A Big Bailout of Greece and the Unfab Five?

Bill Fleckenstein MSN Money February 15, 2010

Five troubled European economies can't print euros to escape their troubles. But will the other euro nations rally to save them -- and the currency?

This week's column is euro-denominated, as there are sizable credit problems for a quintet of countries that count it as their currency.

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 a currency, the euro is a classic conundrum. Those of us who've been sympathetic toward it versus the dollar have always understood the following: that in tough times, it would be nearly impossible for the EU's disparate countries to get along, and that the less-responsible members would have trouble pursuing strategies advocated by the more-responsible members. One would like to cheer the discipline displayed by the EU's quasi-independent European Central Bank for having created rules. Msn.Video.createWidget('PlayerAd1Container', 'PlayerAd', 304, 314, {"configCsid": "MSNmoney", "configName": "player-money-4x3-articles-inline", "player.vcq": "videoByUuids.aspx?uuids= 8e5c5784-0e3a-47ae-b357-2ac0bd21b424,850b757f-0362-4cef-b33a-51a2db0b732a,19f5a4d9-c4e5-4da0-9775-65609a3fc60a,1ce1aced-db9a-449e-a0b2-fe87a4422637,885372ae-d509-4e0a-9edf-95b548c34c12", "player.fr": "iv2_en-us_money_article_Investing-ContrarianChronicles-inline"}, 'PlayerAd1');Msn.Video.createWidget('Gallery4Container', 'Gallery', 304, 150, {"configCsid": "MSNmoney", "configName": "gallery-money-articles", "gallery.linkbackLocation": "bottom_left", "gallery.numColsGrid": "3", "gallery.categoryRequests": "videoByUuids.aspx?uuids=8e5c5784-0e3a-47ae-b357-2ac0bd21b424,850b757f-0362-4cef-b33a-51a2db0b732a,19f5a4d9-c4e5-4da0-9775-65609a3fc60a,1ce1aced-db9a-449e-a0b2-fe87a4422637,885372ae-d509-4e0a-9edf-95b548c34c12;videoByTag.aspx%3Ftag%3Dmoney_dispatch%26ns%3DMSNmoney_Gallery%26mk%3Dus%26vs%3D1;videoByTag.aspx%3Ftag%3Dbest%2520of%2520money%26ns%3DMSNmoney_Gallery%26mk%3Dus%26vs%3D1"}, 'Gallery4');This "silent sovereign run" has erupted over fears about the creditworthiness of Portugal, Ireland, Italy, Greece and Spain, a group that's been branded with the acronym PIIGS. They actually bear sovereign risk for euro-denominated debt, given the aforementioned absence of a printing press. (Furthermore, the credit angst over these entities is putting pressure on derivative holdings everywhere.) For lack of a printing press 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.

Exactly how the situation sorts out is not knowable at this juncture, due to the myriad permutations involved. However, though it might be difficult to imagine that Europe's disparate nationalities will be able to row in the same direction, it seems unlikely that they won't. Consider how hard everyone worked to put the system together in the first place. In any case, whatever comes out of Europe on this score is sure to be a market mover one way or the other, or maybe both. A bailout plan for Greece was announced Friday, but the details were sparse.

Continued: The gold upset More from MSN Money

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Rate this Article Click on one of the stars below to rate this article from 1 (lowest) to 5 (highest). LowThank you for rating.UGR('ratCntrl')High var avgRating=0;avgRating=7.739796; if(avgRating!=0){avgRating=avgRating/2;avgRating=Math.round(avgRating*100)/100;var sDisplayText="Average rating: " + avgRating + " from ";var usersCount=392;sDisplayText = sDisplayText + usersCount;if (usersCount==1)sDisplayText=sDisplayText + " user";else sDisplayText=sDisplayText + " users";avgRatingElem=document.getElementById("averageRating");avgRatingElem.innerText=sDisplayText;} View all top-rated articlesE-mail us your comments on this article Discuss in a message board MSN Money InsightNew Investor CenterMarket DispatchesJubak's JournalSuperModelsTop Stocks blogCompany FocusContrarian ChroniclesSmart Spending blogFast AnswersDecision CentersStart InvestingMutual FundsFind Hot StocksSimple StrategiesPower ToolsInvesting for IncomeReal Estate InvestingRecent Contrarian Chronicles ArticlesConfused? So are the markets 02/05/2010Why bankers haven't earned bonuses 01/22/2010Why contrarian investors have an edge 01/15/2010More . . .Contrarian ChroniclesAbout Contrarian ChroniclesLearn the Contrarian Chronicles lingoSubscribe to Market Rap on Fleckenstein CapitalFund data provided by Morningstar, Inc. © 2009. All rights reserved.StockScouter data provided by Gradient Analytics, Inc.Quotes supplied by Interactive Data.MSN Money's editorial goal is to provide a forum for personal finance and investment ideas. Our articles, columns, message board posts and other features should not be construed as investment advice, nor does their appearance imply an endorsement by Microsoft of any specific security or trading strategy. An investor's best course of action must be based on individual circumstances.Msn.Video.createWidget('Gallery8Container', 'Gallery', 500, 230, {"configCsid": "MSNmoney", "configName": "gallery-money-article-site-wide"}, 'Gallery8');msft.msn._ic.cid='m5w7jep0ym3bxbim48y5ng5ygvcwb6hm';msft.msn._ic.pst=false;msft.msn._ic.pgn=1; Join the discussion!Add a commentShow commentsSort by:Newest firstOldest first_uc2f12('iucGo');1 - 10 of 16PreviousNextmatoamerica #1Monday, February 15, 2010 8:37:20 AMBill F is nothing but Mr Doom and gloom. He is critical of the current system that is trying to put our economy together. Please be part of the solution rather than being a problem.ReplyReport Abusematoamerica #2Monday, February 15, 2010 8:34:17 AMBill F is doom and gloom. He provides no solution just criticizes the current system which is trying to help stabilize the economy.ReplyReport AbusePJ Thornton #3Monday, February 15, 2010 8:24:11 AMAll gold is fool's gold. In relative dollars, it's worth far less now then it was in 1980. Check it out, it's true."Gold is just a price." Well, that's very true. But then again, what isn't? The market value of my house is "a price". One year of my labor has "a price". One carat of a well-cut diamond is "a price". All of those things have actually appreciated in relative value since 1980. Gold hasn't. Gold is a short-term hedge against abject catastrophe. Short of that scenario, it's just about the worst and riskiest investment you can make, this side of Madoff.I've been saying that same sort of thing for years now. If you had only listened to the people like me, perhaps you gold-stock investors would have more hair left. Or, maybe not, maybe it's just in your genes, or something (you may feel free to interpret that remark any way you like).Perhaps if you hold the gold (or the gold stocks) long enough, you will finally be able to get all of your original investment back...LOL.ReplyReport Abusejestjack #4Monday, February 15, 2010 7:57:32 AMGreece is a mess but what concerns me is Dubai where the first reports of a "work-out" include a payback of just 60% of the debt....over a 6 year period....with NO INTEREST...SUCH A DEAL. And all of this with oil at around $75. If the downturn continues OR worsens and oil goes back to $50...All bets are off. It would seem the worry now is the "return OF capital"....NOT "the return ON capital"!!ReplyReport Abusesaltguy #5Monday, February 15, 2010 7:50:45 AMwordfrominside - Tell us oh wise one. Why don't you answer your own question? Why don't you move to another country and watch the Titanic sink? Nea, let me answer it for you. Because there is no better country in the World than the United States. It's pretty much that simple now isn't it? Except of course of for people that keep preaching doom and gloom.ReplyReport AbuseFrEddddd #6Monday, February 15, 2010 7:06:42 AMLife's a bltch and then ya die.....ReplyReport Abusebuzz in the bunker #7Monday, February 15, 2010 6:43:58 AMAs many Americans complain about the loss of manufacturing, it might be wise to remember that Europe faces a similar problem only worse. It seems that Europeans would like to eat brie, take six weeks vacation and not work. Thus we are seeing BMW building cars and Michelin making tires in South Carolina. Airbus (despite huge subsidies) has trouble competing with Boeing. It is a good time to take your profits out of euros ReplyReport Abusebuzz in the bunker #8Monday, February 15, 2010 6:17:56 AMfree thyroid hormones has firmly affirmed that she favors the deaths of millions of innocent people through disease and starvation.ReplyReport AbuseISeeThemNow1 #9Monday, February 15, 2010 6:07:12 AM

Good comments so far.

@b_capp: I came to pretty much the same conclusion as you did.

@worldfrominside: despite comparing to armageddon year 2009, a lot of companies are currently reporting even LOWER revenues YoY.

There's something very real that many are ignoring as well. With the continuous layoffs, the employees remaining become more and more overworked - eventually they burn out and their productivity drastically goes into the gutter. What happens then?

ReplyReport Abusefree thyroid hormones #10Monday, February 15, 2010 6:04:09 AMand dont worry about europeans lol the euro is still 150 to the dollar ..worry about your republican obstructionists that tried to keep you from a modern infrastructure and streets without potholes ..and having americans work 3 jobs a piece to have chicken to eat on sundays ...europeans eat brie cheese for break fast ..no milk with growth hormones ..no corn syrup ...and have health care and maternity leave for its mothers ..and you have ..what folks serving hamburgers to each other ...get a clue ...when your rich come to europe on vacation to eat good ..they look at europeans and say to each other ...we do everything we can sooo the stupid peasants at home will not have 6 weeks vacation or health care ...they live to good these europeans ..we rich cant have that ..we will be the only ones ever to find out about brie cheese and château briand for dinner ....clowns ...after all we give them jesus that will dooo lolReplyReport Abuse1 - 10 of 16PreviousNext_ucf13('0'); _iuc2Om1('MSNPortalInlineComments','Initial_Load_Comment_View','http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/a-big-fat-greek-bailout.aspx?','en-us');Are you sure you want to delete this comment?Report AbusePlease help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease notify us using the Report abuse form below. We will investigate your report and take appropriate action against offenders. We report all illegal activity to authorities.CategoriesSpam or advertisingChild pornography or exploitationProfanity, vulgarity or obscenityCopyright infringementHarassment or threatOtherAdditional comments(optional)100 character limit To add a comment, pleasesign in/*MSN PrivacyLegalAdvertiseRSSHelpFeedbackSite mapAbout our ads© 2010 Microsoft/*