Note: I’ve originally wrote this in Spanish but I decided to rewrite in English since it’s the main language of this blog.
The market keeps going down and although I’m optimistic and I’m buying, things are not looking good with nothing in sight to improve it. The problem is with Europe, there is no central leadership able to fix the economic mess over here. These are my suggestions to fix what we are going through:
1) Create Eurobonds. The faster the better. This means Europe has to become not only a currency union but also an economic and fiscal union. It does not make sense to have each country taking independent actions, following independent policies and playing like independent entities when we all share the same currency. This provokes that a few governments who are financially neglect can bring down the whole European Union. Unify it, create a central institution that manages it and removes power from political parties. Create a path to allow for Eurobonds.
2) Restructure debt. Greece cannot pay its debt. It’s mathematically impossible that any country paying close to a 20% interest for an extended period of time can pay its debt. This is not a credit card, it’s a country. We need to allow for a debt restructure, Greece cannot raise more taxes or ask anything more from its citizens without getting the government killed. At this point we either allow Greece to restructure its debt or they will be forced to leave the euro. They would need to print their own money and devaluate their currency, with all the trouble it would cause to the whole EU. This brings me to point 3.
3) Devaluate the Euro. It’s amazing, I remember when I lived in the US that the dollar/euro was about 1 to 1. Right now it’s 1 to 0.69, meaning that even after all this mess, the Euro is practically 50% stronger than a few years ago. It only makes sense because the US has been printing crazy amount of money, but still, only up to a point. We could let the Euro devaluate 20% without a problem, help exports and aliviate the debt for Greece. We either do this voluntarely or the market will force devaluation eventually.
4) Lower interest rates. In Europe with all the troubles we are having we had the wonderful idea to raise the interest rates, not once, but twice, just because we were worried about inflation. Inflation is the least of our problems right now. With high unemployment, lower cost of energy and slow GDP growth, inflation is a dormant beast. We also have the advantage that interest rates can be adjusted relatively fast, so even if inflation shows up, we can change the rates in no time. Meanwhile, we can lower the interest rates, lowering our borrowing costs, helping Greece and all countries in trouble and making our currency less attractive which would help with #3 and #2
The problem is that we either move fast or if things get out of hands they will explode on our face with not much room to maneuver.