We’re told today’s stock-market rally is a result of “reassuring” comments that central banks will rescue the eurozone from collapse. Fair enough, but even if all the king’s bankers and all the king’s men (and women) from the Federal Reserve and European Central Bank attempt a rescue, it will, at best, duct-tape Humpty Dumpty together for a few more months, and at tremendous cost.
Another ECB “bazooka” and QE3 from the Fed are understandable efforts. The dominoes are tipping and the world is facing another downturn. But they won’t fix the heart of the problem: A monetary union without a political union. Or the major arteries: Exceptionally high sovereign debt that keeps resetting at higher rates; a continental banking crisis, and German intransigence.
In other words, the crisis is chiefly one of sick banks and political dysfunction. The time when the ECB could have acted robustly and somewhat effectively has passed, and this central bank really can’t act as a lender of last resort — Berlin, afraid of inflation, won’t allow it. Easing will also be canceled out by continuing austerity, which kills growth.
So, at best, some time has been bought and perhaps the eurozone has taken a step back from the abyss. But European recession is already a reality, one affecting China, India and the United States.
And Don’t Miss: The sharp drop in government spending under Obama || Talking Points Memo
Today’s Econ Haiku:
Off to the Gallos
Modesto meet Yakima
Enjoy the hanging