Only somebody newly roused from a deep slumber would not know that the European Union and European Central Bank had unveiled a plan recently to shock markets into believing that the euro will survive, via a roughly $1 trillion rescue package. The EU and ECB promise to make it not inflationary — that by means of sterilization. But if they decide to sterilize their bond purchases, I don’t see how they’ll be able to maintain low interest rates.

They can’t have it all ways. Thus, it’s quite likely we will see very little sterilization and a whole bunch of money printing, which is likely why the rally in the euro as a currency fizzled as fast as it did.

Bittersweet are the uses of austerity

As to what this all means for Europe and, by extension, the U.S., my oft-cited source the “Lord of the Dark Matter” quoted Brendan O’Connor, who on May 9 wrote a brilliant rant that appeared on the front page of Ireland’s Sunday Independent:

“The Greeks ruined it for the rest of us. You would have to imagine that that’ll be the end of the bailouts. The Germans only barely gave it to the Greeks. And if they do ever consider a bailout again, we seem to be a few down the list anyway, so by the time they’ve finished with Spain and Portugal you can be sure there’ll be no appetite to bail us out. “In retrospect, we were probably too good, too eager to please.

“We should have run the place into the ground and been first on the list for a bailout.

“But no, we took the pain, because we’re Irish and we’re drawn to the pain, and we’d rather inflict it on ourselves than give anyone else the satisfaction of saying they inflicted it on us. . . .

“Of course, there is method to the Greek madness too. Many reports pointed out that the reason the Greeks are angry is because ‘they do not have a culture of balancing the books in Greece.’ Or, as one eminent economist put it: ‘There’s plenty of money in the world.’ And the Greeks know this. We are the good sibling in the family, doing the right thing, while Greece does what it wants, secure in the knowledge that the family will always be there to sort them out.

“If there is plenty of money in the world, it has to make you wonder. It gradually became apparent during the week that any bailouts of countries are actually bailouts of banks, German banks more often than not.

“And given that there is plenty of money in the world, and yet everybody is up to their neck in debt, there is something not adding up, and maybe it’s time to start again.

“Maybe it’s time for not just us to default, but for everyone to default. They (whoever ‘they’ are) will get over it soon enough and they’ll give us more money to buy stuff from them.

“It would be a delinquent thing to do, yes. But if we’ve learnt anything from all this, and we haven’t really, it’s that being good gets you nowhere.”

You can read the whole rant on the front page here (.pdf file).

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