Gorilla's Blog

Euroland: reality is catching up with both lying politicians and the bankers they love!

The problems and their solutions are quite simple: big haircuts on existing Club Med debt (at least 75% for Greece, Portugal and Ireland, 20-40% for Italy and Spain), big bank recapitalizations (at least 2 trillions euros), declaring the ECB to be lender of last resort for all future Euroland debt, a higher inflation target (at least 4%), the end to austerity programs until economic growth returns, and a large scale stimulus (at least 1 trillion euros/year for the next 3 years).

But the willingness to admit just how disastrous EU and ECB economic policy has been is limited. The German and French leaders have consistently lied to their own citizens about both the scale of the problem and the cost of the solutions. So there are riots in the streets of Athens and downplaying in the back rooms of the Bundestag.

Gorilla says: “Mr. Market will take Mrs. Merkel to the woodshed if she doesn’t get moving in the direction of sanity!”

No, there won’t be a big breakthrough at this week’s EU summit, what a non-surprise!

The problem, as always, is with the leaders, who’ve been lying for months about both the extent of the problem and the cost of the solution.

Here’s the five point program they should announce:

1) The ECB will be the lender of last resort and guarantee the bonds of all Eurozone members.

2) There shall be both haircuts (80%) and rescheduling of Greek, Irish, and Portuguese debt, coupled with an ECB guarantee for the newly issued bonds.

3) The ECB’s inflation target will be raised to 5% until the Eurozone wide unemployment rate drops below 7%.

4) The stabilization fund’s resources will be raised to at least $2 trillion and Tier I capital requirements raised to 20%, with the ECB providing recapitalization to all banks in the event they cannot raise enough capital in the marketplace.

5) A stimulus package of at least $1 trillion/year for the next 3 years, targeted at countries with the highest rates of unemployment.

Gorilla says: “But what they’ll offer instead is a shiny new pentagonal can to kick down the road!”