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 These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:

The European summit this week will feature a standoff between German Chancellor Angela Merkel advocating austerity and French President Francois Hollande promoting stimulus to boost growth.

Neither position is without merit, but neither by itself will solve what ails Greece and other failing European nations. Sadly, none of the leaders involved, including the insurgent left most likely to win the next Greek elections, appear willing to accept that a successful strategy to put Europe back on track will require abandoning the euro and returning to national currencies.

After the single currency was introduced in 1999, productivity growth was slower and prices rose faster in southern Europe than in Germany and other northern states owing to both cultural and immutable geographic conditions. Consequently, the north enjoyed growing trade surpluses at the expense of deficits in the south.

Trade deficits can instigate high unemployment and curb tax revenue, and to support employment and social programs on a par with their northern neighbors, the Greek, Italian and Portuguese governments borrowed too much.

In Spain, northern Europeans purchasing second homes and vacationing in its sunny climate instigated a rush of foreign funds into its banks to build dwellings and hotels. Spain actually had budget surpluses prior to the 2008 global financial crisis, and its trade deficits were financed by bank borrowing from foreign sources and questionable loans to homeowners: the U.S. model of excess. Continue reading…

These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:

Just a year after wealthier European governments rescued Athens from default with $157 billion in loans, Greece is slipping into crisis again.

After seeing its credit rating sharply downgraded on Monday, and unable to meet deficit-reduction targets laid down by Germany and others, Greece is getting desperate–and Europe is getting anxious.

Officials are floating euphemistic phrases like “voluntary restructuring,” but make no mistake: The painful concessions Greece would probably require from creditors amount to a default. If that happens, the broader European economy will be on its knees, its credibility shattered. So what should Greece do?

The only real solutions are for Greece and other low-income countries to abandon the euro and for Europe as a whole to rethink its welfare state.

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These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:

Economists expect a strong jobs report for May, but the unemployment rate is expected to ease only slightly.

Friday, the Labor Department will release May employment data, and forecasters expect something north of 500,000 new jobs; however, many are in the public sector reflecting stimulus spending. Manufacturing is expected to add a respectable 30,000 new positions.

Unemployment is expected to only fall to 9.8% from 9.9% in April, because many sidelined adults, sensing improved conditions, started looking for work.

The big challenge is to keep gross domestic product growing at least 3% to pull down unemployment.

Much recent growth has been inventory adjustments, and sustainable growth, reflected in real consumer and business investment demand, has been only about 2%. As stimulus spending tails off, new sources of demand will be needed.

If the economy keeps growing at 3% the balance of 2010, demand for new capacity–improved rental housing, better located new homes, and commercial construction for retail and factory improvements–should accelerate in 2011. Auto sales, currently a bit above 11 million a year, should move up to 12 million plus with noticeable multiplier effects in the Midwest and Upland South.

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These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:

Greece is insolvent. No austerity or new taxes will pay its debts.

Like a homeowner owing four times income, belt tightening and a longer repayment period are not enough. Either, the house is sold to clear the debt or the bank takes back the house.

Greek bondholders don’t have that choice–they can’t repossess the Parthenon.

Greece is a sovereign country, and either it will be the recipient of endless German largess–an unlikely scenario–or European creditors, banks among them, will take a loss.

Now, the International Monetary Fund bluntly warns Spain, to avoid becoming the next Greece, that it must radically overhaul labor laws, pensions and consolidate banks–that’s tough for a sovereign that doesn’t print money in the midst of a market panic.

Germany and European banks can’t take that hit.

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These are the personal views of David Gilmore, partner at Foreign Exchange Analytics:

For some in the market the Greek debt crisis has always been about the European banking system…collateralized by “risk-free” sovereign paper from some less than “risk-free” sovereign credits. Tons of debt issued by Greece, Spain, Portugal (not too different from AAA rates subprime MBS) and yes Italy support the banking system in the Euro Zone as collateral for borrowing from the ECB and from other banks, as well as a place to capture yield. Well when markets discern that “risk-free” sovereign debt is not really “risk-free” the inevitable run on weak credits starts. And like the subprime-driven run on banks in 2008, officials only add to downside risk as they assume the problem is contained.

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