The Marshall Plan II

           This morning I was following my daily ritual and was listening to Ken Prewitt & Tom Keene on Bloomberg Surveillance. By now we are all familiar with the economic turmoil that Europe is facing, especially the Euro zone nations. Hence, I wasn’t surprised to hear 2 year Greek bonds yielding…are you ready…a whopping 40.5%. That’s right; now compare this to the backbone of Euro: The German Bunds (Bonds), they are yielding 0.67%.

            More then $500B have been loaned to Greece, Portugal and Ireland, yet there economies are still in a state of shock. In fact the above lending has lead to speculative attacks on strong but shaky and vulnerable economies of Spain and Italy. The only ‘feel good’ story out of the Euro mainland is Germany. But then for how long would it keep on providing economic and more importantly, moral support to ‘Euro’.

            I think what Euro area needs is a second version of the Marshall plan. After World War II, when Europe was trying to rebuild itself, United States of America, under the then Secretary of State George Marshall provided the monetary support. But this time around the role of US has to be taken over by the IMF and ECB. I know, IMF has already committed $320B to the Euro zone economies as part of the EU-IMF bailout package of $950B in May 2010. But more needs to be done, considering EU’s economy is as big as US. Also, considering the recent market hostilities towards Spain & Italy, EU needs to do much more. I understand it’s controversial to ask but US should also contribute towards the package considering EU is one of there biggest trading partner. A stronger Europe is in US interest. It makes both, economic and political sense.

            Many generations of efforts have gone into creating ‘Euro’ and it will be a pity if we loose it within a decade. Times were tough in 2008-09 for US, but we came out (well, sort of) of the crises with a black eye and lessons learned. This time around its EU’s turn to take the blow and hopefully learn a lesson or two.