* Insolvent Banks
* Insolvent Countries
* Trade Imbalances.
Thats a pretty solid trifecta, and at quite an insurmountable problem. No matter how hard you wish, you can, at most, fix two out of three of Private Sector Debt, Public Sector Debt, and Trade Deficits. Its unfortunate, and its tragic, but it is also basic math (the money has to come from somewhere after all. And yes, we're not in charge of our own currency here).
Which brings us to the bottom line - if Europe is going to "fix itself", then Germany is going to have to start running trade deficits. And what do you think the odds of that are?
Ergo, as John puts it
Greece and the other peripheral countries face a difficult choice. Do we stay in the euro and pay as much as we can, and watch our economy drop; pay nothing and watch our economy drop (as we get shut out of the bond market); or leave the euro and go back to our own currency and watch our economy drop?
They have no choices that allow them to grow and prosper without first suffering (for perhaps a long time) some very real economic pain. As I have written in previous letters, leaving the eurozone has severe consequences; but the economic pain of leaving would go away sooner and allow for quicker adjustments, than if they stayed. However, the initial pain would be worse than the slow pain they’d suffer by staying in the euro. Their choice is, simply, which pain do they want – or maybe, which pain do they think they want? Because whatever they choose, they are not going to like it.
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