In which Jim O’Neill says muddling through leads to deepening crisis

Muddling through means deepening crisis for the euro zone.

Firstly, given hardly anyone still believes Greece can avoid a major debt restructuring, it would be better to get it over and done with… By offering a decisive restructuring, agreed and recognised by key European and G20 policymakers, this would show eurozone leaders were finally facing up to reality.

Secondly, policymakers need to agree to a framework for the adequate recapitalisation of Europe’s banking system. If there is going to be a successful debt restructuring for Greece, with minimum adverse contagion effects, this will be vital…

Thirdly, leaders must make clear that while Greece has a solvency challenge, the bigger economies of Italy and Spain only have problems with liquidity…

Lastly, and perhaps most importantly, all the key eurozone policymakers have to show that that they are on the same page.

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That is it, exactly. Listen to Jim O’Neill. Muddling through means deepening crisis for the euro zone.

Source: Eurozone leaders must stop trying to “muddle through” the crisis | The A-List | FT.com

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10 Comments
  1. gaius marius says

    they might staunch the bleeding of the immediate crisis, perhaps. but the eurozone still shows no recognition that the PIIGS are being cornered into an extended balance sheet recession by their adherence to the spirit (even if the letter is impossible) of the maastricht treaty. if they keep going with austerity, the rest of the PIIGS will likely end up with solvency problems as well.

    1. Edward Harrison says

      If the eurozone double dips, you will have a lot of problems and austerity will unravel anyway since tax receipts will decline. I imagine a full blown recession will change the calculus on austerity.

  2. Stevie b. says

    Why should we trust Jim O’Neill/Goldman?? I mean, they would say all this, wouldn’t they??

    Weren’t they instrumental in getting us into this mess???

    Why should we bail the banks AGAIN & probably AGAIN & AGAIN without real meaningful reform at the same time??

    Why should we believe ANYTHING the vested interests actually say??

    No wonder OWS is going global – let’s hope the movement doesn’t get hijacked…

    1. Edward Harrison says

      Why the hostility? O’Neill isn’t saying anything controversial or anything I myself haven’t argued. Moreover, to the degree Goldman is affected by a sovereign default, arguing FOR bondholder haircuts isn’t a pro-bank statement.

  3. Stevie b. says

    Ed – thanks for the response. Apologies – just angry and fed-up – fallen prey to the usual scapegoating stuff – but that will be a subject for another day…. Still think the elites are getting away with it. Can’t remember if i mentioned this already, but I like Robert Reich here:

    http://jessescrossroadscafe.blogspot.com/2011/10/administrative-note.html

    1. Edward Harrison says

      Understand. I’ll take a look at the post. Cheers.

  4. Stevie b. says

    p.s. – I like this

    http://blogs.telegraph.co.uk/finance/andrewlilico/100012466/bash-the-right-rich-bankers-are-workers-not-capitalists/

    and i like this particular comment from the comments on the above re OWS :

    “It’s a protest against the anti-democratic power of the banking system using its power to asset strip the people.”

  5. David Lazarus says

    Italy does not really have a banking crisis, its citizens are savers so bank solvency is not really at issue. The ECB should offer unlimited liquidity if they are squeezed. Spain does have a significant banking crisis. If Spain bails out its banks then it will be a sovereign crisis. How Spain is dealt with will seal the fate of the euro.

    1. Edward Harrison says

      The Dexia failure tells you it will be difficult for governments to let these institutions fail and have shareholders and bondholders take the losses. The Belgian government’s position is that Dexia is illiquid but not insolvent and therefore it deserves a bailout. Shareholders will not be wiped out. Won’t the same rules apply when large Spanish institutions get in trouble?

  6. Dan Ebbelwoi says

    I think you’ll know when the Euro-bailout is coming when all of the principals simply shut their traps for 2-3 days straight. Just two days without bold red Bloomberg headlines from Trichet, Juncker, Barroso, Angie, and Sarko. That would do wonders.

Comments are closed.

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