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Beyond the Point of No Return

  11/25/12 11:06, by Len, Categories: Announcements, Debt Management, Money Markets, Change Management, Economics Commentary, Financial Markets

Source - Article by Cees Bruggemans - 18th November 2012

Profile: Cees Bruggemans is Chief Economist of First National Bank.


The European crisis isn’t some distant thing passing us by. Our senior policymakers continue to consider it with great suspicion, fearful of a sudden turn for the worse, with the resulting financial market turbulence and the region shifting much deeper into recession reverberating also loudly in our markets and economy (Rand, inflation, growth, jobs, interest rates, stock and bond markets). Such caution is understandable, given deep global market skepticism about the entire European project, the many euro-skeptics everywhere and the often only slim electoral majorities in crucial countries sticking with the chosen course of action. It may be, however, that the Eurozone this year has passed a critical point of no return in its existential crisis, with no easy way back and the only sane alternative a matter of carrying on and bringing things to (some kind of) successful ending.

This crucial point of no return concerns the costs of breaking up (even if “only” jettisoning Greece) as compared with going on. For apparently we are talking of a cost equivalent to a very large percentage of German GDP in the event of failure, in which case continuation is seen as the lesser evil by far (even if it will still costs “some” money). There was always a sense these past three years that especially the Germanic countries were inclined to hide from their electorates the full extent of losses already incurred and the cost of loans and guarantees granted while wanting to prevent their weakly placed banks, insurers and pension funds from being abruptly confronted by the massive cost of country (and even bank) default (in turn activating the taxpayer bills).

For long it seemed that the preferred choice was to delay the moment of truth when these things needed addressing, buying crucial time, allowing the weakest institutions time to take remedial action and gradually adjust their portfolios or absorb write-offs after which presumably some kind of “orderly” workout, including exiting, might be conceivable.


Read the full article here

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