It’s time to believe that it’s just beginning.
According to the ECB, the worst of the sovereign debt crisis is over.
“The worst is over, but there are still risks,” Draghi was quoted as saying. “The situation has stabilized. The important indicators for the euro zone, like inflation, current account and above all the budget deficits, are better than, for example, in the United States.”
Investor confidence has returned and “the ball is now with governments,” Draghi said, according to Bild. “They must sustainably secure the euro zone against crises.”
But according to MR, the Spanish 10-year yield is still high and that one measure of the Portugese deficit has been higher than expected but investors appear to be as confident as Draghi.
Portugal's core public deficit nearly tripled in the first two months of 2012, showing a deepening economic slump is denting tax collection and stoking concerns the country may miss its budget targets and follow Greece in requiring more rescue funds.
The gap widened to 799 million euros ($1.06 billion) from 274 million euros a year earlier, when the deficit had slumped by more than 70 percent, the finance ministry's budget office said on Tuesday.
But, investors appeared to shrug off the numbers and bought 1.99 billion euros in Treasury bills on Wednesday at the lowest yield levels since late 2010, before the country resorted to a 78-billion-euro EU/IMF bailout in May last year.
According to the NYT, the worst for Greece might still be yet to come.
… even after the new relief, Greece is still expected to be saddled with a ratio of debt to gross domestic product of 151 percent in 2012, and 149 percent in 2013. These debt levels remain the highest in Europe. The Greek economy remains in a wretched state — it shrank by 7.5 percent in the fourth quarter. And youth unemployment, at 51 percent, is now officially the highest in Europe. So it is by no means clear that Athens will be able to generate the cash to service its remaining debt.
…
“Greece is staring at decades of interest payments to the official sector,” said Adam Lerrick, a sovereign debt expert at the American Enterprise Institute. “They traded their ability to write down debt to private sector creditors for low-interest-rate official sector loans that cannot be reduced.”
The Atlantic believes that kicking the can down the road is the best strategy since it worked the last time.
Consider the case of Greece's recent default. Markets shrugged off the 74 percent writedown on Greece's privately held debt, because there had been plenty of time to prepare for it. Even the payouts on the much-hyped credit default swaps on Greek debt turned out to be a relative non-event.
In other words, the can-kicking worked! If Greece had defaulted like this two years ago, when its debt problems first roiled markets, the result likely would have been panic. Today, it elicited more headlines than actual worries.
The lesson is clear: Greece and Germany should keep kicking that can!
The Atlantic article then outlines a proposal for Greece to leave the Euro, and according to Columbia University professor David Beim it should be accompanied with debt forgiveness.
My thought is to give the stressed Eurozone members true debt relief — comprehensive debt reduction that could let them restart their economies, but on one condition: those that get such relief must leave the euro. That condition gives them a reason not to ask for it; every country would want a debt reduction unless there was a penalty, and this would be the penalty, which would slow down contagion.
I don’t think this is an unreasonable condition. Greece should never have been in the euro in the first place. Its businesses are now being crushed under a wave of cheap imports because its currency is overvalued. Re-establishing the drachma would be messy and expensive, but less messy and less expensive than staying in the straitjacket of the euro.
My head aches. Previous thoughts on Greece here. However we slice it, the future of Europe will probably be like the lost decade of Japan.
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