April 12, 2010
I once again borrow from a film I have never seen for today's title. Back in February I noted that Europe would ultimately bail out Greece, which is up to its neck in debt and unable to borrow any more. At the time of my post, the Euro was changing hands at about $1.38; last week that level was $1.33. After much hand-wringing (especially by Germany), European finance ministers have put together a loan package worth 30 billion Euro to rescue the Greeks from default.
So Europe is lending a whole lot of money to a borrower unable to service its debt, unwilling to control its spending, and threatening a sovereign default. Put in individual terms, it's like a bank offering a big new loan to a borrower who bought way too big a house for their income and who still goes out to dinner 5 nights a week. Does that make any sense at all? Didn't we just go through a financial crisis with roots in the same sort of lending?
This action by Euro zone members suggests investors should be cautious about mutual funds focused primarily on Europe.
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