Who Will Be The First To Blink?

Methinks the first serious test of the eurosystem is now looming on the horizon. The title of this post refers to an earlier point made by Nouriel Roubini. The FT this morning is reporting that:

The German cabinet will on Wednesday endorse a 2006 budget that breaks the European Union’s fiscal rules for the fifth year in a row, amid criticism that Angela Merkel’s coalition government is failing to meet its own target to cut spending.

If this is confirmed the EU Commission and the ECB will then have to respond. One of these fine days all hell is going to break loose in the financial markets. Will that be sooner or later? We await developments.

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About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

One thought on “Who Will Be The First To Blink?

  1. Why will the ECB have to respond?

    They respond to inflation, and that’s more or less everything, at least as far as the public is concerned.

    (It’s all in the Bank’s Charter. If you ever get a chance, tell it to people like Roger Nightingale, who obviously haven’t grasped this).

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