Helen Stratford

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Club Med

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Increasingly more voices rise that you call for a radical reform in the governance of the eurozone and its financial structure. In one way or another, the preservation of the eurozone will require massive transfers of money from North to South read first Germany – a process already activated.There are some signs that politicians or voters are prepared to support the reforms necessary to consolidate the eurozone structurally, through the introduction of fiscal transfers between States more strong and the weak. That brings to three options: wobble from crisis in crisis, allow defaults, or say goodbye to the Club Med of the eurozone, says the Wall Street Journal. The European project does not work because it seems that from the beginning is not understood its essence, which is the homogeneity within the heterogeneity of its members. A common project cannot function if the differences are not covered.

And the European case sought to unify realities, expectations, very dissimilar behavior. The eurozone project was a failure before starting in 1999. It took an internal crisis 11 years later so many of its members understand it. It is hoped that the euro project do not end with serious social unrest in many European countries that do not accept leaving aside the welfare State, such as Italy or France and to ignite them by spreading the continent. To the extent that have markets to place debt, wheel will continue to spin, but what happen when these markets increasingly disbelieve? Returns skyrocket even more that investors will be willing to take sovereign debt that can be converted into an explosive cocktail, along with social unrest, let US remember Argentina in 2001. But Greece is in a position of greater weakness than Argentina at that time. Greece can not devalue its currency and Greece has no exports as it does Argentina.

America is in a more comfortable position: it is a more flexible economy and has more space and tools to support its imbalances – for now. Yesterday, while Europe I finished to digest the results of European Bank stress tests and doubts that have left among investors those results (widespread after the close of European markets Friday that 5 Spanish banks, two Greeks and one Austrian failed in the test in which it was expected that more banks reprobaran and which ultimately got more capital), and the indecision of European leaders on the second Greek bailout, stock market indexes on Wall Street could not overcome the reds of the session. Of course, the me were banks, with investors demanding higher yields of sovereign bonds from the eurozone countries. Thus, the euro marked a new record low against the franc, and Swiss (value reserve) at 1,1405, while the gold marked new highs ($1.608 per ounce). The Stoxx Europe 600 banking index fell 2% in Europe. French and German banks that have a strong exposure to Greek debt, were among those who most fell in the sector: Deutsche Bank (- 3.45%), Commerzbank (- 4.64%), BNP Paribas (- 3.64%), Societe Generale (- 5.48%). The Milan Stock Exchange lost 3.06% to fears about solvency in Italy fired last week. The Italian and Spanish bond yields reached new highs in the spread against German bunds in the euro era. Fears had more to do with systemic risk than with specific fundamentals of countries.

Written by Minna

August 18th, 2013 at 9:12 am

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