Empty threats

25th April 2010: Traders “will Lose Their Shirts’ Betting Against Us.” George Papakonstantinou, Greece’s Finance Minister a week before Greece declared effective bankruptcy and ran for cover into the steely bosom of the IMF-EU loan agreement.

26th November 201: “I should warn those investors who are short selling Spain that they are going to be wrong and will go against their own interests.” José Luis Rodríguez Zapatero, Spain’s Prime Minister. It is anyone’s guess how long it will be before Spain does likewise.

Two threats aimed at the markets by two embattled governments, two examples of how not to oppose the slings and arrows of a truly outrageous crisis. It is remarkable that Europe’s political leaders are refusing to see the obvious: That no firewall can be built around one country when the problem is systemic and runs throughout the eurozone. That the markets have good cause to fear that Portugal and Spain, then Italy and Belgium will soon find it impossible to refinance their debt while, at once, keeping their banking sector going. That the only way of arresting the domino effect is to attack the twin crisis (sovereign debt and bank losses) at once. That unless something like our Modest Proposal is attemted, the euro is history. And with it so will be the European project.

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