The Keynesian Race to Bankruptcy
by Gary North
The euro is falling. It is at the lowest exchange rate to the dollar in four years.
Confidence in the euro is falling because it is becoming clear that the region’s commercial bankers have made the same sorts of bad decisions that American commercial bankers made after 2000. They loaned money to debtors in Eastern Europe who will not be able to repay. These loans were collateralized by real estate, which rose. Real estate prices in Eastern Europe are now falling. The bubble has popped.
The bankers also lent to the Greek government. After all, interest rates were high. The Greek government’s deficit-to-GDP ratio was low: a reasonable 3.7%. That was the official report of the Greek government in April 2009. That government lost the election in October. Then came the announcement of the new socialist government in October: this ratio was a gigantic lie. The real ratio was in the range of 12.5%.