European downgrades and the Greek crisis

The end of last week broke news like the downgrade of 9 European countries, most notably, the French. Talks broke down between private investors and the Greek government over the yields on newly issued bonds, intended to roll-over Greek debt.

It seems that the eurozone is in deep trouble, further downgrades are likely, and amid a looming recession, Greece is likely to default on most of its debts. Portugal which is now rated as junk will be the next candidate for a major crisis within the eurozone, assuming the Italians can sort their mess out.

The leaders of Europe got everything they wished for in Greece. The country is run not by an elected government but a placemen from Brussels tasked with getting stuff done. The government contains all major parties, even the far-right (hey, in bad times you can’t be that selective). And still, the consensus now seems to be that Greece will default. What could be the problem if not sheer incompetence and mismanagement from Europe’s leaders. First they force private investors to take a loss, but we don’t know how large. Then ‘afraid’ that this will undermine confidence they promise, never to do it again…

The European Financial Stability Facility, Europe’s already insufficient rescue fund was downgraded as well. It seems increasingly clear that the likes of Merkel and Barroso set Europe on a wrong path. Their solutions for the eurozone does not include a joint eurozone-level budget, or the eurobond, or any tool to solve imbalances inside the eurozone. What does it include? More austerity on the national level. While good for Germany, this “medicine” will ultimately hurt the patient. The success of Germany depends on being a net exporter to the rest of the world, mainly other European states. These states cannot emulate Germany because they are run a current account deficit due to exactly the same German exports, Merkel is so proud of.

So what will the leaders of Europe likely do to distract attention from the newest round of downgrades, economic trouble and the impending Greek default? They need a suitable scapegoat to turn attention to. Hungary seems like the perfect target. Even if the eurozone breaks up, Greece collapses under default and the EU falls into a deep recession we can all be sure that the laws “guaranteeing the independence of data ombudsman” will be in order. EU leaders know the real important issues when the see them.

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