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Europe left with little choice on QE

Global rates Source: TheAustralian
THE European Central Bank’s executive board proposed buying roughly €50 billion ($72 billion) a month in bonds for at least a year, but markets largely shrugged as investors pondered whether the bank would do enough to stoke Europe’s fragile economy.

The board’s proposal for the bond-purchase program, or quantitative easing, formed the basis of deliberations by the ECB’s 25-member governing council last night on whether to embark on a path already forged by the US and the UK. The final details of the program could change after the full board has its say.

The initial reaction to details of the ECB’s plan in the financial markets this week was jumpy, betraying nerves among investors who have racked up large bets on aggressive action by the central bank. The euro fluctuated before ending Wednesday’s session in Europe a little lower, showing that investors see the proposals as a sign that large asset purchases are coming, and there was a modest price decline in government bonds in the US and the eurozone. Stocks rallied, with Germany’s DAX closing at a near record high.

Despite those gains, the market’s relatively muted response signalled that expectations for more easy-money policies from the ECB are already factored into stock, bond and currency prices.

Investors are counting on the ECB to unveil a program that will shock and awe the market, said Christopher Sullivan, chief investment officer at the United Nations Federal Credit Union in New York. But “from what we have seen, it seems investors are anything but confident they should expect that outcome”.

The lack of a stronger market response also reflects the success the ECB has had in recent months in convincing investors that it is prepared to act. In that sense, the bank has gotten many of the effects of QE — lower bond yields and a weaker currency — before actually launching the program.

One key unknown is whether the bond purchases will be spread across central banks in the eurozone, which is the norm for monetary policy operations, or if the ECB makes an exception and puts the risk for each country’s bonds on its national central bank, meaning Germany’s Bundesbank would hold German bonds and France’s central bank would assume the risk of French debt. That approach could assuage concerns in Germany that its taxpayers may be on the hook for other eurozone members’ debts.

Still, the initial outlines of the bond-buying proposal highlight how aggressively the ECB thinks it needs to act to restore prosperity in the 19-member eurozone, which has failed to recover from the global financial crisis more than six years ago. Consumer prices fell 0.2 per cent in December, well below the ECB’s target of inflation rate of just under 2 per cent, raising the risk of a lengthy and debilitating string of price drops. The unemployment rate was 11.5 per cent in November, far higher than in the US and UK.

“The ECB decision is very important for my country, but decisive and crucial for the European economy,” said Italian Prime Minister Matteo Renzi, adding it is “important in the future to give more power to the ECB”.

The ECB’s next step is part of a broader challenge it faces shaping the expectations of investors, business and households. Economists believe policy makers influence economic activity not just through channels like credit or stock markets but also by shaping the public’s views. For example, if businesses don’t expect much economic activity, or if they expect low inflation to weigh on profit margins, they will be less inclined to borrow or invest.

If the ECB were to limit the program to €600bn over one year, its attempt to jolt expectations would be “woefully inadequate”, said Athanasios Orphanides, a former head of the central bank of Cyprus, who has been calling for a €2 trillion program.

He said the potentially open-ended nature of the program — the idea the ECB could continue beyond a year — was a bright spot that could give the program additional power. “The Fed’s QE3 program worked very well in the US because it was open-ended.”

With rates near zero and huge loans to banks showing little effect on inflation so far, the ECB is left with few options apart from buying bonds in the public debt market with newly created money, thus raising the money supply.

Although the prospect of a flood of ECB-printed money has boosted stocks and bonds, it may not do much to stimulate stagnant economies in France and Italy.

“There are still reasons to doubt that QE, no matter what its size, is going to change the outlook for the euro area,” said Jonathan Loynes, economist at consultancy Capital Economics.
Fed tightening this year seems like a long shot

IN the afterglow of the European Central Bank’s massive new stimulus plan, there will be plenty of central banker spin about how this bold initiative to follow the US example of printing money to buy sovereign bonds will reflate the eurozone, boost economic growth and reduce unemployment.

The reality is that financial markets don’t expect any inflation or growth in Europe in the short-to-medium term, even if the ECB expands its balance sheet to the 2012 peak of €3.1 trillion ($4.4 trillion) or flags open-ended QE of the kind the US Federal Reserve eventually adopted until last year.

But even if QE doesn’t work so well in Europe, it would be a mistake to think the surge in European shares is over, even with the benchmark STOXX Europe 600 at a seven-year high.

QE has certainly boosted global share markets in recent years.

The fivefold expansion of the Fed’s balance sheet from late 2008 was associated with a 160 per cent rise in the S&P 500, and a threefold expansion of the Bank of Japan’s balance sheet saw a 100 per cent rise in the Nikkei 225 in the same period.

The money has to go somewhere, and with most interest rates now negative in Europe, it makes little sense to keep buying European bonds unless one is prepared to dabble in risky peripheral debt.

European banks are already flush with cash, so don’t expect the funds to flow into the real economy.

That leaves the stock market and offshore bonds as the main avenues for the cash.

“With many economies in Europe having structural issues, there is real scepticism the moves will do more than throw markets around, but central banks have to be seen as trying,” said Chris Weston, chief market strategist at IG.

“However, as long as the ECB president shows enough determination to reinforce his commitment to ‘do whatever it takes’, I would expect the positive trends in the European equity markets to continue.

“I think pullbacks on any disappointment seem like good buying opportunities.”

Mr Weston believes the ECB is in effect targeting a higher stock market.

“History has told us that quantitative easing does not do a great deal for inflation, but what it does do is that it creates higher asset prices.

“So when you get no economic growth, excess liquidity, and interest rates near zero, you either hold the cash on your own balance sheet or you look elsewhere.

“The idea is that a higher stock market should have a positive wealth effect which will hopefully trickle down to the real economy.”

Europe’s share market surged more than 5 per cent in the five days leading up to the ECB meeting, contributing to a recovery in Australia’s benchmark S&P/ASX 200.

There’s every chance of a pause in share market strength before the Greek election this weekend, as anti-austerity sentiment still has the potential to get Greece kicked out of the euro.

Global markets might also fret about what the Federal Reserve might say about interest rates at its board meeting next week, although with rates falling almost everywhere in the world and the US dollar index up 18 per cent in eight months, Fed tightening this year now seems like a long shot.
Printing more money not the answer to Europe’s ailments

Adam Creighton

Economics Correspondent
THE European Central Bank appears poised to mimic its counterparts in the US, Japan and Britain by pumping billions into its financial system to fight deflation and inject some life into its listless economy. But the move is unlikely to achieve much beyond worsening uncertainty, lining the pockets of the well off, and discouraging European governments from mending their ways.

It is not even certain the mild deflation that is compelling the ECB to act foreshadows the economic disaster feared. The fact that aggregate European prices have fallen 0.2 per cent over 2014 is as much a relief for workers as it is a burden for borrowers. For most, cheaper bread, rent and petrol leave more money to buy other goods and services.

Sure, deflation exacerbates Eur­opean governments’ debt burden, but it also helps reverse the decay of lower and middle-class real incomes that has been sapping growth in the developed world for more than a decade.

Inflation, by contrast, typically suits the wealthy who disproportionately benefit from capital gains and have access to sophisticated advice and financial instruments to profit from a rise in prices. Deflation isn’t all bad: it creates winners and losers.

To be sure, the Great Depression showed deflation induced by a collapse in the money supply is disastrous and should be resisted, but prices routinely fell in the 19th century without economic armageddon. In any case, this isn’t happening in the eurozone: the money supply including cash and deposits at banks (M3) has risen steadily since the financial crisis and by around 4 per cent last year to €10.2 trillion ($14.6 trillion).

Assuming it surmounts constitutional difficulties, the ECB plans to buy about €600 billion of European government bonds over the next 12 months, or around 6 per cent of the total outstanding stock of the 18 governments that use the euro. This is unlikely to be effective at boosting deflation.

To make such purchases the ECB credits its liabilities with newly created money (this is the controversial “money printing” part) at zero cost to itself, and simultaneously credits its assets with purchased government bonds. The extra demand for bonds is meant to increase their price, reduce their yield and cause interest rates to fall. In turn, lower interest rates are meant to encourage businesses to borrow and invest.

But European rates are already low. Yields on 10-year Spanish and Italian bonds are below 2 per cent (below AAA-rated commonwealth government bonds), while those on safer German and French bonds are around 0.6 per cent and 0.9 per cent, respectively. Yields cannot be negative (otherwise people would keep their money under the bed), so it is hard to see how QE can drag them down much further.

To the extent QE does curb upward pressure on bond yields, it reduces the pressure European governments face to foster genuine growth by deregulating their labour and product markets.

In any case, investors don’t seem to believe the ECB will achieve its stated inflation target of 2 per cent a year. If they did, then yields on governments bonds imply investors are embracing capital losses on their investments — it would make more sense to hold physical cash. The more likely explanation is investors are expecting sustained deflation to ensure a modest real return.

Advocates of QE point to Japan, which has endured bouts of deflation since its economy imploded in 1990. But its woes have been exaggerated, its meagre growth rate bandied about in horror without adjusting for its rapidly falling population. Moreover throughout it maintained a low unemployment rate and its people remain wealthy: the Japanese government’s huge debt is owed almost entirely to its own citizens, and collectively, the Japanese enjoy the biggest net foreign asset position in the world.

No advanced country is likely to experience deflation for too long. While it was common under the gold standard of previous times, it isn’t the natural state for fiat currencies. This is because the notes, coins and the little dots on a screen we use to pay for goods, services and assets are inherently worthless. A $50 note is only worth so much because enough people think it is, therefore its value measured against real goods and services tends towards zero.

Governments can in theory create price inflation quickly if they truly want to: simply print so much money and hand it out randomly until households and businesses freak out and inflation starts to soar. Certainly the financial services sector would not favour this ‘helicopter drop’ of newly printed cash. Through QE as practised banks benefit from increased bond trading commissions, asset management fees and the benefits that an influx of cash from the central bank bestows.
Five questions about how the ECB buyback will work

The European Central Bank’s program of large-scale government bond purchases won’t be exactly like efforts by the US Federal Reserve, the Bank of Japan, and the Bank of England. Unlike its counterparts, the ECB, which serves the 19 countries that use the euro, has to operate in their different bond markets, each with varying degrees of risk. Rather than the ECB buying all the bonds, national central banks will make the purchases, and take most of any future losses on those investments.


National central banks will start to buy government bonds in March, and continue to do so at least until September 2016, although the program may last longer if the inflation rate doesn’t rise toward the ECB’s target of just less than 2 per cent. Government bonds will be purchased roughly in proportion to the size of national economies relative to the eurozone as a whole. The national central banks will also buy bonds issued by European institutions — such as the European Investment Bank — and these will account for 12 per cent of new bond buys. For these bonds, risks will be shared by the ECB and the national central banks. The ECB itself will buy 8 per cent of the total size of the program in the form of government bonds. So in total, risk will be shared for just 20 per cent of purchases. For the other 80 per cent, the national central banks will take any losses.


It keeps the risk of losses in the event of a default or a fall in the price of bonds within one country, so other eurozone taxpayers don’t have to bear the debt problems of another. “Were each central bank only to buy the papers of its own state, this would lower the danger of there being an undesired redistribution of financial risks,” said Klaas Knot, head of the Dutch central bank, in an interview published last week.


Advocates of the ECB’s approach say it will limit moral hazard, the risk that because their bonds are being purchased in large quantities by a common eurozone institution, governments will have a reduced incentive to tackle their budgetary problems with painful reforms.


To its critics, the refusal to share risk puts into question the idea that the euro is irreversible and makes the bond-buying program less effective, particularly in more troubled southern European members. Speaking last week, Irish Finance Minister Michael Noonan argued that mutualization of risk underpins successful currency unions, and that a refusal to share it undermines the creation of a workable banking union, seen as essential to lessening the risk of a recurrence of the eurozone’s fiscal crisis.


The ECB has always sought to present itself as an institution focused on the eurozone as a whole, and not its parts. By declining to share the risk, it might appear that rather than having a single central bank for a single currency, the eurozone is instead a coalition of central banks using the same currency. If that perception were to take hold, it could make investors question the willingness of those central banks, and the countries they represent, to respond collectively to any future challenges to the integrity of the eurozone. Mario Draghi, ECB president, said the design of the program and decisions on how it will be implemented are the ECB’s. But he may have to work hard to get that message across.

-Wall Street Journal
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Ultra-low rates spur bond blitz in Europe

INVESTORS have snapped up half-a-billion euros ($700 million) of French utility bonds that will pay them no interest, a groundbreaking deal that shows how corporations are rushing to take advantage of Europe’s ­efforts to keep interests rates low to try to revive the continent’s economy.

Next to tap the market may be Berkshire Hathaway, which plans to raise about €3bn in its first euro-denominated bond sale, according to a person familiar with the company.

The €500m bond sale by GDF Suez came a day before the European Central Bank was scheduled to spell out details of how it will buy €60bn a month in government and corporate bonds to fuel economic growth by pumping money in the financial system.

In anticipation, investors have piled into European debt markets, pushing yields on some government bonds below zero. Yields fall as bond prices rise.

The GDF Suez deal raises the prospect that companies may soon find investors willing to ­accept negative yields on bonds, essentially paying the borrowers to hold their debt.

“This is a perfect sign of just how substantial the spillover effect of the ECB’s asset-purchase program is,” said Jurgen Odenius, chief economist at Prudential Fixed Income. “Mario Draghi was unequivocal about the fact that the ECB will even buy bonds with a negative yield,’’ he said, referring to the president of Europe’s central bank. “And that of course creates huge opportunities for companies to price at the sort of level that GDF did.”

Last year, the ECB imposed negative interest rates on deposits by banks, another attempt to spur lending that pushed yields lower.

US companies also have rushed to Europe to take advantage of falling rates.

Berkshire Hathaway, the conglomerate run by Warren Buffett, is raising money in Europe in part because of the low rates there and also to replace some US debt that recently matured, a company source said. The conglomerate is looking for acquisitions in Europe, but Mr Buffett has yet to find a deal he likes.

Some €26.6bn of bonds from US borrowers have been issued in Europe this year, with about a third of those coming from Coca-Cola’s bumper bond sale last week, data from Dealogic show.

Oreo cookie maker Mondelez and Kellogg are some of the other familiar names that have crossed the Atlantic to load up on cheap debt. “It’s so cheap to borrow in euros that it’s a no brainer,” said James Athey, a fund manager at Aberdeen Asset Management.

The average yield for corporate bonds issued in euros is a near-record low 1.08 per cent, according to a Markit index, more than a percentage point lower than a year ago.

GDF Suez sold its two-year, zero-coupon bond at a price that put the yield for investors at 0.13 per cent. By contrast, the average yield for corporate bonds issued in US dollars is 3.67 per cent, Markit data show.

The €500m was the most ever raised at zero interest. The financing arm of carmaker Fiat issued a €10m bond with a zero interest coupon in 2001, and Germany’s BMW sold €150m of zero-coupon bonds in 1999. The ECB’s asset purchases, known as quantitative easing, could see the bank buy as much as €1 trillion of top-rated bonds in the eurozone.

EU outlines ambitious eurozone plan
DOW JONES JUNE 22, 2015 8:55AM

The plan, written by European Commission President Jean-Claude Juncker, argues for more political cohesion in the EU. Source: AFP
European officials have released a plan to fix deep flaws in the eurozone’s makeup that would see its members sacrifice more of their national sovereignty for the economic good of the entire currency bloc.

The plan, released overnight, envisions its more ambitious measures, such as a shared budget for the eurozone, possibly taking 10 years to come into effect, reflecting the political obstacles that now stand in the way of drawing the eurozone’s 19 disparate nations more closely together.

Despite those hurdles, senior European officials who have pushed for the plan say fundamental changes to the eurozone are needed to prevent a repeat of the bloc’s debt crisis — which was caused in large part by wages and prices in the southern eurozone rising much faster than they did in the north, mainly Germany.

The eurozone has proved unable to reverse that loss of competitiveness in the south, leaving those countries grappling with unemployment rates exceeding 20 per cent in some cases and little prospect of a significant recovery soon.

The plan was written by European Commission President Jean-Claude Juncker in cooperation with the European Central Bank, the European Council, the European Parliament and the group representing the eurozone’s finance ministers. It makes the case that without more political cohesion backing the bloc’s economic policies, it remains vulnerable to economic crises.

“Preventing unsustainable policies and absorbing shocks individually and collectively did not work well before or during the crisis,” the proposal states. “Though several important institutional improvements have since been made, the legacy of the initial shortcomings persists.”

In the short term, the plan calls for using the eurozone’s existing powers to penalise countries for unsustainable macroeconomic policies more aggressively. These powers are rarely used, since governments have only indirect control over macroeconomic outcomes. It also proposes a “competitiveness authority” for each country, to assess whether wages are rising in line with worker productivity.

Starting in 2018, the eurozone should create a common budget to help absorb shocks that shake the currency bloc, according to the proposal. When the global financial crisis hit the US, the federal government continued to pay Social Security, Medicare, Medicaid and unemployment benefits for people across the US. That helped cushion the blow to states such as Nevada and Florida that were particularly hard hit by the crisis.

The report suggests the creation of a eurozone treasury that would make collective decisions about the bloc’s budget decisions.

“All mature monetary unions have put in place a common macroeconomic stabilisation function to better deal with shocks that cannot be managed at a national level alone,” it says.

With Greece’s future in the eurozone in doubt, though, such ideas stand little chance of being approved in today’s political environment. Politicians across the currency area have little trust of the government in Athens.

In addition, doubts linger in Germany about the commitment of nations such as Italy and Spain to “structural reforms” that Berlin insists are necessary to open its government checkbook for other nations.

Previous reports written by the eurozone leaders calling for an overhaul of the currency bloc have gained little traction. National capitals were happy to have survived the debt crisis without the eurozone splitting apart, while politicians in Germany, the Netherlands and Finland had little appetite to double down on eurozone integration.

Dow Jones

Euro zone business growth rises to 4-year high
Why Germany could be Europe’s biggest loser as crises continue

Alan Kohler

Business Spectator editor in chief

A protester burns a European Union flag outside the European Comission offices in Athens this week. Source: AFP

The latest Greek crisis should end next week after the people surrender this weekend, but Europe’s foundations will continue to weaken: this won’t be the last existential crisis for the euro.

Unless greater fiscal and political union accompanies the monetary union, it will eventually, noisily, fall apart.

But this crisis, at least, is almost over. The Greeks would vote “yes” on Sunday to almost any question they are asked to get access to what’s left of their euros.

Prime Minister Alexis Tsipras will then agree to Germany’s demands for reform against the overruled objections from his party, German cash will start flowing again through the ECB, and Greece’s banks will reopen to sighs of relief all round. Most importantly, funds will be released to repay the IMF.

The eurozone’s mistake was letting the IMF get involved in 2010. The incompetence, or negligence, of its then managing director Dominique Strauss-Kahn, who acted against the advice of many of his member countries (including Australia) and half of its staff, set up Greece for failure.

The IMF’s refusal to restructure Greece’s debt in 2010, and instead to insist on crushing austerity in return for more cash, was a terrible mistake. The Eurogroup attempted to repair the situation in 2012 with the restructure that replaced almost all of the private lenders, but the damage to the Greek economy had been done.

Ironically, the IMF has changed its mind and is now arguing that Greece needs debt relief.

Greek Finance Minister Yanis Varoufakis declared this week that he would rather cut off his arm than sign another “pretend and extend” agreement that did not include debt relief, and that he’d resign if the people voted “Yes”. Meanwhile, the IMF issued a review of Greece’s debt and commented that it needs €60 billion over three years, plus debt relief.

The IMF’s position in the 2010 bailout inserted a hard-line outsider into what had been a cosy arrangement — the 15-year-old European Monetary Union, in which Germany props up the southern countries with loans and they stagger on, burdened with debt, propping up Germany’s export machine.

Greece’s failure to make its IMF loan repayment on Tuesday was a disaster for everyone: the IMF, Greece, Germany and the ECB. It is a mistake that should never have happened.

The IMF now has the largest and most prominent delinquent debtor in its history; Greece sits on the edge of catastrophe and Germany, the ECB and the EU are complicit in the threat to the euro itself. They accepted the IMF’s money and conditions in 2010 and now, in reality, it is they who are refusing to repay.

The remote prospect that the IMF might formally have defaulted Greece on Wednesday morning meant two things happened that raised the temperature:

1. Tsipras called a referendum, ostensibly to get popular support for his position, but maybe to quell the revolt within his party so he could cave in to the Germans while keeping his job.

2. Then the ECB took the drastic step of closing the banks, presumably to pressure the Greeks into voting “Yes”.

The Greek people really have no choice but to vote ‘‘Yes’’ and they will be rewarded for their obedience with cash. The euro ship will sail on … until the next iceberg.

The fundamental problem will remain: Germany’s surpluses are someone else’s deficits, specifically Italy’s, Spain’s, Portugal’s, France’s and, of course, Greece’s.

Since the euro’s introduction in 1999, Germany has run cumulative trade surpluses versus the rest of Europe of well over €1 trillion.

That has been financed by Germany lending the money back to the Mediterranean countries, either to finance budget deficits in the case of Greece and Italy or property bubbles in the case of Spain and Ireland.

So there are two reasons why Germany is desperate to maintain the status quo: it is now a colossal creditor of those countries as well as the beneficiary of a weaker euro.

The exchange rate is the most important price in any economy.

In March it seemed the euro would hit parity with the US dollar, when it got as low as $US1.0463, but since then the unfolding crisis has seen it rise back to $US1.10.

But the US dollar exchange rate is less important to Germany than the internal currency lock-in. In the same way that China built its economy on exports to the US by locking its currency to America’s, Germany has been built on trade surpluses to countries to which it has shackled its currency so they cannot devalue.

It is the classic mercantilist ruse of pegging your currency to that of your customers, so that your surpluses don’t result in it appreciating, as it should.

Unlike the yuan/dollar peg, Germany’s was not designed for economic purposes, but to cement what had been achieved in Maastricht — what may be seen as the hard cop/soft cop routine of Adolf Hitler and Helmut Kohl.

Hitler was the horror that Kohl promised to expunge in 1992 with the Maastricht Treaty that set up the EU rules, followed by monetary union in 1999.

Before the euro’s introduction, Greece had devalued the drachma by 96 per cent against the deutschmark between 1957 and 1999. The Italian lira had devalued 85 per cent over the same period and the French franc 75 per cent.

After 1999, those countries suddenly had hard currencies, tied to the deutschmark. Investors no longer had to fear constant devaluations. The money poured in, and it was good — for a while.

Instead of devaluations periodically rebalancing Europe’s books, money now flows from north to south through the ECB’s clearing system and shows up in a ledger called Target 2. Germany has the biggest credit balance in the Target 2 ledger, about €530bn. If the system unravelled as a result of a Greek exit, Germany would be the biggest loser: it would lose more than the entire capital of its banking system.

In that event, it would be Germany with queues at ATMs, suffering a liquidity crisis and asking the ECB for emergency assistance.

The flaw in EMU was that a full fiscal union wasn’t introduced at the same time, merely fiscal rules that could be broken. But fiscal union, which means political union, was impossible, and still is.

Australia works fine as a monetary union because it also established a fiscal and political union on January 1, 1901. It was possible because all the members speak the same language and, in effect, the citizens were happy to put the nation ahead of their own state. Not so in Europe. Greeks are Greeks first, Europeans second; likewise the Italians, French and Germans. The only common language is English, for goodness sake.

The architects of monetary union believed in the supremacy of money: that it is powerful enough to overcome cultural differences. But they were suffering the same delusion as believers in a gold standard. In fact, the euro is like a gold standard, which Keynes called a “barbarous relic”. He wrote: “All of us … are now primarily interested in preserving the stability of business, prices and employment, and are not likely, when the choice is forced upon us, to deliberately sacrifice these to outworn dogma. Advocates of the gold standard do not observe how remote it is from the spirit and requirements of the age.”

The European Monetary Union is analogous to the Bretton Woods system established in 1944, which set up the IMF and affirmed the gold standard.

In 1971 the United States was actually in a similar position to Greece now — suffering a huge and growing current account deficit and growing public debt. The difference is that the US was powerful, Greece is not.

In August 1971, President Nixon was able to declare an end to the “monetary union” of Bretton Woods by ending the dollar’s convertibility into gold, in effect devaluing it, while at the same time imposing wage and price controls and a 10 per cent tax on imports. The result was that the US dollar became the new gold, replacing the ancient yellow store of value as the world’s reserve currency. Not much chance of Greece doing that with the drachma.

As Keynes said of gold, the euro is an outworn dogma remote from the spirit and requirements of the age and unless it is now accompanied by fiscal and cultural union, there will continue to be more crises until it eventually falls apart. Italy will be next after Greece.

Germany cannot continue to plunder and fund the south at this rate. The imbalances and the reductions in wages and living standards required in Greece, Italy and Spain are too great.

In the end it comes down to the cliche attributed to J. Paul Getty: “If you owe the bank $100 that’s your problem; if you owe the bank $100 million, that’s the bank’s problem.”

The imbalances and debt built up in Europe as a result of the introduction of the euro are Germany’s problem.

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