“Europe’s debt-crisis strategy is near collapse”

That’s how Ambrose Evans-Pritchard opens his latest essay in the Telegraph.  He goes on:

The long-awaited recovery has failed to take wing. Debt ratios across southern Europe are rising at an accelerating pace. Political consent for extreme austerity is breaking down in almost every EMU crisis state. And now the US Federal Reserve has inflicted a full-blown credit shock for good measure.

None of Euroland’s key actors seems willing to admit that the current strategy is untenable. They hope to paper over the cracks until the German elections in September, as if that is going to make any difference.

A leaked report from the European Commission confirms that Greece will miss its austerity targets yet again by a wide margin. It alleges that Greece lacks the “willingness and capacity” to collect taxes. In fact, Athens is missing targets because the economy is still in freefall and that is because of austerity overkill. The Greek think-tank IOBE expects GDP to fall 5pc this year. It has told journalists privately that the final figure may be -7pc. The Greek stabilisation is a mirage.

Italy’s slow crisis is again flaring up. Its debt trajectory has punched through the danger line over the past two years. The country’s €2.1 trillion (£1.8 trillion) debt – 129pc of GDP – may already be beyond the point of no return for a country without its own currency.

. . .

The International Monetary Fund has just slashed its growth forecast for Italy this year to -1.8pc. The accumulated fall in Italian output since 2007 will reach 10pc. This is a depression. Yet how is the country supposed to get out of this trap with its currency overvalued by 20pc to 30pc within EMU?

Spain’s crisis has a new twist. The ruling Partido Popular is caught in a slush-fund scandal of such gravity that it cannot plausibly brazen out the allegations any longer, let alone rally the nation behind another year of scorched-earth cuts. El Mundo says a “pre-revolutionary” mood is taking hold.

. . .

Portugal is slipping away. Professor João Ferreira do Amaral’s book – Why We Should Leave The Euro – has been a bestseller for months. He accuses Brussels of serving as an enforcer for Germany and the creditor powers.

Like Greece before it, Portugal is chasing its tail in a downward spiral. Economic contraction of 3pc a year is eroding the tax base, causing Lisbon to miss deficit targets … Vitor Gaspar … blames the fainthearted for refusing to slash with greater vigour. Needless to say, he still refuses to accept that a strategy of wage cuts and deflation in a country with total debt of 370pc of GDP was always likely to fail.

. . .

All this is happening just as tapering talk by the Fed sends shockwaves through credit markets, pushing up borrowing costs by 70 basis points across Europe.

There’s more at the link.

Just a few weeks ago I wrote that ‘The economic death spiral worsens‘.  That’s what you’re seeing in action in southern Europe right now.  The powers that be have desperately tried to ‘kick the can down the road‘ again, and again, and again . . . but they never seem willing to pick it up and deal with it, once and for all.  That’s going to come back to haunt them in due course.  Furthermore, when it does, because of our exposure to European debt and other fiscal issues, it’s going to clobber the USA as well.

Einstein defined insanity as “doing the same thing over and over again and expecting different results”.  By that definition, European monetary authorities – and the Fed over here – are insane;  and their policies can only result in fiscal and economic insanity and meltdown in the long run.



  1. Ah yes Ambrose Evans-Pritchard. I am surprised he is still writing, I was under the impression he had lost his credibility due to selective 'fact interpretation' years ago.

    Yes, Italian growth for 2013 is -1.8 but has he bothered to mention that the IMF has slated a 0.8% growth prediction for 2014? Off course not, it would make the article a lot less interesting.

    The same goes for Portugals 'continued downward spiral'. No mention of their 0.6 growth for 2014.

    There is only one thing sadder than Ambrose Evans-Pritchard and that is people who believe him without doing their own, independent research.

  2. Ireland is in the same (sinking) boat. They're ignoring the inevitable, putting the non-feel good responsibility behind them and only strive for the instant gratification. Foreign vacations, expansive weddings, and weekly feasts at over-priced resteraunts are on top of the list of "must do" things.

    Paying property taxes, water supply charges and other unpleasant things are ignored or even violently rejected.

    The culture is that of 5 year olds being spoiled by a progressive government (parents) who are also ignoring the inevitable.

  3. @Anonymous at 11:24 PM: There's an old lawyer's maxim of how to conduct yourself during a trial. It goes like this:

    "If the facts are against you, argue the law.

    If the law is against you, argue the facts.

    If both the facts and the law are against you, assassinate the character of the witness."

    I think that adequately explains your attempt to 'damn Mr. Evans-Pritchard with faint praise'. Even the IMF basically agrees with his analysis – that's why he cites their forecasts. I suggest you broaden your intellectual horizons and read some of the (many) other authorities and economists who think likewise.

  4. I believe the saddest comment in this entire tale is that no one, but no one, has the guts to face each of the citizens of every country with this dilemma and ask not only for forgiveness, but to suggest biting the bullet, not a lot, just enough to get the recovery ball rolling. AND THAT INCLUDES, IN SPADES the United States.
    The entire mismanaged financial world is wallowing in, more like drowning in, techno gadgets and social media. We are so self-absorbed, it's an embarrassment. However, knowing how we got here, we are reluctant to trust government and its "solutions." So, here we are – in Europe, in Egypt, in America, and especially in Mexico, which must have our monthly Social Security checks, and nothing gets done. When will it REALLY stop? Or are there private contingency plans that will keep this charade afloat for another fifty years?

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