake the steps necessary to advance the cause of European economic integration, its voters — like those of Merkel's CDU — might beg to differ.
During the past few weeks, Chancellor Merkel and President Sarkozy have advocated the so-called Pact for Competitiveness. The controversial plan essentially conditions the financial support of the large euro economies on structural reforms in troubled euro nations. The plan has backfired, due to the proposed harmonization of tax rates (which alienated Ireland), debt containment (which angered the deficit-countries) and the adjustment of retirement ages (which estranged most of the euro area).
Except for wartimes and immediate aftermaths, the public finances of most eurozone countries are in a worse state today than at any time since the Industrial Revolution.
The eurozone crisis also poses penetrating questions about the sustainability of the welfare model, which has been funded at the expense of the living standards of future generations.
Indeed, it is sobering to keep in mind that even if the global crisis had been averted, the average net debt for the G7 economies would have been 200% of GDP by the early 2030s and more than 440% by 2050, as estimated by the IMF.
What cannot be paid back won't.
Thus, regardless of what Trichet, the ECB, or EU may want, Greece, Ireland, and Portugal are likely to default. The sooner that happens the better off Europe will be.
Thus, the one thing that makes the most sense is to restructure the debt and make senior bondholders pay the price. Unfortunately that is the one thing the ECB is foolishly attempting to prevent.
The ECB compounded its problems by unwisely purchasing sovereign debt hoping to stabilize yields. As a direct result it is stuck in PIIGS debt with yields exploding out of sight. This is the price of Hubris but don't expect central bankers to learn a damn thing from it.
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