The big news this afternoon was that the EU has reached a tentative debt settlement with Greece. And stocks took off, and gold and silver were smacked down.
As the news continued to come out, it appears that the Eurozone and Greece have agreed to a four month extension of the loan agreement, with some modifications, provided Greece can provide an ‘acceptable’ action plan by Monday evening.
There is some serious room for wobbles in this. The Greek parliament must agree to whatever action plan that the current government develops, and all eyes will be on the rollbacks of austerity.
The major concession it appears the Eurozone made was the relation of this virtually unachievable budget surplus of 4.5% that had been imposed on Greece, known as the Arbeit Macht Frei austerity program. Most economies are not capable of sustaining a 4.5% budget surplus in today’s global economy, much less one that is teetering from the shock and awe of austerity.
Let’s hope that a sustainable agreement is reached, but I have my doubts.
And let’s see how things develop in Spain. And Italy.
The problem is that no matter what they have so far on the table, the basic weaknesses in the Eurozone as it is now conceived still remain. Until they find a way to make a currency union work without acknowledging that a ‘one size fits all’ monetary policy does not work in a varied economic region, there will be continuing crises.
As a general rule, the inherent instability of a monetary union without a comprehensive fiscal union to ameliorate the problems created by inflexibility of one policy for all remains.
Speaking of ongoing problems we will take a further look at the US economy performance next week when we see the second revision of the US 4Q GDP. I am wondering how long the government can keep kicking the existing arrangement down the road, until something comes apart at the seams.
We are now in the sixth year of The Recovery™.
