Courtesy of Mish.
Michael Pettis has a very interesting article on the Spanish news site ABC regarding a possible default of Spain and the eventual breakup of the eurozone.
Pettis Three Ways
- His article El exceso de deuda impide el crecimiento in Spanish.
- His article Debt Overhang Prevents Growth as translated by Google.
- His article Excess Debt Hampers Growth as translated by Microsoft Bing (Much, much slower than Google translation).
I used both translators in a verification process. What follows is my heavily modified translation of key portions of Pettis’ article after reading both of the above translations.
In the Panic of 1837, two-thirds of the US, including several of the richest states, suspended payment of external debt. The United States survived. If the European Union is to survive, it will have to find a solution to the European debt.
The more hope instead of action, the more likely there’s a permanent breakdown of the euro and the European Union.
In a gesture more of faith than economic or historical data, Madrid assures us that with the right reforms, it will eventually be able to get out of debt.
Other countries in debt crises have made the same promise, but the promise is rarely fulfilled. Excessive debt itself impedes growth. Even without the straitjacket of the euro, Spain probably cannot afford its debt.
Even those who are against debt cancellation recognize that the only thing that shielded Germany from a Spanish default was the European Central Bank.
Despite their obnoxious policies, far-right parties across Europe flourish more than ever because the ECB protects the euro and European banks at enormous costs for the working and middle classes.
These extremists exploit the refusal of European leaders to acknowledge their errors. The longer the economic crisis, greater their chances of winning, and then comes an end to Europe.
The only thing that prevented a suspension of payments by Spain and other countries was the promise of the European Central Bank in 2012 to do “whatever it takes” to protect the euro. But debt continues to grow faster than GDP in Europe, and the European Central Bank load increases inexorably month after month.
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