The Next Steps in the Financial Crisis

Europe faces a stark future:

The European single currency is facing an 'inevitable break-up' a leading French bank claimed yesterday.

Strategists at Paris-based Société Générale said that any bailout of the stricken Greek economy would only provide 'sticking plasters' to cover the deep- seated flaws in the eurozone bloc.

The stark warning came as the euro slipped further on the currency markets and dire growth figures raised the prospect of a 'double-dip' recession in the embattled zone. Claims that the euro could be headed for total collapse are particularly striking when they come from one of the oldest and largest banks in France - a core founder-member...

The eurozone faces the danger of a 'doubledip' recession after Germany's economy retreated into stagnation.

Figures published yesterday revealed that the countries who have joined the euro collectively grew a mere 0.1 per cent in the fourth quarter of last year - equal to Britain's own faltering performance.

Germany was the biggest drag, recording zero growth in the final three months of 2009 after emerging from recession earlier in the year.

Axel Weber, President of Germany's Bundesbank, warned this week there is a chance his nation's economy will contract in the first quarter of 2010, in part because of the severe winter, in a major blow to recovery hopes.

It was only a matter of time. More:

In just a few words, my oft-cited friend the "Lord of the Dark Matter" captured the situation: "Mechanically, it is absolutely no different than what happened to Bear Stearns and Lehman Brothers." Except, of course, that we're talking about sovereign/quasi-sovereign entities, not corporations like those two failed brokerages -- a situation that he characterized as a "silent sovereign run." The problem is so pernicious because none of the individual European countries in trouble has a printing press for the euro. They can't use the Federal Reserve's money-printing approach to solving problems... As an aside, I think Greece itself is probably less of a problem than California and some other U.S. states might be -- though for the moment, the fact that we as a country have a printing press and no rules governing its use is carrying the day. Perversely, when you've got a printing press running full throttle (as do the U.S., the United Kingdom and Japan), you can be as irresponsible as you want to be and your credit will be fine. But try to enforce a little bit of discipline, as the European Central Bank is attempting to do, and things go kablooey. As such, the PIIGS' predicament continues to push people toward the dollar.