The Curious Race to the Bottom

The continued uncertainty surrounding Greece and their out-of-control fiscal situation may be what the EU has been wishing for. My suspicion (it is only a suspicion) is that the the EU, lead by France and Germany, want this uncertainty to continue. If we look at the statements coming out of the EU, it becomes clear that something is up. For example Bloomberg's article Germany’s Bruederle Rules Out Bailout for Greece :

“I don’t think that a bailout is the right way because German and French taxpayers can’t pay for Greece,” Bruederle said in an English-language interview in Davos, Switzerland today. “Maybe they will give certain help, but first it’s for the Greeks to solve their problems.” When asked what kind of help he’d consider, he said “it’s too early to discuss.”
...

The comments came a day after EU Monetary Affairs Commissioner Joaquin Almunia said policy makers have no “plan B” to help Greece.

Usually, if you want to limit a crisis, you don't want to come out with vague statements. You want to reassure the public and investors that a comprehensive plan is being worked out.

From the same article:

Prime Minister George Papandreou said on Jan. 28 that Greece is being victimized by rumors in financial markets and he denied seeking to borrow from European partners.

Really, victimized, Greece is not part of the PIIGS countries because of their fiscal responsibility.

The reason they would want this uncertainty to continue, to devalue the Euro. In an economic recession where governments want to create employment, a weak currency means that your exports are cheap i.e. more potential exports, more jobs.

With unemployment at 10% in the Eurozone, any means to slow or reverse the trend becomes attractive. The crisis has proven quite effective in weakening the Euro.

Euro Value


With the American dollar strengthening and Obama's State of Union address focusing on jobs creation, the Americans are probably not happy with the current situation....