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University of Maryland Professor Peter Morici on the impact of Spain’s financial crisis on Europe.
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The dollars -- some of its banks but it's asking European union for financial support the question is will this last ditch effort.
We'll keep the economy from running overboard Peter -- C is international business professor at University of Maryland and he joins me now.
They -- so much for joining me first -- -- You're welcome -- to -- with you regulations on the -- show they you so much.
You know in the last 48 hours a number of people upsets me that this is really finally going off the rails that this situation has turned into you know the same level of seriousness -- the financial crisis of 2008 -- US hasn't gotten really serious all of a -- in Europe.
And especially Spain.
For Spain the financial crisis is more serious -- the one we had in the United States Spain's banks have almost 800 billion dollars of real estate loans on the books but it's only a one trillion dollar economy.
They can't print their own money the way the Federal Reserve -- -- two trillion dollars into the banks so it has to borrow the money and international markets.
The amount of money Spain has borrowed and yet needs to borrow is just too much for Madrid to float.
That's why the bond rates all the way -- and -- the European Central Bank comes in there.
And takes responsibility for the banks it's not going to be possible to get them out or the European Union just give them the money at -- -- -- So what does that mean I mean all of -- -- -- Spain sees as it is that what's going on what's next.
Well you know -- was a very solvent country it didn't have big government spend big government deficits or anything like that but essentially is the quarter of Europe.
And -- and it had a real estate boom and you know it was summer homes hotels with the economy being at it what it is all that's in the tank.
-- -- Fails they'll have to leave the eurozone -- I don't see how it really increased day if that happens.
And that's the end of the -- which by the way I don't think it's the end of the world.
And have managed process of getting rid of the Euro makes a lot more sense -- the reforms being quoted by Germany this week.
A -- but are at that point I mean do you think anybody is ready to manage a process had it -- they celebrated -- drop parents that say.
Until this whole Euro experiment just has not worked out.
No apparently not if you look at the Greek -- that even the -- are willing to throw their arms up certainly the Italians are not.
You know -- which I asked the Europeans that the Euro is so great -- -- -- 125% unemployment throughout the Mediterranean fifty present youth unemployment.
It's not working but they seem to have they almost a religious adherence to this concept.
It's a bad idea that they don't work out it's a bad idea it would good intentions have been worked out.
So I have a European vacation planned and I don't have -- euros stashed my desk at home why don't care.
What you care because the European economy is even larger than the US economy it's a very important source of -- market for our exports but what's more.
The European currencies tanking which makes German exports dirt cheap on global markets Siemens competes -- GE and so forth.
That's really tough on American exporters in the American economy.
We want our European friends to do well.
If they're not doing well it's like your neighbor's house is burning down it's a threat to you.
Did -- it's time to solve this mess was one currency just about idea in the first place and what should they just not have tried this experiment.
In order to have one currency you have to have community wide bank regulation a community wide -- deposit insurance system.
And for the Central Bank as the Fed has to have responsibility for the solvency of the banks of the banks fail it goes in there with capital but -- imposes reforms.
They just do not have those kinds of institutions in Europe.
Also you have to remember the fiscal crises the other side of this going you know Germany has -- -- Italy and Greece when they spend too much they tend to bar their money from banks.
And so -- out a fiscal union admitted into the notion that you want -- guarantee that banks on -- community wide basis doesn't make a lot of sense.
Yeah Peter record before we go what's your prediction on when the currency goes away when -- when they actually say it's over we're done what's your prediction time wise.
Well in terms of economic -- it should be gone they don't have a common currency as long as they're willing to put up with that.
And I really can't say when it goes -- with the Europeans come in and they bailout that Spanish bank said by some more time okay but eventually they will run out of money.
Yeah when they -- that -- it OK I respect that Peter thanks for coming on we appreciate it take care.
