Tuesday, December 21, 2010

PIMCO advises Greece Ireland and Portugal to abandon the Euro

For those of us on this side of the pond... preview of coming attractions.
Andrew Bosomworth, head of Pimco's portfolio management in Europe, said current policies are untenable in the absence of fiscal union and will lead to a break-up of the euro.

"Greece, Ireland and Portugal cannot get back on their feet without either their own currency or large transfer payments," he told German newspaper Die Welt.

He said these countries could rejoin EMU "after an appropriate debt restructuring", adding that devaluation would let them export their way back to health.

Mr Bosomworth said EU leaders were too quick to congratulate themselves on saving the euro last week with a deal for a permanent bail-out fund from 2013.

"The euro crisis is not over by a long shot. Market tensions will continue into 2011. The mechanism comes far too late," he said.
Read the rest here.

I've been saying for going on two years now that Greece is broke and it WILL default at some point. They simply owe far more money than they can pay back. Default is inevitable. The only question is what form it will take. Ireland and Portugal are in tough shape. But they might be able to survive. That said it would certainly be in their interest to abandon the Euro (a technical default) and print their way out of the hole they have dug. In any event bond holders are looking to take a really big hit.


Michael said...

That raises a question. Why do countries outside the EU still want to apply for membership?

For instance, the current administration in Belgrade is bending over backwards and doing backflips to qualify for the admission of Serbia to the EU and also to NATO.

Personally, I think that is totally nuts.

What will Serbia or other countries like her actually gain, from membership in the EU?

Prosperity? Ask Greece, Portugal and Ireland about that!

Safety? From the same EU and NATO which bombed their country?

Respectability? At best, I only see second-class membership for any traditionally Catholic or Orthodox country in the EU. The "top dogs" in the EU(SSR) are France, Germany, Scandinavia, and Benelux countries. All these countries are "post-Christian" and are becoming aggressively atheist. They, alone, set the (basically Menshevik) ideological agenda for the EU. Hence, the increasingly overt persecution of Christianity in the public square.

What's to like here?

I hope the EU implodes quickly, before any more countries have a chance to sell their collective souls for false promises of security, prosperity and worldly respectability.

gdelassu said...

I heard the Bulgarian Treasury Minister give a talk at the London School of Econ a few weeks back and he was asked just that question - why does Bulgaria persist in its application for Eurozone membership when the Euro is working out so poorly for existing members. His answer was that the Bulgarian currency is currently pegged to the Euro, so they currently have all of the downside rigidity of Eurozone membership with none of the upside (ease of border crossing and easier access to credit). The minister argued that they would, therefore, be better off in the Eurozone because they would have both the upside and the downside, instead of just the downside.

This still makes no sense to my mind, however. I wish the questioner had pressed the minister as to why, if such were the case, Bulgaria did not simply do away with the currency peg instead of seeking entry into an obviously broken system. It seems clear to me that Ireland regrets having abandoned its Punt. Why should Poland, Bulgaria, Serbia, etc. wish to make the same mistake with the full benefit of hindsight?