The European Union has probably just consigned half the continent to sovereign bankruptcy by denying a bailout request from its poorer Eastern members:
I especially like the smackdown they gave to General Motors' request for a handout. In the long run, the absence of bailout subsidies for failed industries is a good thing. Countries will be forced to live within their means. In the short run, the economic pain will be intense. The wisdom of taken lumps early in a downturn is illustrated by Russia's recent economic performance:
See what happens when your central bank avoids a ZIRP race to the bottom and shuts off wild loans to gambling banks? Your currency and capital markets remain attractive. If only the Anglo-West could follow suit. Alas, China and Russia signaled their willingness at the World Economic Forum to fill the leadership vacuum left by the West's dithering.
Nota bene: Anthony J. Alfidi is short uncovered calls on EFA.
European Union leaders rejected pleas for an aid package for eastern Europe and EU funds for carmakers, bowing to German concerns over budget deficits as the economic slump deepens.
I especially like the smackdown they gave to General Motors' request for a handout. In the long run, the absence of bailout subsidies for failed industries is a good thing. Countries will be forced to live within their means. In the short run, the economic pain will be intense. The wisdom of taken lumps early in a downturn is illustrated by Russia's recent economic performance:
Russia, the worst-performing major stock market in 2008, was Europe’s best last month as the ruble rose and reserves stabilized. Every neighboring market crumbled..
(snip)
The central bank steadied the ruble, which gained 0.5 percent against the dollar last month, by pledging to raise interest rates and curtailing loans that banks were using to bet against the currency. Investors anticipate government plans to provide $200 billion in loans and reduce taxes will bolster the economy and push up the Micex, which is down 66 percent from its record high in May.
Russia is “still better off than others, mostly because of the reserves,” said Beat Siegenthaler, chief emerging-markets strategist in London for TD Securities.
See what happens when your central bank avoids a ZIRP race to the bottom and shuts off wild loans to gambling banks? Your currency and capital markets remain attractive. If only the Anglo-West could follow suit. Alas, China and Russia signaled their willingness at the World Economic Forum to fill the leadership vacuum left by the West's dithering.
Nota bene: Anthony J. Alfidi is short uncovered calls on EFA.
