The Euro Will Survive?
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On to today’s blog…I read an interesting article this weekend in Foreign Affairs. It was written by Fred Bergsten. He made an argument that you don’t read too frequently and it was titled, “Why the Euro Will Survive.”
Here’s a quick summary of his arguments as to why the euro will survive:
1. The ECB and the EU member nations have always done what they’ve needed to survive during this crisis. They’ve bought bonds, they’ve created liquidity for banks and they bailed out Spanish banks. They’ve promised a greater union (banking oversight) and there’s even talk about political union.
2. Germany is reluctant to say that they won’t let the euro fail because of the moral hazard it would create. (It would release governments from the pressure of lowering their debt and balancing their budget.)
3. Germany is also reluctant to voice their unwavering support because all of the creditor parties (Germany and other creditor nations; ECB; IMF; and private creditors) are trying to force each other to shoulder more of the burden.
4. Germany and ECB actually want this crisis to play out over time. They want to use the crisis to force economic reform. So, don’t be swayed by the fact that the crisis has dragged on.
5. The ECB is very powerful in that it doesn’t have to worry about losing its independence. As a result, they are able to issue direct political demands to national leaders.
6. Germany (which seems to be the toughest negotiator) knows that they can’t let the euro fail. The German banks would fall under the weight of losses to the periphery, the new deutsche mark would rise (killing their export-driven economy) and Germany would be blamed for destroying Europe (again).
With all that said, Bergsten admitted that Greece may still exit the EU. He also said that the entire plan is dependent upon the debtor countries reigniting growth (which is hard to do after a financial crisis and while governments and citizens are deleveraging).
A Stat for Parents
A survey by the American Institute of CPAs says that the average allowance is $65 / month for kids. When I first came across this story, UPI was reporting that it was $65 per week (rather than month). Regardless, even at $65 per month, my kids need to apply for some sort of “allowance stamps” with the government because they don’t receive anything near that.
Have a great week.
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