Now savings could be raided across Eurozone: Finance chief warns more EU taxpayers could be targeted as Cyprus rescue set to become first of many
Jeroen Dijsselbloem spooked global markets with his comments
He said that owners and investors must be held responsible for failings
EU finance chiefs in last-minute agreement after 10 hours of negotiations
IMF chief: ‘It will form a lasting, durable and fully financed solution’
Savers with more than £85,000 will lose up to 40 per cent of their money
Uninsured funds to be frozen and used to pay off debts in bank restructure
Cyprus will not to need to vote on deal because bank law already in place
But Germany may have to hold vote before agreement can take effect
More than 60,000 British expats live on the island, so many face losses
By JAMES CHAPMAN
PUBLISHED: 18:26 GMT, 25 March 2013 | UPDATED: 22:41 GMT, 25 March 2013
Savers in the eurozone could see their bank accounts raided in the struggle to shore up the single currency, a senior EU official warned last night.
The Cyprus rescue package – under which bank customers will have a chunk of their cash seized to bail out troubled lenders – could become a template for dealing with other creaking banking systems, Jeroen Dijsselbloem suggested.
The remarks from the head of the eurozone’s finance ministers contradicted days of assurances that the Cyprus bank deposit raid was a ‘one off’.
Statistics: Posted by yoda — Mon Mar 25, 2013 9:31 pm
View full post on opinions.caduceusx.com
IMF: Eurozone Banks Are In Trouble, Trample Taxpayers And Democracy To Bail Them Out!
SATURDAY, MARCH 16, 2013 AT 12:56PM
Eurozone nations have to fundamentally reorganize themselves and shift sovereignty away from national parliaments to new layers of centralized, transnational, beyond-control bureaucracies that can decide at will when to extract untold wealth from taxpayers. That’s what the Eurozone has to do, according to the “first ever European Union-wide assessment of the soundness and stability of the financial sector,” released Friday by the institution that the world couldn’t do without, the IMF.
“Financial stability has not been assured,” the report stated flatly about the fiasco in the Eurozone, despite ceaseless hope-mongering by Eurocrats and politicians, and banks remain “vulnerable to shocks.” The report, which never mentioned banks or countries by name, discussed a number of “risks” that could topple these banks, with some of these “risks” already having transitioned to reality:
“Declining growth.” Banks with “excessive leverage, risky business models, and an adverse feedback loop with sovereigns and the real economy” are particularly vulnerable. Hence, most banks. A number of European countries have been in a deep recession, some of them for years. So “declining growth” is a reality, and these “shocks” are happening now, said the IMF in its more or less subtle ways.
“Further drop in asset prices.” Real estate prices are now dropping in some countries that didn’t see a collapse during the first wave, including France and the Netherlands—where it already took down SNS Reaal, the country’s fourth largest bank [A Taxpayer Revolt Against Bank Bailouts In the Eurozone]. So hurry up and do something, the IMF said.
The report points at other risks for banks. Pressures in wholesale funding markets could dry up liquidity and tighten refinancing conditions. And the market could lose confidence in the sovereign debt that banks hold. For example, an Italian bank, loaded with Italian government debt, would topple if that debt lost value—but of course, the report refuses to name names.
And in “several countries,” the heavy concentration of megabanks “creates too-big-to-fail problems that could amplify the country’s vulnerability.” So Germany, France, and the UK. Alas, in Europe too-big-to-fail doesn’t necessarily mean big. In tiny Cyprus, fifth country to get a bailout, the banks, though minuscule by megabank standards, are getting bailed out anyway. It’s psychological. A fear. If even a small bank were allowed to go bankrupt, the confidence in all banks across the Eurozone would collapse. That’s how fragile Eurocrats and politicians fear their banks have become—despite their reassurances to the contrary.
And so “policymakers and banks need to intensify their efforts across a wide range of areas” to save these banks, the IMF exhorts these Eurocrats and politicians.
Big priorities: “bank balance sheet repair”; banks should build larger capital buffers to be able to absorb shocks. And “credibility” repair of these balance sheets. In an admission that bank balance sheets still aren’t worth the paper they’re printed on, the IMF calls for stiffening the disclosure requirements, “especially of impaired assets” that are decomposing in hidden-from view basements.
The new Single Supervisory Mechanism (SSM), the EU-wide banking regulator under the ECB, to be operational by early 2014, would have to have real teeth, along with expertise, the IMF pointed out. It should regulate all banks in the Eurozone “to sustain the currency union” and in the entire EU to sustain “the single market for financial services.” In other words, without the SSM, the currency union won’t make it.
But the IMF’s killer app is the Banking Union, a “single framework for crisis management, deposit insurance, supervision, and resolution, with a common backstop for the banking system.” Under this system, taxpayers in all Eurozone countries would automatically be responsible for bailing out banks, their investors, bondholders, counterparties, and account holders in any Eurozone country.
For the most hopeless cases, the Single Resolution Mechanism would step in to dissolve banks “without disrupting financial stability”—hence bail out investors, disrupting financial stability being a term that’s commonly used to justify anything. The medium would be the transnational taxpayer-funded ESM bailout fund; it would bail out banks directly, rather than bail out countries after they bail out their own banks—which is the rule today.
In the process, countries would surrender much of their authority over banks—and how or even whether to bail them out—to this new instrument. Decision makers would be Eurocrats, far removed from any popular vote. Victims would be the people who’d end up paying for it. Investors and speculators would profit. Other beneficiaries would be politicians who’d no longer have to bamboozle voters into bailing out banks because it would be done by a distant power.
The dictum that there is never an alternative to bailouts would be cemented into the system. Democracy, which always gets trampled during bailouts, would be essentially abolished when it comes to transferring money from citizens to bank investors. And that’s of course the ultimate goal of the banking industry.
The stark reality facing millions of Spaniards, Italians, Greeks, and Portuguese is hidden—buried deep under a mountain of economic data, massaged to suit the purposes of the central planners-in-chief.
Statistics: Posted by yoda — Sat Mar 16, 2013 3:31 pm
View full post on opinions.caduceusx.com
Eurozone crisis about to return with a vengeance as Italy and Spain vote out austerity?
Posted on 04 February 2013
The Italian general election on 24-25th of this month and a political scandal over the Spanish prime minister’s slush fund threaten an end to the latest period of calm in the ongoing eurozone sovereign debt crisis, with a rejection of austerity and a challenge to the bond markets.
This has been the pattern of the past three years in Europe: intense periods of crisis with media headlines predicting the end of the world and then a cabal of European leaders stitches up some solution behind closed doors that assuages market fears and brings bond yields back into the comfort zone. Are we about to go back into the firing line?
The surge in support for firebrand ex-premier Silvio Berlusconi, running on an anti-austerity ticket is worrying indeed. He blames former prime minister Mario Monti for a dangerous recessionary spiral caused by unnecessary austerity. Rising unemployment in Italy and the relative calm in Germany plays into his populist hands.
Meanwhile in Spain premier Mariano Rajoy’s crown has slipped badly after a round of allegations about kick-back payments from construction firms winning state contracts. Polls show 60 per cent of Spaniards do not believe his denials and 800,000 have signed a petition calling for his resignation.
In a country where 58 per cent of people under the age of 25 are unemployed the legitimacy of democratically elected politicians can be quickly undermined by such scandal which becomes a proxy for a reaction against the austerity program of the same government.
At the same time it is not hard to understand why the public in Italy and Spain is upset by austerity when they see Germany still basking in relative economic calm with low unemployment and recruiting their workers.
However, a renewal of the eurozone sovereign debt crisis is the last thing the authorities want to see in Europe. Bond markets will not like this one iota. This will also upset the fragile progress that has been made in creating a federal banking structure able to withstand future financial shocks.
Mr. Monti has been widely credited along with ECB president Mario Draghi for bringing the eurozone crisis under control, and that would clearly be undermined by the return to power of Mr. Burlusconi who got Italy into its current mess in the first place. Mr. Rajoy has also done a good job in very difficult circumstances if you see it from the global perspective.
The problem is that democracy and austerity are unhappy bedfellows. Do you vote for your own unemployment? That is a sacrifice too far for many to make.
Statistics: Posted by yoda — Mon Feb 04, 2013 12:08 am
View full post on opinions.caduceusx.com
Latest eurozone PMI figures suggest downturn deepening
The eurozone has seen an ongoing steep decline as data shows the share currency bloc’s economy is entrenched in the steepest downturn since mid-2009.
Activity has now fallen in 14 of the last 15 months, with the exception being a marginal increase seen in January. Photo: Alamy
By Emma Rowley6
22 Nov 2012
The eurozone debt crisis is pushing the region into its deepest downturn since the financial crisis, according to a closely watched survey.
In October, the region’s economy continued to contract sharply, the monthly initial flash estimate purchasing managers’survey (PMI) estimate from data provider Markit showed, indicating that activity has fallen in 14 of the past 15 months.
The headline reading was 45.8, little changed on September’s 45.7 – anything below the 50-mark indicates a fall-off in activity. The services sector was particularly weak, dropping to a 40-month low of 45.7.
Officially, the eurozone only just edged back into recession in the third quarter of this year. However, Markit said the PMI data indicate the downturn is gathering pace “significantly”.
Researchers said the data were consistent with the eurozone contracting up to 0.5pc this quarter. Even the two largest economies, France and Germany, appear on course to shrink this quarter.
James Ashley, economist at RBC Capital Markets, said it was not clear when the eurozone would return to growth.
“The focus is increasingly on whether or not conditions will have stabilised by the start of 2013,” he said. “Should that [stabilisation] not materialise, it would not take much downside news to tip euro-area output for 2013 as a whole into another year of negative growth.”
The data came as markets wait for European finance ministers to reach a deal with the International Monetary Fund (IMF) over how Greece should manage its debts, allowing the release of its latest €31bn (£25bn) tranche of bail-out funds.
The euro members want to extend a deadline by which it must reduce its debt, but the IMF favours these nations taking a writedown on their loans to Greece.
Ahead of next Monday’s meeting to attempt to reach a deal, Olli Rehn, the European Commissioner for Economic Affairs, told the European Parliament: “I trust everyone will reconvene in Brussels on Monday with the necessary constructive spirit, and move beyond the detrimental mindset of red lines.”
Greece is suffering in the absence of an agreement, said Antonis Samaras, its prime minister, warning that “every day that goes by without a decision will burden the economy, its psychology, its markets and citizens and Greeks’ pride.”
A Greek pensioner yesterday was arrested after he threatened to set himself on fire inside a state finance office. He was thought to have been implicated in a fraud case years ago and to have been protesting at the seizure of his assets.
A number of Greeks have threatened to kill themselves at tax offices or banks, in various protests in recent years.
Statistics: Posted by yoda — Thu Nov 22, 2012 1:56 pm
View full post on opinions.caduceusx.com
The IMF -Inadvertently- Condemns The Eurozone
FRIDAY, OCTOBER 05, 2012
No global recovery until 2018, says Oliver Blanchard at portfolio.hu.:
It’s not yet a lost decade… But it will surely take at least a decade from the beginning of the crisis for the world economy to get back to decent shape.
Well, that makes it easy then, you would think. Solves a lot of problems in one go. All bailouts and loans and other measures can now be halted and reversed when and where possible. Since there is no way our central banks and governments can keep on doing what they have done for another 6 years (yeah, I know lots of you doubt that, but there’s just no way).
There’s not enough money on the planet. Not even enough credit. Nor enough buildings to torch in Athens and Madrid. The IMF et al might as well give up and move on to Plan B, C, Z. Which they don’t have. Or, better still, resign. Which they won’t do unless they’re forced to.
Instead, Blanchard, the chief economist of the IMF, which is a member of the eurozone troika and a major player behind bailouts, and "reforms" all over the world, is apparently completely ignored. Not one mention in the US presidential debate, and Mario Draghi didn’t exactly showcase him either. Maybe that’s why he did the interview in Hungary?!
Mitt Romney promised America 12 million new jobs "with growing wages". I guess he thinks that while the rest of the planet stays mired in the morass, the US can reach for the skies. And you know, I must admit I did catch myself thinking that if the US could play the role of Bain Capital, vs the rest of the world in the role of the companies that Bain took over and sucked dry, sure, that might have worked. And he does have that experience.
But unlike companies, you can’t bleed dry, bankrupt and wholly obliterate entire nations that are part of the UN, NATO, the EU, the eurozone. For more reasons than I care to get into detail about.
What the troika is doing with Greece and Spain had already gone too far; 6 more years of that, and in ever more nations to boot, is but a nutty, make that fully insane, notion. Check out the protests in Athens, Madrid and Barcelona to date, extend that to 2018, and then add a dose of Bain Capital. In other words: if Blanchard is correct, the US won’t recover either. If the rest of the world tanks, so will America.
And besides, when it comes to those 12 million jobs Romney was talking about, if you take the real unemployment rate of anywhere from 12-15%, and add the millions of Americans who don’t count in any official stats anymore, those 12 million are not an impressive number. But can still be presented as such because math seems to have become an un-American activity. Put another way: 12 million jobs in 4 years is 250.000 a month, while, just to name an example, initial jobless claims have been hovering at or above 350.000 a month for years now. At least 6 million jobs are needed in the next 4 years just to play even. Today’s report announced 114,000 new jobs and markets go skywards. Beam me up, Scotty.
But hey, in the present day global economy the US is not the most interesting party (sorry!). That role is still firmly embedded someplace in Europe, even though it’s hard to say exactly where. Granted, the Syrian-Turkish border has a shot at first place, but that’s black swan territory. For now.
There’s so much zombie capital fleeing to America that stateside reality can remain hidden for a while longer. Oh, and when Bill Gross warns of the disaster US debt and deficit will mean for the dollar, he’s just doing what he does best: talk his book. Follow his rhetoric at your own risk.
The EU/eurozone are still, and consistently, doing everything wrong that they can. From the point of view of the citizens of the membership countries, that is. All policies, bailouts, reforms, you name it, serve the interests of bankers and politicians. And that is what Blanchard, again: inadvertently, makes clear. And nobody follows up on his words.
Look, the only thing that really challenges the EU relationship with those member countries that are not in the eurozone, is the unquestioned and unquestioning push to include them in that same eurozone. If the euro crisis has proven one thing, it’s that this inclusion is, to put it mildly, not the nirvana it’s been made out to be. Far from it, take just one look at Greece, Portugal, Spain. And still no-one talks about the good and beneficial relationships that exist, and that can arguably be extended, between eurozone members and EU non-eurozone members. It’s either all 17 eurozone nations staying together or Armageddon befalls us. Nothing or all. And all for nothing.
Why this seemingly nonsensical and bizarre attitude? Too simple. Credit events. Forced derivative pay out triggers. Bankers’ nightmares.
There is absolutely no reason other, than credit events, why Greece et al could not make the move in the opposite direction, i.e. leave the eurozone and still remain EU members. Trade inside the EU does not depend on having the same currency. The eurozone is a badly botched project, and it’s beyond repair. But the EU is not. However, all the EU leadership, and that of its members’ governments, focus on at the present time is keeping the currency union together. That blindness will, indeed and inevitably, develop into an existential threat to the EU.
The EU is its own worst enemy. But, again, it’s not the people who live in the EU, it’s the leadership. The people have a different enemy. Their leadership.
Still, if the people don’t pay a whole lot more attention than they have so far, they will be played out against each other, a story as old as the world. The Greeks are told their hardship originates with Germany, the Germans are told that the Greek spending and credit insanity has caused their upcoming losses. Both stories are nonsense, but both people believe them. And that’s where the danger is for both.
From the (Hungarian) Blanchard interview:
Q: How far do you think Europe should go in terms of fiscal and economic policy integration so as to make the common currency zone successful?
A: I think that it has either to go forward or to go back, but it cannot stay where it is. I think nobody really wants to go back, so it has to go forward.
There has to be more solidarity between member countries. When a country is doing poorly the others have to be willing to help in various ways, not only out of solidarity, but because trouble in one country may well spillover to theirs. This is why the fiscal union and the banking union proposals being worked on as we speak are so important.
Q: Do you think solidarity is that strong in Europe? The U.S., for instance, is one nation, but the countries in Europe focus on their own specific interests. So do you think Europe is unified enough in this sense to create a strong fiscal integration?
A: There has to be solidarity. And I think it is there.
"In terms of fiscal and economic policy integration [..] it has either to go forward or to go back, but it cannot stay where it is. I think nobody really wants to go back, so it has to go forward". And: "There has to be solidarity. And I think it is there."
No, there is no solidarity of the kind Blanchard thinks of (i.e. people don’t want to move forward under the present conditions), and so, no, the integration will NOT go forward. People may not want to "go back", but they also don’t want to shoved into the abyss or the furnace. That way forward Blanchard et al. are talking about simply means more downward pressure on the PIIGS (and beyond eventually).
Do you think the Spanish and Greek populations will sign up for that sort of thing? Over half of the young people don’t have a job and now they’re going to sign over control of their economies and their lives to the very people they blame for taking their jobs away? Let me answer that for you: you don’t.
And who believes the Germans and Dutch and French and Finnish will volunteer to cede control to a bunch of buro-technocrats in Brussels? The rich and poor of the eurozone face the exact same enemy, they just don’t see it yet. But that will not last forever.
"There has to be solidarity. And I think it is there." Yes, there’s buro-techno solidarity, and these guys think that’s all that counts. They’ve been getting away with it so far, so why not, right?
Neither does it really matter to them. The race is the prize. Every next day, every next bailout means more money for their side. And to date, they manage to make the very people hit by budget cuts and austerity measures actually believe (!!) that tightening their belts is for their own good. That is not going to change until the demonstrations in Athens and Madrid coincide with protests in Amsterdam and Paris. But it will change.
It’s sort of like how Monsanto operates, and Dupont, Sygenta, who have nothing but patience. All they need to do is grow a field with their own corn and wait till it "contaminates" neighboring fields. Monsanto have a patent on their corn, their neighbors don’t on theirs, and so Monsanto can’t lose in court. Plus, Monsanto hasve the lawyers geared up (they know their own MO very well), and the rest doesn’t. It’ll take a few years, but then they’ll control it all. Unless patent laws change in the US, Germany, India, China. But even then it will already be too late: changing patent laws retroactively is a whole different story.
Just like changing bailout and "reform" deals retroactively can’t be done. All the money involved will forever be transferred from the public to the private sector, and the debt will have gone the opposite way. If and when the protests turn too bloody and ugly, after first having sent in the snipers, the boys count their winnings, divvy up the loot, and disappear in some private resort.
These are guys that play a power game. And the ones that float to the top play the ultimate power game. The visible ones for power itself, the ones you don’t see (power and visibility don’t rhyme) for power and money. The way the game is set up makes it inevitable that psychopaths, those people who have no way of identifying with or caring for the people around them (except for immediate family and friends, perhaps), end up in control. Those who do care for people in general, even if they’re power hungry, can’t go all the way playing the game requires of them.
And the markets are up. But still all the king’s men couldn’t put Humpty Dumpty back together again.
Oliver Blanchard make a few things clear. The crisis, recession, depression, whatever you choose to call it, will last another 6 years or more. During that time, the people of Europe will get poorer as they go along. So will the people of America. Global means what it says: global. He also makes clear that the IMF expects the people to comply with the Europeanization that the IMF and the rest of the banking class have in mind. Ever more central control, vs the ever stronger call for decentralization in Catalunya, Pays Basque etc., and soon in many more places. Globalization has no place in a shrinking, deflating, deleveraging world.
The IMF will lose their battle for control. But the people will be losers too. Southern Europe fears the Germanification of their countries, their thousands-of-years ancient societies, and rightly so. The Germans themselves would be wise to fear the Club-Medification of theirs. Or should we label it Club-Medication?
Statistics: Posted by yoda — Sat Oct 06, 2012 2:58 am
View full post on opinions.caduceusx.com
Eurozone ministers agree 30bn euros for Spanish banks
Eurozone finance ministers have agreed to offer Spain 30bn euros (£24bn; $37bn) to help its troubled banks.
After nine hours of emergency talks in Brussels, the ministers said the money would be available by the end of July.
It was also agreed that a 2013 deadline for Spain to cut its budget deficit to the EU limit of 3% could be extended by one year.
There have been fears that Spain’s troubled banks could lead the country to ask for a full state bailout.
Eurozone countries agreed in June to lend up to 100bn euros ($125bn; £80bn) to support Spain’s banks.
The yield on Spanish bonds rose sharply on Monday ahead of the meeting, with many fearing that little concrete action on Spanish banks would be reached.
"We are aiming at reaching a formal agreement in the second half of July, taking into account national parliamentary procedures, allowing for a first disbursement of 30bn euros by the end of the month to be mobilised as a contingency in case of urgent needs in the Spanish banking sector," Eurogroup President Jean-Claude Juncker said.
"There will be specific conditions for specific banks, and the supervision of the financial sector overall will be strengthened," he added.
"We are convinced that this conditionality will succeed in addressing the remaining weakness in the Spanish banking sector."
Mr Juncker also said that Madrid should implement measures needed to bring its public finances into line with EU norms.
On Saturday, Spanish Prime Minister Mariano Rajoy announced that he would take further steps soon to cut the country’s public deficit.
In a news conference at the end of Monday’s marathon meeting a number of appointments were also announced.
The ministers reappointed Mr Juncker as their chairman and picked German Klaus Regling to head the permanent bailout fund, the European Stability Mechanism, due to come into force this month.
The finance ministers’ conclusions will be submitted to a meeting of all 27 EU finance ministers later on Tuesday.
Earlier on Monday, the yield on Spanish 10-year bonds – which are taken as a strong indicator of the interest rate the government would have to pay to borrow money – rose above 7%, while Italian bond yields rose to 6.1%.
Yields above 7% are considered to be unsustainable in the long term.
Among the key agreements from the 29 June summit were moves towards a banking union with the European Central Bank (ECB) acting as a supervisor and allowing European bailout funds to buy bonds to try to reduce countries’ borrowing costs.
But since the summit, there have been signs that Finland and the Netherlands would oppose the use of bailout funds in this way.
Statistics: Posted by DIGGER DAN — Tue Jul 10, 2012 9:25 pm
View full post on opinions.caduceusx.com
Doug Casey: A Eurozone Crash Is Baked In The Cake
By Doug Casey Jul 6th, 2012
Louis James: So Doug, you’re off to FreedomFest 2012 shortly, where people will be able to hear your latest thoughts on many subjects. Maybe you can give us a sneak preview on whatever is uppermost on your mind today.
Doug: FreedomFest should be especially outrageous, since I’ll be tag-teaming with my friend Jeff Berwick of the Dollar Vigilante for a featured lunch. I’m not sure exactly what topics we’re going to discuss, but I hope we aren’t prosecuted for breaking too many federal, state, and local statutes at one sitting.
Anyway, lately I’ve been thinking about the EU’s rising tide of troubles. We talked about this last January, when I said it was coming, but it seems to me that at this point it’s rapidly coming to a head. A major financial and economic catastrophe in Europe is unavoidable. From there, it’s likely to spread out to the whole world.
L: I fear you’re right, but the latest headlines have it that the EU bigwigs are taking measures to make it easier for Greece’s new pro-bailout government to honor its austerity obligations. Doesn’t that mean the EU has dodged the bullet for now?
Doug: As far as I can tell, they’re doing absolutely nothing except print up more currency, in hope that will move the problem further into the future, when a deus ex machina device will magically appear.
I haven’t seen any hard numbers published as to exactly what Greece has to cut to meet its EU-imposed austerity obligations, nor how that fits into Greek budgetary realities. But, as usual with popular reporting, the terms used are inaccurate, which makes clear thinking impossible. These idiots aren’t even capable of framing the problem, much less solving it.
First of all, it’s not “Greece” we’re talking about, but the Greek government. It’s the Greek government that’s made the laws that got people used to pensions for retirement at age 55. It’s the Greek government that’s built up a giant and highly paid bureaucracy that just sits around when it’s not actively gumming up the economy. It’s the Greek government that’s saddled the country with onerous taxes and regulations that make most business more trouble than it’s worth. It’s the Greek government that borrowed billions that the citizens are arguably responsible for. It’s the Greek government that’s set the legal and moral tone for the pickle the place is in.
Second, the term “austerity” is used very loosely by the talking heads on TV. It sounds bad, even though it just means living within one’s means… or, for Europeans, not too insanely above them. But who knows what’s actually included or excluded from what the EU leaders think of as austerity? Take the Greek pension funds, for example: exactly how are they funded? I’d expect that private companies make payments to a state fund, as Americans do via the Social Security program. I suspect there’s no money in the coffers; it’s all been frittered on high living and socialist boondoggles. Tough luck for pensioners. Maybe they can convince the Chinese to give them money to keep living high off the hog…
L: Social Security. Now there’s a misnomer. No one I know my age or younger actually expects to ever get a penny of that money back.
Doug: Yes, my generation, the Boomers, will have totally looted what little viability is left in it by the time you never get your check. Sorry, Lobo. It was our supposed “Greatest Generation,” however – who are mostly gone now – who really got a cushy ride. But the point at the moment is that just because the Greeks voted – basically to stay in the EU in hopes of economic benefits outweighing the pain of whatever the austerity requirements are – that doesn’t mean they’ll actually be able to deliver. Once the new half-measures begin to bite, I expect to see more angry mobs back out on the streets. These people have become so corrupt that they think the government is some kind of a magic cornucopia, when first and foremost it’s really just a vehicle for institutionalized theft.
And it’s not just austerity, and it’s not just Greece, nor even Spain, which has formally asked for a bailout. All of these European economies are rigidly regulated: first, by their national governments; and then, even worse, by this extra layer of unbelievably oppressive regulation from Brussels. I understand there are some 30,000 people working for the EU, making new rules and regulations like an army of spiders, spinning their webs, sucking the life out of their victims. None of these rules are constructive. They’re a waste of time at best, and most are actively destructive – like for instance, the EU rules telling the French how to make cheese.
I was reading in David Galland’s report from Portugal last Friday that the EU forced the Portuguese to destroy half of their fishing fleet. Not because there was anything bad, dangerous, or wrong with the boats, but because they were too good and the Portuguese were too successful as competitors; it’s life imitating Atlas Shrugged. He also said that most of the oranges grown in Portugal are either thrown in the trash or trucked to Spain, where they can’t be eaten but must be made into marmalade, which is then sent back to be sold to the Portuguese. Apparently about half of the chickens in Portugal are about to be executed – just killed, not eaten – because they were raised in conditions the EU doesn’t consider appropriate. The list goes on and on, and the madness is happening all over Europe.
The proposed austerity measures will change absolutely nothing important; at best they’ll just lengthen the economic agony. Instead of austerity programs, cutting back marginally on the salaries of public employees and national pensions, all these hordes of Eurocrats should be summarily fired, and their agencies totally abolished. The markets should be liberated.
And individuals should plan for their own retirements. They should behave like adults, not children who spend today with no thought for tomorrow, as state-sponsored retirement benefits encourage them to do.
L: Excessive regulation and disincentives to production created by government intervention in the economy. Can you give us some examples of this happening and what the consequences are?
Doug: The classic example is the Roman Empire after it passed through its time of troubles in the third century. After 50 years of utter chaos, constant crisis, and recurring civil wars, Diocletian gripped it in a stranglehold, regulating everything from top to bottom. I suppose, given a choice between chaotic violence and a police state, people will opt for the latter – as if there are no other alternatives. He instituted all manner of price controls and “people controls,” including forcing sons to take up their father’s occupations. The ultimate collapse of Rome and the success of the barbarian invasions wasn’t due to superior barbarian military technology or tactics, but Roman economic collapse. Romans were actually deserting the empire to live among the so-called “barbarians,” where they could both be free and prosperous. History is repeating itself.
L: That’s pretty dramatic, Doug. You think Europe is in a similar death spiral now?
Doug: Yes. Those governments are all bankrupt. But much more serious than financial bankruptcy is their total moral and intellectual bankruptcy. At this point the Europeans are so craven and degraded they deserve to be indentured servants of the Chinese, which they will be. The debt they are using to finance their bulging bureaucracies, bloated welfare rolls, giant pensions, and so forth is largely coming from the banks. But the banks are all bankrupt too, partly because they’ve lent so much capital to bankrupt governments. So you’ve got two sets of bankrupt institutions trading debt back and forth between themselves. It doesn’t help to say that it’s the PIIGS that are in the worst shape, because it’s the banks in the supposedly wealthier countries that own the PIIGS’s debt. They are all tied together.
It’s much worse, on a global scale, because Europe is China’s largest trading partner. When the EU really goes into reverse and suffers a major economic collapse, the Chinese are going to lose their main customers – and end up owning a lot of chateaux. That also means the Chinese will stop buying the raw materials – commodities – they use to make what they sell to the Europeans. That will hammer the Australian, Brazilian, Canadian, and other resource-driven economies.
And the problems with Japan are even worse, though somewhat different, than the ones in Europe. Chronically corrupt and now depopulating Russia is headed for a fall; its economy produces nothing but raw materials and weapons. The problem is truly global. The headlines keep pointing at Europe right now, but the EU is just the tip of the iceberg the global economy is aimed at.
L: In this context, it’s not encouraging that the French have not only elected a socialist president, but a socialist parliament. I’d be fighting severe nausea right now if I were a French taxpayer.
Doug: And France is not one of the PIIGS on the periphery, but one of the two big countries at the core of the EU. I don’t understand how anyone can conduct a profitable business in France today. It seems heroic to me, if anyone can do it, but it’s getting just about impossible. And now France is going to slide a couple standard deviations further to the left. If I were a Frenchman with any money, I would get my money and myself out of France – tomorrow morning.
L: I read somewhere that Cameron in the UK announced that French people with money were welcome in the UK.
Doug: I heard that too. But if I were a Brit, I’d also liquidate my assets and get out; there’s no reason to believe the situation is any better in Britain. It’s just not currently in the news. These governments are completely out of control, forces unto themselves, and they view their populations as milk cows. Governments all over the world are following Diocletian’s example.
L: If it’s happening all over the world, what’s the point of packing up and leaving?
Doug: Well, there really is almost no place you can run, no one place where it’s reasonably safe to be a citizen these days. We’re heading toward a time like in the book, Atlas Shrugged, when the productive people in society are just going to stop producing. Why should anyone work hard to create value when a substantial portion of that value will get diverted into fighting off regulators and other government goons, only to have half of what you do make seized to pay for those very same thugs?
L: Are you telling all the Atlases out there that it’s time to shrug?
Doug: I think so, on a moral basis. I’m sick and tired of supporting my oppressors. It makes me feel like dissipating my capital on high living, simply because that will deny it to the state. It’s perverse, how they’ve structured society with incentives to be a consumer, not a producer. Why save, when it’s likely your savings will be stolen?
L: Well… I guess that explains why you’re building a house in a beautiful but rural corner of Argentina. You’re on strike, no longer wanting to be your brother’s financial keeper. But Argentina’s government is just as scary as any other.
Doug: Yes, but that’s why I’m an Uruguayan resident, have my bank accounts in various jurisdictions other than Argentina – or the US, for that matter – and I’m also working on becoming a Paraguayan taxpayer.
L: But Paraguay doesn’t have a personal income tax…
Doug: Exactly. And this is my message to the Hank Reardens of the world: become a “permanent tourist.“
There’s no such thing as a real tax haven anymore – even Swiss bank accounts, if you can get one, are not what they used to be. You ask what the point is of leaving when all governments look at their subjects as milk cows? Well, a tourist is an honored guest who spends money in the local economy; he’s welcome and largely left alone. No one place is perfect – certainly not Argentina – but if you distribute your life across various jurisdictions, none of them consider you to be their cow. I simply prefer Argentina as a place to spend most of my time. Other countries are to be used for different things for different reasons.
L: So where’s the least-bad place to have your corporate office these days?
Doug: I think you’ve got to look at Singapore. Hong Kong is still very good. Dubai offers some advantages in that part of the world. Other than that, you’ve got to go to a place where the government is small and incompetent.
L: Hence your interest in Paraguay.
Doug: Exactly. But that’s not a place I’d actually want to live; it’s a backwater, with little more than farms and a capital that’s like a small Midwestern city with colonial architecture in the center. The weather is unbearably hot during the summer. I also have to caution readers that the OECD is pressuring Paraguay to adopt a personal income tax – though none has yet been implemented, and it’s currently a good place to be a taxpayer.
L: The US is still an economic powerhouse and a place where a lot of people make a lot of money…
Doug: Yes, it’s shocking to me, though, how the US has gone downhill. In past decades, if anyone wanted to set up a business, the US would almost certainly have been the best place to do so. But it has become less and less so over the years. Now it’s just asking for trouble. But everything is relative. I’d advise anyone with capital to deploy it elsewhere, not in the US, because it has just become too dangerous, financially and morally. But if I had nothing, if I were a landless serf struggling to live in Nigeria or Burma or Venezuela, sure, I’d try to make it to the US. Bad as it’s getting, it’s vastly better than where they come from – and will likely be for years.
The fact that there are some 50 million people relying on food stamps these days – about one in six US citizens gets money for food – just goes to show how bad things are getting. And worse, government agencies are trying to get more people on to these programs, instead of helping them to stand on their own two feet. According to a Wall Street Journal article I was reading the other day, Republicans and Democrats alike have blocked reform of the food stamp program, even minimal and sensible reforms like means testing. The program is projected to spend more than $700 billion over the next ten years.
L: Gee, Doug: doom and gloom and dark despair. But that’s not a new tune for you. Let’s suppose that your analysis is essentially correct; what makes you think that the pot’s about to boil over? How can we know that this is not just more grumbling from a permabear?
Doug: Well, it’s true: “inevitable” is not the same thing as “imminent.” When people see that something is inevitable – and I’m guilty of this mistake myself – they tend to believe those things are also imminent, even when that’s not so. But the inevitable is inevitable, and that means it must happen. We usually can’t predict exactly when – and such things often take far longer to arrive than we imagine they possibly can – but once things to start unravel, they tend to accelerate quickly. The crisis seems far off for a long period of time, and then suddenly it’s upon us.
It’s much like the ground rush effect when you’re skydiving. When you first exit the plane, typically at around 7,500 feet for a 30-second free-fall, it seems like you could fall forever. That’s partly because it takes 5 or 10 seconds to reach terminal velocity and partly because of the way geometry plays with your visual perception. At around 2,500 feet, though, you can see the ride is coming to an end. By 2,000 feet, you don’t need to look at your altimeter to figure when to pull, because you’re feeling urgent ground rush. Europe is under 1,000 feet, and even if they do pull the ripcord, they’ll find there’s no chute… just a bunch of dirty laundry their economists packed as a joke. It’s pointless to talk about anything but a very, very hard landing. Unfortunately, when we’re talking about the economy, the analogy breaks down a bit. That’s because you actually don’t need a parachute to go sky diving.
You only need one to go skydiving twice.
Doug: Let me change the metaphor. Europe is in hot water. One of the things that has me thinking the water in the pot might hit its boiling point this summer is that people generally prefer to riot in the summer… for all kinds of reasons. Feeling ripped off by “the system” is a really big one. Take the bank runs in Greece – to the tune of a billion dollars a day. If I were a resident of any European country, I’d definitely run to the bank and get cash. Sure, it’s just paper, but that’s better than nothing if the bank fails and governments don’t bail it out quickly enough.
Even the US has seen many bank failures since 2008, but the FDIC and the Fed always paper it over. And yet, more and more people are recognizing that the system rests on nothing more than confidence. More and more people are going to physical cash in their physical possession all over the world. Most people don’t have a lot of financial sophistication, but they read enough and see enough, and have enough sense to be scared. When that’s the case, they’d rather have more cash in their pockets or mattresses than they would normally. That’s because money left in banks can become suddenly inaccessible if there’s a problem with the banking system, or if the government declares a bank holiday, or if the government just takes it, alleging tax evasion or money “laundering”…
Note to those living in the US: this can happen to you, too. I’d definitely recommend building up a stash of twenties and hundreds, enough for several months’ living expenses, in case banks suddenly don’t have cash on hand. Better yet, put it in gold and silver, because you never know what the banks will give you when push comes to shove – or if anyone will accept what the banks give you in exchange for goods and services you need … especially if Bernanke dumps too many hundred-dollar bills from helicopters. All these paper currencies are rapidly headed for their intrinsic values. And when they reach them, billions of people all over the world are going to feel very, very pissed off – and basically at the same time.
During the last Argentine crisis, some people thought they were being smart, keeping their savings in dollars in banks. Well, the government declared a bank holiday, and when the banks opened, their dollars were converted to pesos – and devalued by about 75% to boot. Essentially the same thing happened in the US when Roosevelt devalued the dollar.
L: So… the short version would be that what’s inevitable may or may not be that imminent, but on such matters, it’s better to be a year early than a day late?
Doug: That’s exactly right. And I really do think we’re getting close to the edge of the precipice.
You know, people can read this and just view it as entertainment, or dismiss it as just another opinion. But it’s like the old oak that was there for a hundred years and looked like it would last another hundred years, but fell suddenly in a storm. Only then did we see that it was hollow and had long been close to collapse. That’s where the world’s financial situation is: it’s rotten to the core because of fractional reserve banking and fiat currencies, and totally corrupt because of state intervention in the marketplace.
L: I remember how we – people who understood market economics – all knew the Soviet Union had to collapse from its internal contradictions and economically self-destructive policies. But we didn’t know how long it could last, and sometimes it seemed like it would be forever. But then when it came unglued, it fell apart with breathtaking speed.
Doug: Just so. But when the Soviet bloc collapsed, at least the West was there to help them out. Who’s going to bail out the West? A giant reset button will get pushed, with unpredictable results. Personally, I am buying more gold every month. I anticipate a genuine world-class and world-spanning crisis. And it wouldn’t just be financial and economic; everything will be in turmoil – society, the military, culture, education, art, science – everything. Really interesting times are coming up here. But on the bright side, I have a low threshold of boredom. I admit I’m something of both an adrenalin and an entertainment junkie.
L: Right. But for those of us still working to amass the kind of capital it takes to be able to regard a global calamity as an adrenalin rush, it should be noted that this crisis will bring loads of opportunities to those who see it coming and prepare.
Doug: Word to the wise. More on that in future conversations. The markets are going to be full of great speculations for the next few years. And, eventually, some great investments as well. I trust that by now our readers know the difference.
Statistics: Posted by yoda — Fri Jul 06, 2012 2:26 pm
View full post on opinions.caduceusx.com
The Tiresome Eurozone Soap Opera Has Entered Re-Runs
June 18, 2012
The Eurozone "drama" needs some fresh plot developments; it has become boring.
What’s more tiresome than a hastily rehearsed soap opera that replays the same boring plots again and again? Re-Runs of that soap opera. The Eurozone "drama" is now in re-runs and I for one am switching channels. Nothing will change until some critical part of the worm-eaten, corrupt construct of artifice and denial collapses in a heap. Until then, all we have is replays of the same boring plot lines:
Put-upon Greece: We were just minding our business here in the sunny south, living happily on borrowed billions in a thoroughly corrupt Status Quo, and suddenly we’re debt-serfs squeezed by rapacious Eurozone enforcers of the banking cartel. What did we do to deserve this? It’s not fair.
Put-upon Germany: We were just minding the store here, racking up 40% of our GDP in exports and raking in bank profits loaning money to our Eurozone compatriots, when suddenly everyone who’s lived beyond their means demands that we refinance their debts because we’re rich. Excuse us, but did anyone look at how we got rich? Hard work, cuts in spending, high taxes and a tight lid on wages. What did we do to deserve this? It’s not fair.
Married couple in counseling: France and Germany: It’s all his/her fault. They never bothered to understand me, etc.
The lit-fuse terrorist: Either refinance our debt and bail out our Status Quo, or we’re gonna blow up the Eurozone!
Is anyone else tired of the entire cast and threadbare plotlines? The "crisis" drama could be dispensed with in short order:
A. The bickering couple(s): get a divorce and quit blaming the other.
B. Insolvent banks: fire the management and liquidate the banks in an orderly fashion, following the well-established model: clear the books of impaired assets, and let the market price those assets. Any losses are passed through to the shareholders and bondholders. Once the losses have been taken, recapitalize the banks with new bonds and/or shares, and establish prudent lending guidelines. Prohibit backstopping or bailouts by central banks or Central States.
C. Unsustainable pensions, budgets, deficits, etc.: only spend what is collected in tax revenues, period. Stop living in the past and borrowing from future taxpayers.
On the macro scale, the Eurozone’s systemic problems boil down to these realities:
1. No household or economy can sustainably spend more than it reaps in surplus. The net surplus (what’s left after paying the expenses of producing goods and services) can either be spent on consumption, invested in productive assets or leveraged into debt. If it is leveraged into debt, then the interest eventually consumes the entire surplus and the entity enters a death spiral.
The only way to be able to spend more is to generate more surplus. It’s that simple.
2. The demographics of a dwindling workforce and an expanding populace of State dependents cannot be gamed or disappeared by artifice. The entire developed world is facing the impossibility of one full-time worker supporting one State dependent. Here in the U.S., there are 115 million full-time private-sector jobs and over 110 million dependents on the State just in the Social Security, Medicare and Medicaid programs. Add in all the other State dependents and the ratio is perilously close to 1-to-1. (That Which is Unsustainable Will Go Away: Medicare May 16, 2012)
(Recall that all Federal spending is "pay as you go"–there are no vast pools of money laying around in trust accounts. If Social Security expenses exceed SSA tax revenues, the Treasury sells bonds to cover the shortfall.)
I don’t have the figures on hand for Europe, but if all State dependents and only full-time jobs are counted, I am confident the ratio in most of the Eurozone is close to 1-to-1: one full-time worker for every State dependent.
3. "Growth" based on debt and the build-out of China is over. The "growth" story in Europe over the past decade was essentially debt-based: real estate bubbles in Ireland, Spain and elsewhere, and debt-based consumption everywhere. China is massively overbuilt and has gargantuan levels of overcapacity in virtually every industry. Selling luxury cars to China may appear to be a good business, but 500+ spontaneous citizen demonstrations a day portend game-changing blowback to corrupt officials buying Audis and Cayennes by the thousands.
4. Everything that is held away from market forces eventually snaps back and faces market pricing of risk, valuation and surplus, i.e. reality. Unrealistic pensions, unrealistic spending, unrealistic budget projections–all will increasingly be exposed to market forces, one way or another.
5. A nominally capitalistic economy without collateral is living on borrowed time (and borrowed money, needless to say). Correspondent David H. summed this up very succinctly:
What we are all living through today is the failed experiment of trying to run a capitalist economy on no REAL capital. This not only crimps wealth and the overall standard of living, but also elevates the perverse over the rational.
The entire Eurozone "drama" is the result of the perverse being elevated over the rational. As Yeats so aptly phrased it, "The best lack all conviction, while the worst are full of passionate intensity."
The Eurozone soap opera is truly a tale "full of sound and fury, signifying nothing," until the rubber band snaps and reality intrudes.
Statistics: Posted by yoda — Sun Jun 17, 2012 5:35 pm
View full post on opinions.caduceusx.com
ATHENS, Greece (AP) — In Europe’s most economically stricken countries, people are taking their money out of their banks as a way to protect their savings from the growing financial storm.
Worried that their savings could be devalued, or that banks are on the verge of collapse and that governments cannot make good on deposit insurance, people in Greece, Spain and beyond are withdrawing euros by the billions — behavior that is magnifying their countries’ financial stresses.
The money is being hoarded at home or deposited in banks in more stable economies.
It’s a steady bank "jog" at the moment, not a full-bore run. But it threatens to undermine the finances of those countries’ already-stressed lenders. And if it does turn into a full bank run after Greece’s crucial election on Sunday, it could hasten financial disaster in Europe and help spread turmoil around the world.
Since the Greek debt crisis broke in late 2009, deposits have fallen by 30 percent cent, as savers have slowly pulled some €72 billion ($90.24 billion) from local lenders, with total household and corporate deposits standing at €165.9 billion ($207.94 billion) in April, according to the latest data from the Bank of Greece.
Spanish deposits have fallen about six percent over the past year. They dipped suddenly in April by about €3.1 billion, or 1.8 percent, to €1.624 trillion as problems with the country’s troubled banks stated to grow to alarming proportions.
This is despite the fact that deposits are guaranteed by the government up to €100,000 across the eurozone.
Spain’s financial turmoil quickly worsened in late May, when the country’s second-largest lender announced it needed capital of €19 billion to stay afloat. Bankia denied reports of a rush by its customers to withdraw, but the bailout scared Spaniards who assumed their money was safe.
Bankia client Rosa Monsivais panicked and decided she had to move her savings from Bankia to one she thought would be safer. She chose a foreign bank with Spanish operations, the Dutch owned ING bank.
It took longer than she thought, leading to anxious days until she knew her money was in her new account.
"It scared me a little. I took all my money out and put it in ING," said Monsivais, a 41-year-old graphic artist who would not say how much money she moved. "But it took a full week to do this kind of transaction. I was reading the newspaper each day and it worried me."
The money across Europe is headed different places.
Some has simply been withdrawn and spent out of urgent need as people lose their jobs due to recessions. Some is winding up in bank accounts or invested in countries that are more stable such as Germany. The rest is being invested in property or bonds being issued by other eurozone countries.
In the U.K., the eurozone crisis was seen as one factor pushing up central London house prices, according to Knight Frank, a real estate agency dealing in high-end property.
"While it looks very much that the surge in Greek buyers has fallen off sharply since the beginning of the year — those who had the funds to buy have done so — we are now seeing a noticeable uptick in interest from France, Italy, Spain and even German-based purchasers looking at the prime London market," the company said in its Prime Central London Index report.
Meanwhile, some money appears to be simply hoarded at home, despite the risk of theft. Last month, police in Athens arrested a gang that specialized in breaking into basement storage spaces under apartment blocks, netting a rich haul in stashed cash and valuables.
"What the average Greek has in mind is to secure the euros they currently hold," said Theodore Krintas, managing director at Attica Wealth Management. "That has been going on for a long time, and will continue as long as the uncertainty increases concerning Greece’s position in the near future in the eurozone and the European Union."
Sunday’s vote could determine whether Greece stays in the euro or leaves in chaos. Since 2010, Greece has been dependent on two bailouts totaling €240 billion in loans to pay its bills. In return, the government had to promise to make deep spending cuts to lower its deficit. That has helped put the country in a deep recession. Leading political figures have called for renegotiating or rejecting the bailout deal, which could lead to a payment cutoff from mistrustful eurozone governments and the IMF.
A bailout cutoff could lead to a complete collapse of government finances and a euro exit meaning the country would have to print its own money to pay bills or recapitalize banks.
A large-scale bank run in Greece could further wreck government finances and push the country closer to leaving the euro. T
So far it’s been a trickle rather than a flood in Greece, underlining its slow-motion nature. Many have kept their deposits because they don’t believe Greece will leave the euro.
Wealthy Germans also are concerned that inflation will surge if Europe’s central bank has to step in and spend huge amounts of money propping up the single currency. So they are putting more money into their own country’s high-end real-estate in hope it will keep its value.
Well-heeled Spaniards have been moving money to Switzerland and the U.S. for months amid mounting worries about Spain and the safety of the eurozone, said Bruce Goslin, managing director for Europe, the Middle East and Africa for K2 Intelligence consulting group.
"As we are circulating and talking to people, some things are becoming clear. Everyone says ‘There is nothing going on in Spain, the economy is contracting so fast we’re going to have to go out of Spain.’" said Goslin.
Spain’s banking problems come from the collapse of a real estate boom. Banks that made reckless loans are not being paid back and are seeing the value of the properties they invested in tumbling. This is making the country’s banking system increasingly financially insecure — heightening savers’ fears that their money is not safe.
Fernando Encinar, head of research at real estate website Idealista.com, said some wealthy people who didn’t have money to buy during the boom are now taking advantage of prices that have fallen 26 percent in four years.
Many Spaniards can’t move money abroad because times are so tough, said Vincent Forest at the Economist Intelligence Unit. With unemployment now at nearly 25 percent, Spaniards with jobs and savings are increasingly helping out less fortunate relatives.
"Most Spaniards have huge savings, but they have someone in the family who needs money and isn’t earning anything," Forest said.
Many Italians — some of Europe’s most devoted savers — are also moving money. They are worried their government will be the next victim of the crisis through its heavy debt load, even though Italy’s banks, government finances and economy are in better shape than Spain’s.
Some 60,000 to 70,000 small investors have bought property abroad, mostly in Germany but also on the Spanish islands, in the last three months, for a total investment of €400 million on an annual basis, said Paolo Righi, president of the Italian Federation of Real Estate Professionals.
Ruth Stirati, who runs a business helping Italians buy property in Berlin, said she gets about 10 emails a day asking about properties.
"Over the last two or three weeks, there has been a new panic," she said. "They have a thousand fears: That the banks won’t have money, that the euro will fail. It is without substance, their doubts. But they worry there will be one strong euro in Germany, and one that is weak.’
Wealthy Germans aren’t worried about seeing their money disappear due to collapsing banks, but they are concerned that their savings will be eaten away through inflation. As a result, they are putting money into real estate — at home.
Even though inflation currently is moderate at 2.2 percent in May, there is concern about the risk of rising prices in Germany’s media. There is speculation that inflation could jump if the European Central Bank has to take drastic measures to keep the eurozone from breaking up — such as printing large amounts of money to buy government bonds and cover bankrupt governments’ financing needs.
The current EU treaty bars that. But that hasn’t stopped German newspaper headlines warning about possible inflation to come.
According to the Europace real estate financing platform, German home prices rose 5.46 percent in the first quarter over a year ago.
Statistics: Posted by yoda — Sat Jun 16, 2012 12:48 pm
View full post on opinions.caduceusx.com
WEDNESDAY, JUNE 6, 2012
It’s All About The Real Economy, (Stupid!)
The Eurozone Crisis… what is it about?
c) Currency rates
d) None of the above
The correct answer is.. (d) none of the above. Because it’s all about the Real Economy ™, that’s why…
Competitiveness is arguably the most "real" indicator for the Real Economy, one that we can use to gauge a nation’s economic health. Here’s a chart I constructed based on the latest data from the World Economic Forum’s The Europe 2020 Competitiveness Report: Building a More Competitive Europe.
I have used the data to calculate and present competitiveness as percentages of the Eurozone average (blue bars), of Germany (red bar) and Finland’s maximum score (yellow bar). Click on the chart to enlarge it for easier viewing..
To make a long story short… how can Spain and Germany (see previous post) share the same currency – and just about nothing else – when Spain is only 85% as competitive as Germany? It stands to reason that, given no other measures, Germany’s economic prowess will quickly "swamp" Spain’s less competitive economy. Not to mention Greece (at a horrible 75% of Germany’s competitiveness), Italy (at 81%) and Portugal (at 87%). Even France (94%) is at risk, given enough time.
Germany’s solution is to insist on quickly making the competitiveness "deficit" countries more competitive via a wrenching process of internal devaluation and outright deflation.
Well, it’s not working – at least thus far. After two years of pain, the cost of huge unemployment and loss of earned income is simply too high for societies to bear. At best, the "operation" will eventually succeed, but the patients will be dead!
Europe’s laggards unquestionably need the economic reforms contained in Germany’s "medicine"; but Eurozone as a whole requires a common fiscal policy (e.g. outright transfer payments between nations) if it is to survive.
Statistics: Posted by yoda — Wed Jun 06, 2012 12:48 pm
View full post on opinions.caduceusx.com