Does Europe have any sort of future at all?
Financier George Soros says is now likely to lurch from one crisis to the next. What we're seeing now, he says, is just the beginning. "The political will to create a common European treasury was absent in the first place; and since the time when the euro was created the political cohesion of the European Union has greatly deteriorated,'' Soros writes. "As a result there is no clearly visible solution to the euro crisis. In its absence the authorities have been trying to buy time. In an ordinary financial crisis this tactic works: with the passage of time the panic subsides and confidence returns. But in this case time has been working against the authorities. Since the political will is missing, the problems continue to grow larger while the politics are also becoming more poisonous. It takes a crisis to make the politically impossible possible. Under the pressure of a financial crisis the authorities take whatever steps are necessary to hold the system together, but they only do the minimum and that is soon perceived by the financial markets as inadequate. That is how one crisis leads to another. So Europe is condemned to a seemingly unending series of crises. Measures that would have worked if they had they been adopted earlier turn out to be inadequate by the time they become politically possible. This is the key to understanding the euro crisis."
International Monetary Fund chief Christine Lagarde says Europe has now entered a dangerous phase and that a "vicious circle is gaining momentum." She seems to concur with Soros. We are looking at Europe going from one crisis to the next.
So how bad is it? Pretty bad. As reported here, the price of credit default swaps, which are basically insurance contracts that give bondholders a way of get their money back if a country or a company stops making interest payments on its debt, has become prohibitively expensive. That means the market sees more risk which implies there is close to 100 per cent chance of default. And that is likely to become the standard refrain in Europe.
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