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Crisis deepens as traders bet against the euro
Markets want to know what Portugal, Ireland, Greece and Spain plan to do about their deficits
The US Dow Jones index has closed below 10,000 for the first time since November on growing concerns that deficit problems in the European PIGS - Portugal, Ireland, Greece and Spain - could derail any economic recovery.
It's a sign of the deepening crisis in Euroland, which analysts say could be the worst to strike European monetary union since its launch in 1999, and it comes as investors lose confidence that the single currency is robust enough to withstand a serious financial crisis.
According to the FT, global currency traders have bet nearly $8bn against the euro - the biggest ever short position in the history of the single currency. The markets, which abhor economic or political uncertainty, want to know how these peripheral states plan to tackle their problems.
They fear the PIGS do not want to acknowledge or come to terms with the extent of their financial dysfunction. Greece, for instance, is running a budget shortfall of 12.7 percent of GDP - nearly 10 per cent over the bloc's three per cent limit.
The fiscal emergency presents a problem for central bankers at this week's European Union summit in Brussels. They fear that publicly addressing the problem of defaulting PIGS may only exacerbate a difficult situation.
The PIGS are adopting strikingly different positions. Spain, for example, claims simply that the media is stirring up the trouble. Jose Blanco, Spain's public works minister, lashed out at "financial speculators" and "apocalyptic commentaries". He said: "Nothing that is happening in the world, including the editorials of foreign newspapers, is casual or innocent."
Publicly at least, Greece is resistant to any outside assistance. "We are trying to implement a very difficult stability and growth program to which we are fully committed," Greek finance minister George Papaconstantinou said yesterday. "The worst possible signal which we could be sending out is one calling for outside help."
Yet the question certain to be on EU president Herman Van Rompuy's mind is why Greece, Ireland and Portugal - all countries that have benefited from billions in regional aid - are in a worse situation than ever in terms of competitiveness.
"It's very important to address this," says Jose Manuel Barroso, European Commission president. "We have to concentrate on the quality of public expenditure."
Yet that carries grave political risk. If exposure heightens the risk of Greece defaulting on its debts, and that in turn triggers a contagion through the weaker members of the Eurozone, then investors may come to see the euro itself as fatally flawed without further fiscal and political integration.
"For monetary union to survive, it has to become political union," Gerard Lyons of Standard Chartered tells the BBC. "Monetary union needs fiscal union." And that, the BBC notes, is "a stick of dynamite." ·
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1. Lots of British banks are heavily committed in the PIIGS. This will further damage our economy.
2. We have guaranteed the banks as taxpayers. Already we are in serious debt and this is increasing every day.
3. This could mean a bankrupt bank being bailed out by the taxpayer.
4. And banks are dealing in billions, or maybe trillions of pounds.
Iceland - here we come!
About 15 years ago I studied monetary economics. I don't remember anyone who didn't see this as inevitable. The rigidity created by a common currency seemed certain to cause problems.
Also, fiscal union implies implementing policies to benefit one country at the expense of another. Can you imagine Brits. happily accepting potentially damaging domestic policy to help the French and Germans? After the way they reneged in 1992 (Black Wednesday"? Bye Bye Euro, Bye Bye. (that is bye, not buy!). According to sod's law, the Euro will now rise rapidly!
So it hasn't gone away, even after the global chaos caused by these overpaid sleazeballs, they are still running the global economy, God give me strength.
I am not sure if this is being reported right - well, I am sure it is to be honest - but I find it difficult to accept all the same. QUOTE:"For monetary union to survive, it has to become political union," Gerard Lyons of Standard Chartered tells the BBC. "Monetary union needs fiscal union." And that, the BBC notes, is "a stick of dynamite." UNQUOTE. What? What? Is the European UNION a political union, or is it an onion? Was the transparent trick of a UK vote for a 'Common Market' in the 1970s, which seamlessly morphed into a 'European Economic Community' and then a 'European Union' not a slimy lie of weaselly title-shifting? The ugly truth is, the political union needs MONEY, not a 'fiscal union' - which it already has obviously, and the UK has always been the second biggest net contributor to the EU. We lose �£45 million a day to this corrupt bureaucracy - and now the anthropogenic warmed-over currency the EURO is seen to be the poison chalice that it is. We are well off out of it, and the mad UK experiment with the pound sterling in the European Exchange Rate mechanism under John Major stung us bad, and well we should remember it. Let the PIGS suffer, they chose fiscal and political union, let them experience in full the folly of their choice. We would be even better of out of the EU altogether, but farbeit from me to show political bias.
Who in their right mind would want what is effectively a 'joint account' for their currency with economies wildly different to their own. It's just stupidity..... and the only reason they've done it is the wreckless pursuit of some fundamentally dichotomous ideas about increased power that is only of any concern to politicians, and of no value to the European person in the street.