Gorilla's Blog

Leverage up the rescue package as much as you dislike, but without a cut in interest rates and a raising of the inflation target, extend and pretend will not save the euro.

An inflation target at or below 2% means crippling deflation and a larger debt burden for the PIIGS. No cuts in interest rates mean borrowing costs will increase, not decrease.

Gorilla says: “The Germans need to face reality, but all they want is fantasy!”

The Germans will have to decide very soon whether to stay in the Euro or pitch out some or all of the PIIGS.

There’s just no coherent leadership in Euroland at the moment. Markets have already priced in Greek default, but are much more worried about Italy and Spain.

What’s needed is a clear statement from the ECB that it will be the lender of last resort, coupled with large scale purchases of Italian and Spanish bonds, recapitalization of European banks, and an immediate reduction in interest rates.

None of these things will please the Germans, who have been misled repeatedly by their Chancellor. Unless there’s some genuine honesty forthcoming, the Eurozone will be finished within weeks.

Gorilla says: “Lying in the service of a lofty dream doesn’t make that dream any more workable!”

Hysteria in Germany over the Eurozone bailouts?

Well, yes, primarily because Chancellor Merkel has been lying for months about the German banking system, which is desperately in need of recapitalization.

And yes, German taxpayers also will have to foot the bills for Club Med’s borrowings from German (and French and Dutch) banks.

The alternative, allowing Euroland to break up, will have the same impact on the banking system, so it’s really a choice between pay now and pay later.

Gorilla says: “Easy money is getting harder to find!”