Euro Crisis from Long Perspective

by Chidem Kurdas

The European crisis, in progress for years and still showing no sign of resolution, is largely the result of elite hubris. To create the euro and ram it down the throats of populations that, left to their druthers, would have stayed with their old currencies—this was a massive, top-down social engineering project. Continue reading

The Crisis in the EU

by Jerry O’Driscoll

I addressed the Greek situation and the wider EU debt crisis in an op ed in The Wall Street Journal on Wednesday, November 2nd (“Why We Can’t Escape the Eurocrisis”). It is also posted today on the Cato homepage. I explain the linkages between the US and the EU, particularly among financial institutions.

Banks within the EU finance the deficits of their governments. It is not just that Greek banks buy Greek sovereign debt, but French banks lend to Greek banks. And French banks buy the bonds of the Italian government. US banks lend to EU banks. Less well known, US money market funds hold a good amount of debt issued by EU banks. And the Fed is backstopping dollar funding of EU banks.

Sovereign defaults over there will have a big impact over here. And, then, there is our own public debt problem. And it is not just public-sector debt that afflicts both economies, but, to varying degrees, excessive leverage in the household and nonfinancial corporate sectors.

Last night, Judge Napolitano interviewed me for a segment on “Freedom Watch.”

The Judge was interested in not only the economic issues, but also political issues.

The lead segment was with John Allison, former CEO of BB&T, who decried the crony capitalism that is at the root of the crisis here and there. It was enjoyable to hear a former banker denounce rent seeking by banks. He even used the word “rents.”

European Bailout’s Scapegoats and the Future

by Chidem Kurdas

Before the near-trillion-dollar bailout package for financially shaky euro-zone governments was announced, French president Nicolas Sarkozy hauled out the financial whipping boys yet again. He promised to “confront speculators mercilessly.” They would soon “know once and for all what lies in store for them,” he said.

Presumably he meant that those betting on the decline of the euro will be squeezed and made to understand that he and his fellow office holders will protect the currency. Thus Mr. Sarkozy framed the issue—we’re not bailing out profligate governments, we’re defending our common currency against demonic speculators.

This message appears to play well politically  But beneficial as it may be in the short term for those in office, it compounds the real problem. Continue reading

Estonia – The Return of a Baltic Tiger?

by Andreas Hoffmann*

The new member states of the EU were hit hard by the current crisis. Especially the former Baltic tigers (Estonia, Latvia, Lithuania) have seen a tremendous decline in GDP. While our economies face difficulties to cope with a decline of about five percent of the GDP, they lost 10 to 15 percent. In my opinion, Estonia is the most interesting of the three as it chose a distinct way to deal with the crisis. Continue reading