Catch me if you can

LeBron links to a study claiming the economic benefits of the single currency accrued mainly to Greece, Portugal & Spain.

I decided to look at the issue through the lens of real per-capita GDP via Angus Maddison's dataset and take a longer view than just the post-euro period.

Here's what I found (clic the pic for an even more wonkish image):

Ireland, Spain, Portugal and Greece were all growing fast relative to Germany (and France which is not on the graph) well before the introduction of the Euro. Ireland and Spain take off somewhere around 1990 and the intro of the Euro in 2000 does not speed up their trajectory. Portugal actually falls further behind Germany in the Euro era. Greece is the only country of these 5 whose catch-up to Germany accelerates with the intro of the Euro.

The data used can be found here.

It is also interesting to note that Greece, Portugal & Spain surged relative to Germany from 1960 - 1974, then stagnated till the end of the 1980s.

They just need more frequent summits

Eurozone policymakers have produced an endless stream of summits with an endless stream of announcements, that generally make folks happy for a week or so. The latest summit that produced "Euro-wide" bank supervision/bailouts is no exception, as this graph from Soberlook demonstrates:

Spanish interest rates fell and stayed down for around 4 days before rising above pre-summit values (I know the graph is of the spread, but the same is true for the Spanish rate). The Euro appreciated and stayed that way for around 4 days before falling below pre-summit values.

I now believe there is only one way to save the Euro: Weekly Summits!!

The 7% solution

This morning, yields on 10 year Spanish government bonds hit 7%. That is a Euro-era record for Spain and a clear sign that the bank "bailout", which basically created billions of Euros more of senior debt to be repaid, didn't work and Spain is again on the ropes. The Spain - Germany spread is almost 550 basis points!

Either Germany and its Northern Neighbors are going to have to cough up a ton of cash (not loans) or the ECB is going to have to seriously print Euros, or the whole enterprise is doomed.

Someone else calls out Mr. Burns

From another perspective, here's some great invective about Christine Lagarde's tender feelings for the children of Niger.

A new record

As "pro-bailout" parties take the lead in Greek polls, focus turns more to Spain, where the spread between its 10 year bonds and Germany's broke the 500 basis point barrier, hitting the highest level since the dawn of the Euro.

Spanish 10 year bonds are currently "yielding" 6.49%.

Yikes!

Kindred spirits

Kindred and Thomas have a nice piece in FP about the peripheral-ness of Greece and the low likelihood that a Grexit will cause a global downturn like the US financial crisis did.

I largely agree with their points (though the 97 Asian crisis wasn't a small event to me), even though I recently put up a post asking "Will Greece be Europe's Lehman Brothers"?

Kindred commented on my post making many of the points in the FP piece, but now I can see that we were somewhat using the same words to talk about two different things.

In the US financial crisis, the political decision to let Lehman Brothers go, was the catalyst to all hell breaking loose in US financial markets. I was asking whether a political decision to let Greece go would be the catalyst to all hell breaking loose with the Euro (spurring contagion to produce multiple exits from the Euro)

I still think it could, but that is not to say the global fallout will be anything like the global fallout from the US financial crisis, which is Kindred's point.

Also of note, in this morning's NY Times, LeBron has a piece arguing that the Euro may fall apart altogether, which would probably have greater global consequences that just a southern member exit.

What do the European elections mean for the Euro?

People, it's another beard vs. beard situation as Lebron takes the pessimistic view while PK says the results may be good news for the Euro.

The bottom line is that electorates in the PIGS (so far Ireland is resolute in taking its medicine) are unwilling to tolerate the Troika policies. Their only unilateral alternative is to exit the Euro, and they all seem unwilling to take this step.

So, I guess the "optimistic"view is that these results scare Germany enough to get them to pay more for their southern neighbors and to throw their weight behind the ECB significantly raising the Eurozone inflation rate.