While not yet, however I’ve been watching the plight of the Euro extra closely over the past week especially as I sit here in the Haag as the recent S&P move is an interesting one at that. As can imagine two outcomes surfacing over the next couple months in the Euro-Stricken regions as one of the easiest options might be a plan for the creditor nations to subsidize their less fortunate neighbors, ouch you say as it smacks of socialism and what about fixing the problem (spending which got them here). Yet another option would involve a break-up of the whole region (credit wise), in which case Germany and the Netherlands (both of which are loaded) would keep their rating while the others would follow Greece into the sink hole of junk status.
The key is the reasoning which S&P has put forward which seems to be based on a short-term economic view as it cites five factors:
(1) Tightening credit conditions across the eurozone;
(2) Markedly higher risk premiums on a growing number of eurozone sovereigns, including some that are currently rated ‘AAA’;
(3) Continuing disagreements among European policy makers on how to tackle the immediate market confidence crisis and, longer term, how to ensure greater economic, financial, and fiscal convergence among eurozone members;
(4) High levels of government and household indebtedness across a large area of the eurozone; and
(5) The rising risk of economic recession in the eurozone as a whole in 2012. Currently, we expect output to decline next year in countries such as Spain,Portugal and Greece, but we now assign a 40% probability of a fall in output
for the eurozone as a whole.
When I read these it was a clear case that the eurozone is set in a damned if it does, and damned if it doesn’t position. As first off there seems to be no plans by the debtor nations to act in reducing their debts so the result will be a forced (credit) downgrade. Then on top of this, as [forced] austerity plans kick in, economic growth will also be negatively impacted and again result in a [further] downgrade too.
As what is clear, there have been too many claims created on wealth in the form of debt which simply cannot be satisfied. In turn this leaves us only two options and neither of which “are” feel good ones as debts will either be defaulted on, or in second place the favored method of the United States, inflated away (let’s just print more money). As we in America (which have contributed to this recent bail out by currency devaluation) need to pay attention as we have been slapped by S&P and not as hard as we should have.
As one of the points I’ve highlighted above from the S&P comment has to do with the high amount of indebtedness which are facing both governments and families. As waxed here before, in our shiny new global economic model, currency is not flowing back to it origin as it has in the smaller loop regional or national models. This in turn is leading for many to the only option (2 above) in the printing of more currency as key economic ability of any country is to one “print money” and two “levy tax”. Here the later only works if the first is existent. Yet without it (money), it becomes a one horse race with the only option to print more…