If I were Germany and the Northern European countries that do well with the euro, and do not have spreads against Germany, I would tell all the countries that need rescuing, particularly Italy and Spain and in a smaller proportion Greece and Portugal, that Europe will guarantee their sovereign debt but in exchange they have to cut spending where it hurts less.

One area that can easily endure spending cuts is military. Why should these countries buy any weapons for the next 5 years? Greece for example has an absurdly high military budget because of unreasonable fears of a potential war with Turkey. Other than the military, these countries have to cut government spending and increase tax collection in general.

The alternative is that Northern European countries tell Southern European countries that they are on their own. In that case, those countries would default, need to restart their own central banks and go back to their own currencies. For Northern Europe this would mean enormous losses for anyone who owns Southern European bonds, and assets. Northern Europe would also lose export markets and the overall ability to consider Europe its domestic market.

I still think that Northern Europe has a lot to lose from this happening and that a deal will be reached.

Let’s say at this point I give 80% probability to a deal that saves Europe and 20% that Europe falls apart.

Follow Martin Varsavsky on Twitter: twitter.com/martinvars

No Comments

Alex on November 11, 2011  · 

I would like to know what do you think the average middle class person should do to prevent losing all the savings they have in the bank in the event of a “corralito”, exiting the euro, strong devaluation, etc.
Should we open a bank account in England or Switzerland and transfer our savings now there in pounds or Swiss Francs.
I am very worried and I really don’t know what to do.

Thank you.

3.0 rating

anna on November 11, 2011  · 

Looking at Eurotstat statistics, Greeks actually have (or rather have had) more disposable income than Scandinavians. Same goes for northern Italy, but northern Italy has always been pretty rich.

Scandinavians are also up to their ears in private debt, at least compared to Italians.

So the recipe up here seems to be high taxes and let the people and not the state run into debt.

I would let the Germans do the talking.

3.0 rating

pep on November 11, 2011  · 

Yes, I agree, absolutely. Military spending is outrageous.

3.0 rating

Leave a Comment

Español / English

Subscribe to e-mail bulletin:
Recent Tweets