Now Italy, Next France?

Well, the whole eurozone mess is broadly playing out according to the sequence people like me had expected. After Greece, attention had to go to Italy, the larger and vulnerable European country, though the mess in Greece is far from over. For a country with so many coalation governments since World War II, I am constantly amazed to see how much Italy has acutally achieved economically. But now with the kind of prime minister it has and the kind of political squabbling that is expected, it is keeping global markets on the edge. If things get worse, it's France's turn. While most European countries have flouted the fiscal norms for eurozone, including Germany, perhaps countries like Italy and Greece just went over the top. If things get bad in Europe, we are talking about more forex flowing out of India, rupee depreciating, imports getting costlier and inflation fire getting some more pumping. Then how can we expect RBI not to raise interest rates in December, 2011? Well, looks like its a better idea to talk about the weather. Darn! The weather in Delhi is also not good. There you go.  

Eurozone: Our Misplaced Hopes

Went to All India Radio studios on Tuesday as an expert in their stockmarkets programme to   comment on news developments. One of the anchors asked me what I thought of reports that European leaders wouldn't be able to hammer out a solution to the eurozone problem this weekend and whether it wasn't too much to expect something like that over a weekend. I agreed with the anchor and said that the problem was just too big and too messy for a weekend clean-up job. As in every economic crisis driven by a financial crisis, trust and faith become casualties. Somebody has to lend for the borrowers who can't pay. The job was done by financial insitutions for sub-prime guys before many of whom went broke. Governments then stepped in and some of them are now broke for that reason or general over-indulgence. Anybody who is lending now needs an assurance that the money will come back. When governments go broke just who gives that assurance and how? Just how much of your future income do you use to mend your today? You got to be kidding to think that this will blow over soon. How much more time will this take? Some more years? Perhaps.