The Euro is Taking a Beating
By Bill Bonner
May 26th, 2010
Today, the euro. Tomorrow, the dollar.
The euro is taking a beating. Investors are worried that it won’t survive Europe’s debt problems.
Note, we said ‘debt’ problems. Many experts still believe it is a liquidity problem. That is, they think it’s just a problem of finding financing. They blame speculators and hedge funds for panicking…or for deliberately cutting off the flow of juice.
But the speculators are just doing their job. They see that the real problem is debt. Greece, for example, has government debt equal to 120% of GDP. It’s too much. And even if all their austerity measures are put in place successfully – that is, if the Greeks go along with proposed budget cuts – the level of Greek debt will still increase, to 150% of GDP.
In other words, the fix makes things worse, not better. Debt needs to be defaulted…and restructured…not increased.
And it’s not even sure that the fix will happen as planned. Spain’s big unions are planning a huge strike for June 8th. Malcontents, anarchists, public employees, retirees – all are resisting budget cuts. And as long as the fix is in, they figure they can get away with it. Most likely, the only way to really rein in spending is by cutting off the money.
With the cuts or without them, the situation looks bad. What will happen? Some think Germany will leave the euro. Others think Greece and Spain will leave.