Friday, October 03, 2008
The EU is Unraveling
As I said in a previous post, EU external debt is unraveling very quickly and it lacks the institutional mechanisms to deal with their funding crisis.
The only way to halt the decline is for EU members to offer deposit insurance for all members. This process, like everything in Brussels, will take time.
Unfortunately, time is not a luxury the EU has at the moment. This is the kind of thing that brings down governments.
Markets are responding. Peripheral members of the EU (I hesitate to use the acronym "PIGS" again) are suffering mass withdrawals from their banking systems.
And, since every other financial person is using a the patient-doctor analogy, I will weigh in with one of my own:
"The contagion is spreading, and amputation should not be ruled out at this point"
Clearly, policy formation in the EU has its first real trial by fire. We shall see if countries willingly cooperate at the EU level when it no longer benefits their populace.