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Wednesday, February 1, 2012

My Advice: Ignore All Headlines on Solution of Euro Crisis

Yesterday’s headlines read something like: “Europe Decides on Fiscal Union,” or Merkel Wins on Fiscal Discipline.” Ignore such headlines as most others. Europe is no closer to a solution of its problems than it was a week ago or three months ago.

If you read the articles on the fiscal union, you see the same rehashed ideas. Debtor countries are to be fined if their deficit exceeds a certain percentage of GDP. Now it is .5 of the structural deficit. The European Court of Justice is being brought into the picture as the supposed police man of the agreement.

One can drive a truck through this new “agreement.” No one really knows how to calculate the structural deficit (the deficit at full employment). The rule can be broken for a range of emergency situations, and how do you fine a country that is broke? The Greek debt issue has not been resolved. Portugal needs more money.

So far I have counted about 25 announcements that the Euro crisis has been resolved or is about to be. I guess these headlines are wishful thinking.

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