Europen Chaos 2

if an individual has low income, a lot of debt and then go to a bank for financing, what interest rate do you think they will charge comparing to a guy with good credit and high income or even a professional by employment. it is obvious that the rate is higher for the low income/high debt guy than the good credit/high income customer.

the same is happening for the PIGS countries, they must wind down the debt and cut off improper subsidies so they become more competitive in terms of wage and salaries ie productivity. but many of their citizens refuse to accept these facts.

the loss in trust and confidence is mounting between the following parties:

• bank and bank - there is no interbank lending or swaps done since settlement in different time zones will increase risk, libor or euribor no longer is working properly
• customers and their banks - customers are afraid their countries will exit the EU and/or limit withdrawals, so greek customers are pulling their deposits out from banks and move them elsewhere, Spanish customers are pulling their deposits from weak banks and so on.
• super rich and their politicians - the super wealthy is afraid of nationalization and exchange control, so they too pull out their deposit from EU or their country and sell off stocks too since there wont be much support at the last minute.
• country and country - the strong countries do not want to be piggy banks for the weak countries so they can withdraw money from when in crisis, the weak countries also do not want to cut back welfare and reform their labor or pension practice.

and will only get more serious.

there is no credit creation in EU for a few months already and velocity of money might be slowing much faster than anticipated, all these factors are not good for EU and the rest of the world too esp china.

for eu countries and EU in general as a whole, there are too many objectives to achieve or interests [including voters] to protect and please so coming to conclusions or agreement will need a major jolt ie a financial crisis of historic proportion.

we cannot be too optimistic until we see the following:

• some form of common euro bonds - to lower interest rates on bonds of weak countries;
• a serious fiscal [budget controls] union - to avoid flashy spending, too much welfare or too good to believe pension plans;
• some form of deposit protection and recapitalization of weak banks across the union - to stop customers withdrawing deposits.

all the above measures mentioned are aimed at closer political and fiscal union which aren't measures to get more votes from the voters, so brace yourself for more turbulent times from now on and the next year or two.