Explaining Southern California's economy

Greek default averted: It's all a game of kick-the-can

Violence Erupts As Greece Decides On Euro Future

Milos Bicanski/Getty Images

ATHENS, GREECE - FEBRUARY 12: People clash with police in the streets during a demonstration against the new austerity measures on February 12, 2012 in Athens, Greece. Greece's creditors have demanded further austerity measures before approving a new bailout from the European Union, European Central Bank and International Monetary Fund amid renewed concerns the country may default. (Photo by Vladimir Rys/Getty Images)

Here's the quote of the past weekend (from Bloomberg), stemming from the latest Greek bailout deal:

The euro area has...“bought time” for countries such as Portugal to prove they are more creditworthy than Greece and to erect stronger defenses in the form of a larger bailout fund, said Carsten Brzeski, an economist at ING Groep in Brussels.

“The often-cited Greek can has again been kicked down the road,” he said. “The good thing is that the can is still on the road, but it requires a huge amount of stamina and patience to keep it there.”

Translation: We're going to playing kick-the-can for...another eight years at least? Because it's hard to see Greek reducing its debt from the current 160 percent of GDP to 120 percent until then. The obvious question is, "Just how much road have we got it?" And, "Will that can hold up to another decade of kicking?"

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Eurozone Crisis: China doesn't want to be Germany

World Leaders Gather In Cannes For The G20 Summit

Dan Kitwood/Getty Images

CANNES, FRANCE - NOVEMBER 03: US President Barack Obama is welcomed by the French President Nicolas Sarkozy to the G20 Summit on November 3, 2011 in Cannes, France. World's top economic leaders are attending the G20 summit in Cannes on November 3rd and 4th, and are expected to debate current issues surrounding the global financial system in the hope of fending off a global recession and finding an answer to the Eurozone crisis. (Photo by Dan Kitwood/Getty Images)

Aren't you glad we don't have Greece to worry about anymore? After two years of crisis, the Greek economy is in full meltdown mode and the country's political system is falling apart. It has no hope of paying back its debt. The only question now is whether it will remain the Euro currency union, or whether default and bankruptcy will mean a return to drachma. 

We now turn our attention to Italy, number three in economic size, behind German and France. There's enough money sloshing around the euro currency union to deal with Greece and similar small economies, but if Italy can't refinance its 1.9 trillion euros of debt, a bailout isn't currently a realistic option. 

Unless maybe the Chinese pitch in. China has more than $3 trillion in foreign currency reserves, which it could pump into Europe. The question is what this would ultimately cost Europe, in terms of various trade-offs (pun intended), not to mention what it would cost China itself. This is Yu Yongding, former member of China’s central bank monetary policy committee, writing recently in the Financial Times:

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