Wednesday, September 28, 2011

European leaders are making a BIG mistake---By Shan Saeed

If you try to read the latest piece of the leading English paper, it reflects a clear picture of Euro crisis.
The latest piece by Ambrose Evants-Pritchard of the Telegraph highlights a disturbing error this deep into the crisis. Angela Merkel is still referring to this crisis as a debt crisis:

Angela Merkel told German industry today that we are not facing ”a euro crisis, but a debt crisis.”

But this is not the actual facts and why this is wrong:

“She is wrong. Total levels of private and sovereign debt in the eurozone are lower than in the UK, the US, and far lower than in Japan.

…Not because of debt, except in the most superficial sense.

The reason this crisis keeps grinding ever deeper is because the euro itself is a machine for perpetual destruction. The currency is fundamentally warped and misaligned.

It spans a 30pc gap in competitiveness between North and South. Intra-EMU current account deficits have become vast, chronic, and corrosive. Monetary Union is inherently poisonous.”

4 Major issues of euro single currency crisis

1. Gap in competitiveness between Northern and Southern Europe is growing . Productivity is down among euro zone members

2. Intra-EMU current account deficit have big huge, chronic and dangerously to a level which requires correction

3. Monetary Integration is poisonous from the start.

4. Euro currency is mis-aligned with various countries in Euro zone strategically.

Now is it really making progress? Europe is in messy situation and its because of Euro single currency since its historically a flawed currency. Different countries with different culture/ monetary division can't survive this issue. You can’t resolve a disease if you don’t even understand what’s causing it. Merkel’s comments are eerily similar to what everyone's heard from Ben Bernanke and Hank Paulson in 2008 when they misdiagnosed a household debt crisis as a banking crisis. Europe must understand that this is a currency crisis and that there is only one true fix – the creation of an autonomous Europe. I think that can best be done via a split in the Euro (which would still require a central Treasury) or dissolution. I have said there is a third option – a United States of Europe. But I can’t expect them to move in the right direction if they still think this is a banking and debt crisis. That will simply lead to bank bailouts and the American disease of bailing out banks without fixing the actual cause of the economic problem….

Disclaimer: This is just a research piece and not an investment advice. All financial transactions carry a RISK

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