All Focus on EU

It is the month of the EU. Sure, anyone with common sense would have focused on the EU problems for a few years now, but things are really starting to percolate. Seriously, Berlusconi and Papandreou both going down in the same month would have been unimaginable a few months ago. And why all the fuss.

Let's break it down. EU countries - focus on the PIIGS - are being required to do Severe austerity plans (that is with a capital S). Severe austerity is not conducive to growth in GDP, reduction in unemployment, or anything of the like, so these plans actually worsen their ability to pay their debts (how smart is that). It is a recipe for several hard years ahead to bring government spending within manageable means. It is a bit of a recipe for disaster as the cure is something that worsens the disease for perhaps a long time. Now I personally agree that austerity is necessary in proper measure and timing, especially for countries on the verge of bankruptcy, but I recognize it is not a cure. The better cure in my book is fessing up, defaulting, going bankrupt, and putting it behind you. Just my take. And by the way, the first ones into the default pool are likely the first ones to come out the other side cleansed of the default negativity. I mean who wants to by bonds of the last country that should default when you can buy bonds of a country that has already cleaned their debt slate. Bond investors care more about the future than the past. Your future ability to pay is all that matters.

And so the EU is still in the struggle, trying to hang on. I have no hope for a good outcome and only question the timing of when the worst will come to bear. Another unanswered question is whether all the kicking of the can has really bought any time for the banks to lower their risk. I suspect a little, but not a lot.

Disclosures: Not.