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Is Europe Stuck in Vicious Cycle?

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  • Description

    The Motley Fool director David Kuo weighs in on the state of the European economy.

  • Duration 5:40
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But apparently has resigned now hopes -- policy makers are putting together new measures to help ease Europe's debt crisis helping out markets bucks.

The question we ask is Europe stuck in a vicious cycle David Kuo what the Motley Fool UK joining us from London David what do you say we in a vicious cycle in Europe.

But I think we are in a vicious cycle actually until such time that the European leaders except that you cannot have.

A common currency without -- common tax system.

And this is really the nub of the problem it's a bit like you know two people trying to drive the same -- one in charge of the gas the other in charge of the yet the -- Not that's fine assuming you're traveling on a straight road you don't really have to adjusting combat much.

But when you're in a traffic jam I gave you need to play around with both the -- and -- got to the same time that is when you have.

Problems and that is one of the reasons why the European economy is -- right now.

Didn't get it let's talk about Greece -- -- -- Greece.

They've got eleven isn't Greece really the problem and it's a lack of competitive -- there is Nouriel Roubini has said in other words they have eleven million people.

300 billion dollars in debt however.

And their rescue plants -- Greece has turned to look like Soviet five year plans -- I mean ten you're right weakening European Central Bank really turn itself into a European.

Bad bank just -- handle Greece is -- gonna have to continue to get figure ever rescue and essence they're reporting this every time to their rescue their the money seem to get.

Larger a larger than if they just -- us to be set aside to help about the eurozone.

But now we're talking about sort of -- between two and three trillion as the -- perhaps as a rescue fund for Europe.

And that is how big it is easy part of the problem is -- -- this contagion problem in other words if Greece -- -- default on its that's fine.

Everybody says you know that is what did we should do but the problem is.

There are banks that have lend money Greece that countries that are mad money Greece and their insurance companies that have lent money Greece now -- -- but the default it means that.

Patents are in trouble insurance companies are in trouble and of course countries are in trouble so what they need to do is to try and find some kind of funded by the saying is let's without the big barrel now.

And that we will will use that to dump all the -- gets into it to this barrel and then we'll cover that live and will not talk about it for a while.

The Green -- and you know what happened library so yeah.

Again here's a really the a big issue SMP is now warning that France and Germany their own AAA rating of the down here at risk right get into an -- problem.

Right here right now -- but the question is most most investors seem to think the Greece is gonna default.

And the question is is an orderly or disorderly.

So if it's orderly is there any way to contain even if it's orderly is there any way to contain it and ring fence and so it does not.

-- a variety of institutions like you're talking about.

And have and spread contagion to Italy and Spain and other countries I was -- -- to lead default.

Be managed or is any default gonna be a catastrophe.

But the thing is I mean as far as I'm concerned.

That's smells right and when you have a lot of that -- -- states now there are several ways in which can handle that one ways to spread the smell around.

Out and -- that you know is eventually dissipate the other way of course is still open the window and just throw that back -- another was just let that that out.

Out of the room so that that you can at least bring in the F -- -- now this is this is what we have now.

Is Europe in the position to bring in the F -- not often they've actually got rid of that that if they haven't been well obviously you know in the same position again.

In other words we still have is that that we can't release of the do anything about.

So I think you know the European leaders all seventeen of them have to really marched to the -- the peak of the same drama.

I'm not reduce that amount to that different that different beats because they need to do then of course today getting everybody running in different directions and we haven't got to come on common solution.

And David you know I don't think there's a cannon for -- a big enough to cover up this well and and you know Germany of -- -- doesn't really know I have a to -- to the -- of a single drama and over.

Or did you week we every day we hear from -- Angela Merkel the German chancellor.

Saying well this not an option is not an option -- at some point we're not believing -- she's in a very difficult position though isn't cheap.

Well the thing is Angela Merkel is the only one they can solve this problem but is Angela Merkel and the German people -- -- But if if they were to make it except that.

They will have to bail -- Greece in some way in other words you don't set -- come up with some common solution.

Is Angela Merkel in the position to say it will pay higher rates of interest as a result of that solution.

And I think the German people I think why should we have the moment with -- up 2%.

Interest rates why should we accept the higher rates of interest rate for the benefit of the -- and maybe the Italians out of both the other countries around Europe.

And if they don't accept but then of course after opening the window isn't -- gonna help at all.

And if you as you say you know.

No kind of a traction is big enough you know to the get rid of us now -- David you know the big thing here is -- -- indeed the proposed expansion of the bailout fund isn't supposed to be in place until 2013.

I think we have that long beard.

We don't really have that long I think the market is getting really just -- now.

And the markets -- saying they want to focus on other things such us corporate earnings they want to actually get back into the stock market.

Before the year end.

Unfortunately they can't really do that because of this -- lingering doubts over what is gonna go on in Europe I would we were paying a very dangerous game now people are staring into the -- And they say we got a pullback and we don't pull back very quickly than everybody got a phone into the abyss and then it's going to be a big mess on the bottom.

Danny drags on and on David -- directive -- -- Motley Fool UK David as always thanks very much for joining us today we appreciate it.

Thank -- --

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