Monday, April 12, 2010

Here is a new angle on the economic woes of the EU!

Thanks Aivars Senior for this little gem. Remember a little while ago the press talked about why the Euro was stronger then the USD? You can already feel that there is a story brewing why the Euro is now weaker than the USD. Who will make money off this? The Traders!


Here is a new angle on the economic woes of the EU

Speaking of weak European countries, here’s what’s really going on there: the beer drinking countries - Germany, Austria, Switzerland, Scandinavia – are beating the pants off the wine drinkers – Greece, France, Italy, Spain, Portugal.

The sovereign debt crisis is just a symptom of the deeper problem in Europe - that the Maastricht Treaty of 1992, which established the European monetary union and led to the creation of the euro, brought together cultures that were too different to be under the same monetary roof.

The beer drinkers are far more competitive than the wine drinkers, and now, 18 years after Maastricht, those differences have created impossible pressures on the union, with the first expression of this in the form of a Greek budget crisis. The problem is that Greece can’t devalue its currency to regain competitiveness, and without that there is no obvious solution apart from politically unacceptable long term fiscal austerity.

Last night the euro rose strongly against the US dollar and investors rushed back into Greek shares on talk that a deal had been struck in Brussels to allow Greece to draw down an emergency loan from the EU. But the interest rate will be close to bond market yields for Greece, so that there is “no subsidy” (a stipulation of the Germans).

But there can be no end to this. Unless the rich European countries (the beer drinkers) make large and constant “welfare” transfers to the poor ones (wine drinkers), they will continue to be abandoned by bond markets, with resulting occasional crises and countries are forced to restructure their debt because they can’t raise any at reasonable yields.

So why does beer lead to greater competitiveness than wine? It must be the alcohol content – 5 per cent versus 13-14 per cent. Remember that Russia is hopelessly, irredeemably, uncompetitive and its citizens guzzle vodka (40-50 per cent alcohol) like there is no tomorrow.

So there it is: the secret of national competitiveness – the subject of endless books and academic study – has been solved. It’s all about the booze you drink.