A few things to think about this morning…
- Shockingly, despite the fact that we’re on the verge of a new PIIGS crisis, the euro is totally unmoved. It’s been moored to this $1.39-$1.40 range forever, in sharp contravention to the stomach-churning declines it experienced during the first PIIGS crisis. What’s going on? Is it that, despite the structural issues facing the eurozone, the ECB doesn’t have a good mechanism for weakening its currency?
- It’s obvious that the best economic decision the UK ever made was not joining the euro. Its ability to print/weaken its own currency has been huge, and it’s the prime reason that it’s not in as bad shape as Ireland.
- Austerity has proven to be a huge flop in Ireland and Greece. That’s clear now. Despite budget cutting the deficit situation hasn’t done any worse. We said back in August that this would be a huge story this autumn, and we were correct.
- It’s not clear that a rescue will be so easy this time around. This isn’t just about yields blowing out to unsustainable highs. There are fears now that the governments on the periphery, especially in Ireland and Greece will run out of cash. These countries will need new bailouts, beyond just ECB interention to get through.