Thursday, April 26, 2012

Europe to relax 3-percent deficit limits. This could be very bullish, but bearish for euro.

Saw this on Warren Mosler's blog today.

So the word out of Europe today is that policy makers in Brussels are looking to back down on the 3% deficit limits.

This could be HUGE!! It would end austerity and allow “automatic stabilizers” to work.
The only problem is (as Warren points out), these countries are still revenue constrained because of their status as currency users, however, if the ECB keeps buying their bonds (and I believe it will), then the ECB BECOMES THE FUNDING AGENT FOR THESE COUNTRIES.

This is potentially a HUGE bullish development for Europe. It stops the economic collapse dead.
Wouldn't it be completely ironic, though, that as Europe ends its miserably failed experiment in austerity, the U.S. will embark on its own, ill-conceived and idiotic, “go it alone” austerity plan? How mind-numbingly dumb!!

P.S. Expanded deficit limits in Europe could finally be the catalyst that sends the euro down.


Ralph Musgrave said...

This change of heart has happened because even the core countries (Germany, Netherlands, etc) are beginning to suffer austerity. So the change of heart will solve those countries’ problems.

But it won’t solve the periphery problem: Greece, etc will remain uncompetitive till they get their costs down in Euro terms. So austerity will continue there. The peasants there are revolting and will continue to revolt.

Yours sincerely, Revolting U.K. based peasant.

Tom Hickey said...

Exactly, Ralph. Now that the core is beginning to bleed, and it looks like France may go socialistic, TPTB are reversing course. But Germany is the wild card. This is anathema to the Bundesbank. I am still betting on Germany quitting the euro as things get worse.