Defaults Coming Down the Line.

The general election in Finland has produced a mix of parties less favourable to EU bailouts in a parliament which, unusually, the new government will have to gain approval from for its support of the Portugese rescue. This has sent shivers round various capitals and quite a chill in some European Banks.

It is now ever more widely accepted that once a country gets into so much debt that it can no longer borrow on the markets, its economy is shot. By this stage the level of economic activity is already shrunk to the point were further cuts will do no good and a lot of harm. There is little realistic prospect that Greece, Ireland and Portugal will be able to develop the growth required to service and repay their bailouts. Moreover their populations will become worn down by falling living standards and will turn on their governments. Unless those governments go for default.

Why, then, are the IMF and EU going along with deals, which are for practical purposes dud? Because they know that in addition to every other stupidity they engaged in, the European banks lent far too much to these spendthrift economies and, if they default, more banks, many more, are bust and will need more rescuing.  The whole system, once again, would totter.

So the taxpayers have to bail out countries, who can then pay the banks back some of their rash loans, so that they can just survive the defaults when they come. In the interim, the people, mostly innocent victims of an economic model based on alchemy, have to suffer. There is something morally questionable about this whole thing. Economies driven by different values and arithmetic which adds up, are an absolute Rubicon which must never again be crossed. Reform of the banking system now assumes an even greater priority.