Is Europe heading for a meltdown?

[girl gone mad]

Is Europe heading for a meltdown?
http://www.telegraph.co.uk/finance/comment/edmundconway/7770265/Is-Europe-heading-for-a-meltdown.html">Telegraph

Mervyn King, the Bank of England Governor, summed it up best: "Dealing with a banking crisis was difficult enough," he said the other week, "but at least there were public-sector balance sheets on to which the problems could be moved. Once you move into sovereign debt, there is no answer; there's no backstop."

In other words, were this a computer game, the politicians would be down to their last life. Any mistake now and it really is Game Over. Or to pick a slightly more traditional game, it is rather like a session of pass-the-parcel which is fast approaching the end of the line.

The European financial crisis may look and smell rather different to the American banking crisis of a couple of years ago, but strip away the details – the breakdown of the euro, the crumbling of the Spanish banking system to take just two – and what you are left with is the next leg of a global financial crisis. Politicians temporarily "solved" the sub-prime crisis of 2007 and 2008 by nationalising billions of pounds' worth of bank debt. While this helped reinject a little confidence into markets, the real upshot was merely to transfer that debt on to public-sector balance sheets.

This kind of card-shuffle trick has a long-established pedigree: after the dotcom bust, Alan Greenspan slashed US interest rates to (then) unprecedented lows, which helped dull the pain, but only at the cost of generating the housing bubble that fed sub-prime. It is not so different to the Ponzi scheme carried out by Bernard Madoff, except that unlike his hedge fund fraud, this one is being carried out in full public view.

Read More: http://www.telegraph.co.uk/finance/comment/edmundconway/7770265/Is-Europe-heading-for-a-meltdown.html

[ixion]

1. If you've ever played Sim-City, you know what happens when

you issue too many bonds: You wind up neck deep in debt. It becomes a real mess, and soon you're issuing bonds to cover payments on the previous bonds, just like we're doing now.

Perhaps it would be a good idea for politicians to prove they can create a sustainable city model in this game as a precursor to running for office.

[jschurchin]

2. It's not Europe I am worried about.

It is the United States.

http://www.marketoracle.co.uk/Article19714.html

But then again, we are the "safe" haven.

[pscot]

3. No worries, mate

We're too big to fail.

[bossy22]

6. sort of correct- but better put its impossible for us to default

we have one big advantage over the Euro countries- we have full control of our currency. We denominate all our debt in our own currency which we print; therefore we have an almost unlimited amount of nominal currency to work with. This gives us the power (god forbid we are struggling to pay our debt) to devalue our currency (print more) to pay off our debt. in debt issuing, the worth of such debt is only in nominal terms; meaning the relative value of the debt to other currency is inconsequential.

Greece would not be in danger of defaulting if they still printed their own currency (as long as their debt was also issued in their own currency)

[Name removed]

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[SlipperySlope]

4. It is heading to a 1€=0.50$ exchange rate, but not a meltdown.

Europe won't fall apart or melt down, but their currency has another 20% to 60% to lose relative to the dollar and yen. If they survive that they should be able to muddle through.

[Kringle]

5. coming soon...special 'Greek' euro .nt