Gorilla's Blog

For Spain and Greece, and possibly everyone else in Southern Euroland, the day of reckoning looks like arriving within a few weeks!

There simply is no way to avert a euro breakup until and unless the ECB: 1) guarantees all sovereign debt, 2) cuts interest rates to zero, and 3) announces it will pursue a higher inflation target of at least 4%.

Further austerity is entirely self-defeating, but denial remains the flavor of the decade in Brussels and Berlin.

Gorilla says: “Wishing that austerity works is as big a fantasy as wishing the Euro would work!”

More austerity, more tax increases, which will lead to higher unemployment, lower government revenues, and more unsustainable debt.

The amorality of Euroland’s leaders is breathtaking, not quite on a par with Hitler, but right up there in terms of sheer, pointless cruelty. The Germans, having destroyed Europe twice, are now going for the hat trick.

Gorilla says: “Manana will never come, so long as these fools are in charge!”

Spain will get a one-year extension to hit its deficit targets, but like everything else in Euroland, this makes no sense until and unless unsustainable Spanish borrowing costs are substantially reduced.

This can only come by the ECB acting as lender of last resort. Spain itself also needs much higher inflation in northern Europe to become competitive economically. And there needs to be big-time stimulus to get people working again.

Right now, the euro won’t last another year without these major policy changes.

Gorilla says: “The finance ministers, like the prime ministers, appear to be as stupid a collection of people as can be assembled anywhere!”

The markets have spoken: the Spanish debt deal isn’t so hot!

And the reason of course is that the loan does absolutely nothing to solve the fundamental problem in Euroland: competitive imbalances between North and South.

How the Spanish, with 25% unemployment, are supposed to borrow another $100 billion to rescue a busted banking system, while having absolutely no prospects for economic growth, is a question no one in Frankfurt wants to ask or answer.

Spanish borrowing costs continue to rise.

They will do so until and unless the ECB finally decides to be a central bank: become the lender of last resort on all sovereign debt, cut interest rates to zero, and pursue an inflation target of at least 5% until competitive balance is restored and the amoral disaster of utterly unnecessary long-term unemployment is resolved.

The Fed also could be doing a lot more to restore the US economy by pursuing much higher inflation targets, but alas both sides of the Atlantic are plagued with the worst leaders since the last Great Depression.

Gorilla says: “It’s not the banks who need help, it’s ordinary people who are being destroyed for no good reason!”

If the rescue of Spanish banks is “a victory for the Euro”, according to the Spanish Prime Minister, what exactly does he mean?

Spain still has horrendous unemployment, cannot borrow money at anything other than unsustainable interest rates, and has not addressed in any way its lack of competitive balance with the Germans who got them into the mess in the first place.

The latest effort to kick the can down the road will also fail.

What’s needed is what’s been needed all along: ECB as lender of last resort to guarantee all sovereign debt, a reduction in ECB rates to zero, greater consumption and a vastly higher inflation target by the Northern Europeans.

Gorilla says: “Reality in Berlin and Frankfurt remains entirely unrealistic!”

Spanish banks are bust, but that’s not the problem!

What’s wrong in Europe is competitiveness and the balance of trade. So long as the Germans continue to beggar their neighbors, refuse to allow the ECB to act as lender of last resort, and will not go along with both higher inflation and greater consumption by Northern Europe, the Euro is doomed.

It’s not about banking reform, or a Euroland fiscal regime, it’s about the utterly pointless pursuit of austerity, which guarantees that Spain, Portugal, Ireland, Italy, Greece, and likely France will be stuck in a decade or more of severe depression.

Gorilla says: “The German empire that is rising is already about to fall!”

Where else in the world is an unemployment rate exceeding 25% (and over 50% for younger workers) met with absolutely zero response by government leaders?

In Spain, there’s far more interest in deficit reduction and recapitalizing banks, the former of which will only increase unemployment and deficits while the latter will only work if the ECB at last decides to be the lender of last resort.

In Greece, the banks are essentially finished, there’s no government, and a marked rise in political extremism.

In Germany, of course, the lying by Angela Merkel et. al. goes on.

Gorilla says: “Talk about continental drift! Not since Hitler has Europe been plagued by so many worthless and amoral leaders!”