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Saturday, October 04, 2008


hypo bailout collapses

via yves smith -- the aforenmentioned bailout of hypo is off. this would bring back the rain.

as bad or worse, the stress of the credit crisis is widening cracks in the european monetary union.

The euro is in serious trouble with this Hypo Real Estate collapse. Germans remain completely in denial. The French get it, largely because their clever finance minister, Christine LaGarde, was educated at the University of Chicago and consequently understands something about markets. Sarkozy, to his credit, appears to be listening to her. The Germans are about to destroy EMU with their pigheadedness, and this will be the stuff of revolution, given that the German people were never consulted on abandoning the DM (if there had been a referendum, the euro would have never been accepted in Germany) and were forced to get rid of arguably the most successful post-war monetary institution, the Bundesbank.

The sop thrown their way was the stupid Stability and Growth Pact, designed by former German Finance Minister, Theo Waigel. So he has hoisted the Germans and the euro zone on a German petard. And that's made things worse! No EU wide guarantee of deposits, no EU-wide prospect of a major fiscal stimulus and bye bye euro.

i've mentioned this before -- national preference remains too strong in europe to transcend this kind of stress without great difficulty. the euro may well fail.

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