This time is just the same

The author of the best-selling book "this time is different" is rather bearish. The euro is not viable, countries will default, the recovery is not sustainable...

When he Greek crisis started, the finger was - as usual- pointed to "speculators". We now know that the Greek budget was fudged, that the deficit has run out of control, that the Greek government begged China for financing etc etc. Speculation has always been the guilty for the public opinion, but in fact speculation does not make any sense without a fundamental judgement. Soros just added the last straw that broke the UK camel's back. Other pushed some Lehman, but the bank could not be saved anymore. I do not say that I would participate in such practices, but it is only a small part of the real problem. Solve fundamental problems, even better anticipate problems, and you can not get into the loop of speculators.

Now we see that other countries are having some difficulties with their budgets and credibility. Over the last 6 months, almost all countries have seen their risk premiums (as measured by CDS insurance premiums) widen.

Investors (or speculators ?) judge Norway and Finland as the best sovereign quality, not the US, Japan or China.

Kenneth Rogoff says that country defaults w ill be inevitable:

Rogoff, 56, said he expects Greece will eventually be bailed out by the IMF rather than the European Union. Greece will probably announce an austerity program “in a few weeks” that will prompt the EU to provide a bridge loan which won’t be enough to save the country in the long run, he said.

“It’s like two people getting married and saying therefore they’re living happily ever after,” said Rogoff. “I don’t think Europe’s going to succeed.”

Investors will eventually demand higher interest rates to lend to countries around the world that have accumulated debt, including the U.S., he said. The IMF forecast in November that gross U.S. borrowings will amount to the equivalent of 99.5 percent of annual economic output in 2011. The U.K.’s will reach 94.1 percent and Japan’s will spiral to 204.3 percent.

“In rich countries -- Germany, the United States and maybe Japan -- we are going to see slow growth. They will tighten their belts when the problem hits with interest rates,” Rogoff said at the forum, which was hosted by CLSA Asia-Pacific Markets, a unit of Credit Agricole SA, France’s largest retail bank. Japanese fiscal policy is “out of control,” he said.

Euro Concerns

So far concerns about the euro zone’s ability to withstand the deteriorating finances of its member nations have outweighed the U.S.’s deficit woes, propping up the dollar.

“The more they suck in Greece, the lower the euro goes, because it’s not a viable plan,” Rogoff said. “Clearly the dollar is going to go down against the emerging markets -- there’s going to be concern about inflation and the debt.”

I would add some remarks:

* Governments should stop complaining about speculators (that attack 40 countries at the same time ???), and tackle the fundamental debt problems.

* The IMF and the EU should not give any money before getting decent debt restructuring and deficit reduction plans are credible.

* Central banks should bring interest rates at levels that discourage further debt enhancement of private individuals, companies and countries.

* The anglosaxon opinion leaders are always quick to point to Europe and the euro, but the US and the UK are in a much worse debt shape than Europe.