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The bond markets can perfectly well endure a collapse of the Eurozone, if the way it plays out is that all the non-German members are ejected one by one, with the various three- and four-letter agencies bailing out the holders of these "feckless swarthy Southerners'" bonds. Every time, obviously, with the resolution "never again." Which is an incredible threat, in the game theory definition of that term.

That will be hard on the German (and possibly French) taxpayers. But turkeys don't get to vote on the Thanksgiving menu.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Aug 11th, 2011 at 07:11:22 AM EST
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If the three and four letter agencies can actually bail out all of the bond holders, given the existing diameter of the Euro faucet. There is likely to be cascading failures, with most of the worst on a single day, certainly within a single week. Of course, Bernanke will offer unlimited dollar swaps. That is what he is there for.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Aug 11th, 2011 at 08:02:59 PM EST
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They can, of course, bail out anybody important (NB: "Important" means "important to Angela Merkel," not "important to the national interest"). That was always within their capacity, and this whole theatre with the three- and four-letter agencies has been about concealing the bailout from the internal surplus countries' taxpayers and fraudulently cooking up a crisis to impose even tighter adherence to the Grief and Stupidity Pact.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Aug 12th, 2011 at 05:17:06 AM EST
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But Merkel won't let them open the faucet wide enough to bail out Italy, Spain, Belgium and France, especially if the crises occur simultaneously. They could do it but for the rules they have set in place. Of course Germany has, in the past, had no trouble bending the rules when it is in its interest to do so.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Aug 12th, 2011 at 12:59:50 PM EST
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Which gets back to the observation the EU is undergoing a political crisis with the overt symptoms being the economic crisis.

Skepticism is the first step on the road to truth. -- Denis Diderot
by ATinNM on Fri Aug 12th, 2011 at 01:25:43 PM EST
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