The Stupidity of the Market/Rating Agencies WRT To Greece!

And yet again a rating agency drops the rating of Greece. After all Greece is a problem yes? Let’s look at what Trichet had to say about this.

Comparing the euro zone to the United States in size and diversity, Trichet said that there are always more competitive and less competitive regions. Being part of the euro provides benefits, such as easy funding of current account deficits, as well as a credible currency. Beyond that, it is the responsibility of member countries to do their job to conduct structural reform. It is in the interest of member countries to help themselves.

Asked about any threat to the euro because of Greece’s problems, Trichet pointed out that Greece’s Gross Domestic Product (GDP) is a mere 2.5% – 3% of the euro zone GDP. In California, which has its own set of severe fiscal challenges, the magnitude of the problem is far larger (California’s GDP is over 12% of U.S. GDP). He went on to stress that euro zone budget deficits currently amount to about 6.5% – 7% in the aggregate, compared to 12% in the U.S.

Read very closely what Trichet is saying. They are saying that California is being treated nicely even though he does not think there is much difference between the fiscal balance sheets of Greece and California.

But I wonder if Trichet is not laughing his head off on the stupidity of the rating agencies and the market. After all just recently Sarkozy was saying the following.

The "monetary disparity" between the U.S. dollar and the euro was a "considerable problem" for companies in the euro zone, French President Nicolas Sarkozy said on Wednesday in western France.

    For companies producing in the euro zone and doing sales in the dollar region, the strong euro and the falling dollar made a significant obstacle to forge competitiveness, Sarkozy said at a reception meeting with business leaders in the western town Cholet.

So with the market saying that the Euro will collapse and fall apart they are in fact weakening the Euro to the point that European corporations will become very competitive again. Thus strengthening the bonds of the Euro even though it might not strengthen the Euro itself.

Additionally the rating agencies and the market can play the bad cop in getting Greece to clean up its books. This is the delicious irony of the entire situation. By scapegoating Greece the Euro zone solves many problems. Oh, the stupidity of the rating agencies and the market!!!!