The shock provoked by New York hedge funds during the Asian financial crisis of 1997 - 1998 had serious political and social consequences. Regimes fell, rioting engulfed many Asian cities from Indonesia, Malaysia and Korea. The citizens living in these countries lost the savings they had accumulated through hard work over three decades.

In the wake of the attacks on Greece, Portugal and Spain’s credit ratings, it is worth knowing how NY speculators - the same who provoked the 2007-2008 global financial crisis -  are using inside knowledge of sovereign debts, rumour-mongering and the subsequent investor panic to turn a profit.

The New York speculators are using the restrictive provisions of the Maastricht Treaty to their advantage. The latter, which were adopted in good economic times, have become the European monetary union's Achilles' heel, as I have envisaged three years before the euro's official launch.

In an editorial on the current debt crisis (”Cost of insuring debt is growing in Europe”)  the International Herald Tribune explains:

“The speculator’s bet is a simple one.

In an era in which government budget deficits have soared in response to the financial crisis, the same bond vigilantes that forced President Bill Clinton to balance the American budget in the 1990’s have turned their attention to the countries on Europe’s southern flank.

In effect, they have challenged those relatively weak governments to raise taxes and impose harsh spending cuts on a restive populace, to bring down their deficits from over 10 percent of the GDP to close to the target of 3 percent called for in the treaty that created the euro.

While such moves are highly unpopular politically, a failure to do so could send government borrowing costs soaring, enriching those who are betting that Greece, Portugal, Spain and perhaps even Italy will not be able to follow through on their commitments.”

A few comments are in order. First, it would be more appropriate for such smart bond vigilantes to force the US government to do something about the country’s huge budget deficit, after the economy would have recovered. Then the example employed in the article refers to a period when the American economy was booming. It was relatively easy to force the Clinton administration to balance the budget. It is a well-known fact that at the time the Republican-dominated Congress even adopted a balanced budget law, forcing the executive to act in this direction. A foreign country, however, cannot be treated as if it were the 52nd American state without the risk of a diplomatic backlash.

Second, the countries mentioned do not have weak governments, with the possible exception of Portugal. Their problem is low productivity and large government expenditure. FDI could help correct this situation, but American investors are advised to speculate instead of to participate profitably in the economic development of this region. 

Third, investors’ money should not be used to attack allied countries’ economies and political systems - a hostile act that could have unforeseen consequences in future. If they really wanted to assist Europe's struggling southern countries, financial operators could have advised their clients to buy stock in promising companies in the region. But this, to be sure, would have been in line with classical economic theory. The Chinese, it seems, have been using the crisis to acquire shares in good companies in trouble across the European Union.

Fourth, speculators should not - even if US authorities currently allow them to or even tacitly approve of this - become a tool in their country's foreign policy arsenal. The mephistophelic role played by Goldman Sachs and JP Morgan in the current Greek financial mess is a case in point.   

Furthermore, it is a no-brainer that during a severe economic crisis, governments are supposed to pick up the slack by engaging in deficit spending. By challenging Europeans and the euro, Anglo-Saxon financial circles are simply demonstrating that they oppose the re-regulation of financial markets, striking back against the countries that lobby for it. After all, even the IMF and the current architecture of the international financial system is the work of Europeans. By themselves, speculators cannot and would not abandon the green table, or sniffing cocaine in excess, for more serious pursuits (like financing the industrial renewal of obsolete plants in the US, or the conversion to alternative energy sources, for example).

The US government and polity should realise that such hostile financial attacks are further eroding America's image abroad, endangering alliances that have been in place for the past sixty years. Are they really worth it ?