Will it work?

World stock markets seem to be on LSD. One day they are down 200 points, when someone mentions that Spanish banks are in trouble, and the next day they are up 200 when there is a rumor of another quantitative easing in the US when Ben Bernanke testifies in front of Congress. Politicians swing from blaming Greece for not sticking to their side of the bargain by increasing austerity to blaming Germany for not spending more to rescue Greek and Spanish banks. Greece is to hold fresh general elections in about 10 days time and everyone is trying to scare the hell out of the people so that they vote for the established parties and not for Syriza whose leader Alexis Tsipras has promised to renegotiate the austerity contract with the EU. The Irish voted last week in a referendum to continue with their program of austerity. In trying to scare the people the politicians may be aggravating the problem. In the PIIGS countries, comprising of Portugal, Italy, Ireland, Greece and Spain, people have pulled out 119 billion Euros of savings from banks. Greeks have pulled out 30 billion Euros in the last 2 years. Some wag has named this steady withdrawal of savings from banks a " bank jog " as opposed to a run on banks. Savers in Spain have withdrawn 97 billion Euros in the first 3 months of this year, which is equivalent to a tenth of its GDP. About a week ago more than 1 billion Euros was withdrawn from Bankia in Spain because of its heavy exposure to the property sector which has collapsed. Already saddled with bad loans such withdrawal of money limits the banks ability to repay the loans and to lend money to businesses. Last week yields on 10 year bonds in the US fell to record low levels and yields on German bunds turned negative because traders wanted their money to be safe. Since then poor jobs data in the US has resulted in traders fleeing to gold which hit record levels couple of days back. Germans are refusing to bail out these countries which they blame for irresponsible profligacy. They forget that a single currency meant that German goods could be sold at the same price in 17 Eurozone countries as they are in Germany. If Greek reverts to the Drachma experts are predicting a 60% devaluation of currency which means that Greece will not be able to afford any German products and will look elsewhere for cheaper alternatives. If the Euro falls apart Germany, which is an exporting economy, will suddenly lose a large market for its goods. If there is a severe global recession countries will revert to protectionism to protect their markets. Companies will be forced to manufacture at home instead of taking their money to another country. Countries will place restrictions on banks and finance companies to prevent speculation in their markets or currencies. Tight restrictions and regulation will prevent bank bosses from gambling with savers money which means their bonuses will be affected. It may be that they are threatening politicians with lower campaign contributions and forcing them to try and continue with the present system. By restricting the power of these bandits a recession may be a blessing in the long term. We live in interesting times.