Peripheral countries are less than keen on handing ownership of important banks to bureaucrats in Brussels.
Sinn concludes that wages in the peripheral countries must come down, though that will be extraordinarily painful.
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But it also means that more trouble in peripheral countries could easily spread to the entire euro-zone economy.
But the other peripheral countries have it in their power to reduce debt, and eventually to finance themselves.
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Greece, he told me, was actually not as risky as some of the other peripheral countries we had discussed.
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He said Greece was actually not as risky as some of the other peripheral countries because it had more economic equality.
The problem here is time, while it took a decade for Germany to restore its competitiveness, peripheral countries need growth now.
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Peripheral countries must stop expecting the ECB to come up with solutions to problems that should be solved by governments, he added.
And that requires a political bargain: financial support that peripheral countries need in exchange for rule changes that Germany and others demand.
Or some of the peripheral countries can leave and go back to their own currencies, taking the path to devaluation, like Iceland did.
All peripheral countries have made significant progress toward regaining competitiveness in terms of unit labor costs, albeit at a high price in unemployment.
Core countries such as Germany fret they will lose a lever of influence over government policies in peripheral countries by handing over equity.
Rather, it would be a signpost on the way to dealing with the problems of those other peripheral countries, an example to be emulated.
The moves also sparked a rally in world markets which were pummeled last week on the escalating debt crisis in the peripheral countries of Europe.
But Friday's summit may once again see the divergent interests of Germany, France and the poorer peripheral countries getting in the way of a breakthrough.
And above all, it needs a comprehensive growth strategy to accompany the austerity that will enable peripheral countries to address their chronic lack of competitiveness.
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Large members such as Germany and France may not be prepared to cough up further if they have little influence on the peripheral countries' spending habits.
Now, in the doldrums, those peripheral countries need negative interest rates (not possible as such, but there are monetary means of getting to a similar result).
"This is a serious problem for all European banks, especially in peripheral countries, " said the chairman of a top European bank that expects to be downgraded.
Europe has been debating the issue of "support" in various guises for the peripheral countries -- that's Spain, Ireland, Portugal, Greece and Italy -- for many months.
To be sure, the presence of large Russian and offshore funds in Cypriot banks is cause for a different format than those used in other peripheral countries.
The market is expecting the main focus to be on the design of the new program for buying the government securities in the peripheral countries, mainly Spain and Italy.
Merkel is seen as the ring leader of the tax raising solution to cut debt at a time when many debt overloaded peripheral countries, like Portugal and Greece, are facing near zero growth.
Well, speculators are now demanding more to be compensated for the risk of a default among banks with exposure to the peripheral countries of Europe than they were seeking during the Lehman crisis.
As European peripheral countries have found out to their cost, interest rates increase when governments run large budget deficits, and as they do it becomes increasingly difficult to reduce r-g to a sustainable level.
The consensus expects 1.2% gross domestic product growth this year but Germany, which is 50% larger than the peripheral countries of Europe, is on track to achieve GDP growth of 3% or more, the Swiss bank says.
And as you can see the desired, target, interest rates are very different for the peripheral countries (Portugal, Ireland, Greece, Spain, the so called PIGS) than they are for the core countries (Belgium Holland, Germany, France etc).
Europe's politicians need to implement not just a serious restructuring of the peripheral countries' debts but also a serious reform of their economies, to clean out cronyism, corruption and all the inefficiencies that hold back their growth.
Weak banks in peripheral countries remain vulnerable to a downward spiral in which their holdings of government bonds are downgraded and fall in value, forcing them to come up with ever more collateral to keep borrowing from the central bank.
However, Credit Suisse does see the risk of deflation in the peripheral countries of Europe because of loss of competitiveness in the region and the degree of fiscal tightening that will be needed to stabilize government debt to gross domestic product.
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