It is apparent not only that US banks have lost confidence in their European counterparts and have started shutting them out of inter-bank funding markets, but also that US officials are busy making matters worse by seeking to shift blame for America’s dire domestic performance on to influences from this side of the Atlantic. “Seventy-five per cent of the dark things happening in the world economy are because of the eurozone,” one of Geithner’s team said at Marseille….
Markets are convinced of several things: that Greece is politically incapable of meeting the austerity demands imposed by the EU and the IMF, and is now locked into a spiral in which its debt position can only become worse as its economy deteriorates; that a default on Greek sovereign debt is therefore inevitable sooner rather than later, and will impose losses on European banks, including the likes of Société Générale and Crédit Agricole of France, which may in turn need to be bailed out by their governments; and that the eviction of a bankrupt and incorrigibly irresponsible eurozone member is not only a technical possibility but an economic necessity if the single currency is to survive at all.
I mean, really, there is no light at the end of this tunnel. As much as Greece may be a wonderful place to visit, is it really worth it the time and treasure of the more responsible parts of Europe to pay an entire nation to sit around and thumb their noses at the taxman?
The problem is — when Europe was first persuaded to adopt a single currency many many economist pointed out that a unified currency without a unified economic regulatory structure was not going to work. They were right. Greece should get out of the Euro and get back to the drachma and let the chips fall where they may. Or else the Europeans should seriously agree to a have a unified economy. Go forward or go back, but halfway is going to be a disaster.