Sunday, September 25, 2011

Michael Pettis on euro failure

Pettis concludes what I have suggested from the beginning of the crisis — Germany need to leave the EZ and go back to the DM, and political realities will force it to do so. This would save the euro, and then after the crisis is in the past, the EZ could be reconsidered. Otherwise, the asymmetry is too great for a workable solution, and there is no political will to take on the powerful financial industry that is largely responsible for the crisis.

Read the whole post at China Financial Markets, The euro once again


JKH said...

I read Pettis sometimes, just to see where he inevitably goes "out of paradigm", as MMT would say.

This time:

"But do they understand what this means? If Asian central banks increase their flows to Europe – by buying more government bonds, for example – Europe will be transformed from a net capital exporter to a net capital importer, and with that Europe’s small trade surplus will reverse itself and become a trade deficit."

Backwards causality. If PBOC starts increasing funding to Europe, it'll have to sell dollars, other things equal. Vice versa for European portfolio managers probably. It's an asset mix adjustment for both sides at the outset. There's no necessary great effect on current accounts.

GLH said...

I suspect that Germany will leave the Euro when she sucks all she can out of the PIIGS and probably not before.