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May 24, 2010

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Are you keeping an eye on Italy as well?

After you guys talking about Italy back on SHWI (or was it AHF?) this stuff makes me a touch nervous.

With the troubles in Greece, potentially Spain and Portugal, Ireland and ...Italy? What about the Baltics, Hungary, and other places?

It looks like the EU might be in for a world of hurt. If its does...it may cause problems for the whole concept of what the EU is doing. :S

I write about Spain only because I know more about it than the other countries.

The Baltics have a fixed exchange rate with the euro. They've gone through a very painful adjustment. It's been incredible. http://krugman.blogs.nytimes.com/2010/02/10/riga-mortis/ That said, the pain is likely over.

The problems do not apply to countries that aren't in the euro or fixed to it. Their exchange rate just falls, triggering growth in net exports.

Does that answer the question?

"Their exchange rate just falls, triggering growth in net exports."

Frankly, I'm pissed that the $ is appreciating already.

Agreed, regarding the euro. The "beggar thy neighbor" problem is a flaw in flexible exchange rate systems. Wouldn't matter as much if the U.S. weren't (a) locked in with the renminbi and (b) in a pretty weak recovery.

I doubt that the euro can fall enough to help the PGS trio, though. They export, but not that much to the United States.

Still, be good for everyone to holiday in Greece or Spain this year ...

A few people have suggested that Greece should cut back on its military spending. Makes sense to me, although resolving the Greco-Turkish relations issue should take priority.

Idle thought: it's tougher to resolve the remaining issues because the countries are in the same military alliance. If Turkey (or Greece) were outside NATO, then the weaker party could be certain of protection from the stronger, and be more likely to cut its defense budget.

That said, if Greeks are this fissiparious with conscription, I hesitate to think what they'd be like in its absence.

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