Collapse of the euro is 'inevitable

[Panameno718]

Collapse of the euro is 'inevitable': Bailing out the Greek economy futile, says FRENCH banking chief

The European single currency is facing an 'inevitable break-up' a leading French bank claimed yesterday.
Strategists at Paris-based Société Générale said that any bailout of the stricken Greek economy would only provide 'sticking plasters' to cover the deep- seated flaws in the eurozone bloc.
The stark warning came as the euro slipped further on the currency markets and dire growth figures raised the prospect of a 'double-dip' recession in the embattled zone.
The bailout of Greece will only act as a 'sticking plaster' for the Euro crisis, the bank warned yesterday
Claims that the euro could be headed for total collapse are particularly striking when they come from one of the oldest and largest banks in France - a core founder-member.


More...The euro? It's a great success, says Mandy as Greece turmoil sends single currency into worst ever crisis

In a note to investors, SocGen strategist Albert Edwards said: 'My own view is that there is little "help" that can be offered by the other eurozone nations other than temporary, confidence-giving "sticking plasters" before the ultimate denouement: the break-up of the eurozone.'

'The euro's a success': Peter Mandelson at Downing Street on Thursday

He added: 'Any "help" given to Greece merely delays the inevitable break-up of the eurozone.'
The alarming claim came a day after European Union leaders promised 'determined and co-ordinated' action to shore up Greece's tattered public finances, but disappointed traders by failing to provide specifics.
Further details are expected early next week, but markets were in high anxiety yesterday amid fears political divisions among rich eurozone members could derail any rescue.
The euro slid almost 1 per cent to $1.357 yesterday, meaning it has lost 10 per cent of its value since November. The pound rose to 1.14 euros.
Earlier this week Business Secretary Lord Mandelson's claimed that the single currency had been a 'remarkable success' and that it remained in Britain's interests to join.
David Cameron ridiculed that claim yesterday.

He told the Tories' Scottish conference: 'Are this Government the only people in the country who still think that would be a good idea? Our deficit and debt are bad enough without the straightjacket of the euro.
'If I am elected for as long as I am prime minister the United Kingdom will never join the euro.'
The French bank's warning was echoed by Mats Persson, Director of the Open Europe think-tank, which campaigns for reforms in Brussels.
He said: 'The eurozone is facing a fully-fledged crisis. The Greece episode has made it painfully clear how flawed the euro project was from the very beginning.
'Even if Greece receives a one-off bailout it would not solve the real problem, which is the huge differences in competitiveness between the eurozone's richest and poorest members.
Tory leader David Cameron said if he is elected, the UK will not adopt the euro

'If these differences are to be evened out, the EU would need a single budget and common taxes so it can redistribute resources.
'One thing is clear, Britain made the right choice in staying out.'

Mr Edwards argued that Portugal, Ireland, Greece and Spain are too economically weak to withstand the rigours of eurozone membership.
Countries that are highly uncompetitive are normally able to slash interest rates and devalue their currencies to prop up their economies.
But this is not possible within the euro, given its one-size-fits-all economic governance.
The implication is that weak, peripheral eurozone members will have to suffer years of painful deflation and tumbling living standards, as well as draconian budget cuts, in order to adjust.
Harvard University Professor Martin Feldstein, a long-standing sceptic on the euro, yesterday said the single currency 'isn't working' because member governments have no incentive to keep their public debts under control.
'There's too much incentive for countries to run up big deficits as there's no feedback until a crisis,' he said.

Germany drags EU back towards recession
Axel Weber, President of Germany's Bundesbank, warned the German economy will contract this year
The eurozone faces the danger of a 'doubledip' recession after Germany's economy retreated into stagnation.
Figures published yesterday revealed that the countries who have joined the euro collectively grew a mere 0.1 per cent in the fourth quarter of last year - equal to Britain's own faltering performance.
Germany was the biggest drag, recording zero growth in the final three months of 2009 after emerging from recession earlier in the year.

Axel Weber, President of Germany's Bundesbank, warned this week there is a chance his nation's economy will contract in the first quarter of 2010, in part because of the severe winter, in a major blow to recovery hopes.
The figures from the European Commission are a blow to Britain's embattled manufacturers, which count the eurozone as their biggest export market.
France provided a bright spot in the report, expanding by 0.6 per cent in the fourth quarter-But Italy, Spain and Greece all registered contractions in their gross domestic product.
Economist Martin van Vliet of ING Bank said: 'The paltry pace of fourth quarter growth makes crystal clear that the eurozone economy cannot yet stand on its own feet.

'The disappointing eurozone growth data are a sobering reminder that recovery from financial crisis led recessions tends to be slow and protracted, and might not prove very supportive in calming markets' fears about the region.'


http://www.dailymail.co.uk/news/wor...ebt-bailout-EU-leaders-split-euro-crisis.html

 

[Greed]

I think we definitely have enough evidence from history that confederacies do not work.

 

[Panameno718]

I know all these countries in the European Union wish they did not get into the Euro and stayed in their own currency .

I think we definitely have enough evidence from history that confederacies do not work.

 

[Greed]

I think the euro was a worthy goal considering the size of these countries are loosely equivalent to states and the mobility of their citizenry made the system of multiple currencies inefficient.

However, they shouldn't have tried to unite themselves on the cheap with the confederacy model. They thought they would first do a confederacy, then loosen immigration restrictions, then piecemeal-approve a constitution, then whatever other sneak move to get their citizens to eventually go along with a federal model. They should have made the argument from the beginning for federalization. If it wasn't approved then so be it but failure to federalize and maintaining of the multiple-currency status quo would have been better than this nightmare.

 

[thoughtone]

Keep dreaming corporatists! You see what privatization has done over the last 30 years.

 

[nittie]

Given Europe's history a confederacy was the only way they could go. There was no way those countrys could do anything else. The euro was doomed from the beginning but a alternative to the dollar is still a good idea. Hopefully they can find ways to make it work.

 

[Cruise]

Source

Which Economies Are Really In Trouble?

The Economist magazine had a chart which compared economic data for over 50 developed countries. Which country do think had the worst budget balance as a % of GDP in 2009? Greece? Spain? No, it was the UK!! Yes, Britain's budget deficit was 14.2% of their GDP in 2009 according to the Economist. This compares to Greece which had a budget deficit of 13% of GDP, and Spain which ran a deficit of 11.8% of GDP in 2009.

The combined Euro area had a budget deficit of just 6.9% of GDP, but from all of the media hype you would think the debt problems with the PIGS was so massive that a default was all but guaranteed. The data shows that investors should be more concerned about the debt levels in the UK than those in Greece or Spain!

Not Just Europe

And do you know the only other country which reported a double digit budget deficit as a % of GDP for 2009? It was the US which ran a deficit equaling 10% of GDP in 2009. Yes, the US is one of only 4 countries with a double digit deficit. Even Venezuela had a better deficit number than the US. But you won't read much about it in the press, they are too busy concentrating on the destruction of the Euro and the problems with the PIGS.

Looking At The Wrong Culprit

That brings me to the trade that has been going on for two months now, regarding investors all over the world, punishing the euro, for the problems of the states called Portugal, Italy, Greece, and Spain, or... The so-called PIGS! The Euro-state that most investors point to is Greece... Which, as I told you on Friday, accounts for 2% of the Euro-zone's total GDP....

A friend of mine, at THE Business newspaper of the world, sent me a note on Friday, and said "Hey, Chuck ... was just reading today's Pfennig and saw your comment about the size of Greece compared to EU, and the size of Calif compared to the US. Did a bit of research for you and .... Calif's economy is about $1.6 Trillion (as of Jan 2007), according to US Dept of Commerce. US economy, according to CIA fact book, is about $14.25 trillion on 2009 estimates. Thus, Calif is about 11% of the US economy - roughly speaking, given that the dates are slightly mismatched, and who knows how accurate these Gov't organizations are. But any event, it's clearly much bigger than Greece's impact on the EU."

So... California, which I would consider to be bankrupt, I mean for crying out loud, the state sent IOU's to people last year instead of cash for their tax returns, is 11% of the U.S. problem... But we have to add to that, the research we went through above... The states of New York, Michigan, Illinois, and so on! This is a debt debacle folks!

A Nice Diversion From The Real Problems

Now... I'm not saying that the PIGS problem isn't a big deal... It is! But bigger than the U.S. problem? NO!

So... The dollar should not be rewarded... And neither should the euro... But the problem here is that these are the two most liquid currencies in the world... So, the normal trade is the sell one, and buy the other, as they are the offset currencies to each other... So... I would think that you would take the lesser of two evils, don't you?

OR... If that doesn't float your boat, you probably are eligible to join the legions of people that are finding that Gold is the best replacement for either!

 

[thoughtone]

Given Europe's history a confederacy was the only way they could go. There was no way those countrys could do anything else. The euro was doomed from the beginning but a alternative to the dollar is still a good idea. Hopefully they can find ways to make it work.

I thought the dollar was going to crash. Buy gold!

 

[fourth_retired]

The Dollar is next. Watch. The USA has 13 trillion in debt and its still growing.

 

[Lamarr]

I thought the dollar was going to crash. Buy gold!

It already did

This just proves the un-sustainability of Keynesianism and Central Banking

 

[buster]

They just can't get it right , going down faster than the farming idustry in the US

 

[thoughtone]

It already did

This just proves the un-sustainability of Keynesianism and Central Banking

Keynesianism has bailed the US out from the no regulation, free market crash of the 1920s. It also has sustained the creation of the greatest increase of middle class citizens the world has ever known. What has libertarianism, Ayn Rand worship created? If the US wants fiscal responsibility, the military budget should be cut 60%. Let the southern leeches know what it truly feels like without the bad old government military bases.

 

[Lamarr]

Keynesianism has bailed the US out from the no regulation, free market crash of the 1920s. It also has sustained the creation of the greatest increase of middle class citizens the world has ever known. What has libertarianism, Ayn Rand worship created? If the US wants fiscal responsibility, the military budget should be cut 60%. Let the southern leeches know what it truly feels like without the bad old government military bases.

observation: Why do you support the Keynesian economic model that prop up the very corporations you claim you despise so much?

Fact: The Depression of 1920–21 was an extremely sharp deflationary recession in the United States, shortly after the end of World War I. It lasted from January 1920 to July 1921. The extent of the deflation was not only large, but large relative to the accompanying decline in real product.

It only lasted 18 months because the govt did not interfere in the market! 18 months, that why I said we'd be on our way back to recovery if we allowed the banks to fail 16 months ago.


Why You've Never Heard of the Great Depression of 1920

http://www.youtube.com/watch?v=czcUmnsprQI

 

[Cruise]

Keynesianism has bailed the US out from the no regulation, free market crash of the 1920s. It also has sustained the creation of the greatest increase of middle class citizens the world has ever known. What has libertarianism, Ayn Rand worship created? If the US wants fiscal responsibility, the military budget should be cut 60%. Let the southern leeches know what it truly feels like without the bad old government military bases.

You have a schizophrenic position here. On the one hand, you are Keynesian and on the other against government spending.

But, I just may make this my sig, just to confuse the hell out of people.

 

[charlie dark]

The problem with the Euro is that the economies of the member states were divergent when they entered into the Euro..

 

[rayzor222]

Don't believe the hype. Euro is just weak and it's not going anywhere. Warren Buffet said when people are fearful, he gets greedy. When people are greedy, he is fearful. Look at the move he made recently buying that railroad. He even financed money to help buy it. A very rare move! Mofo is deep in greedy mode. I'm not in the stock market game, so please don't think I'm recommending it. I love observing other winners. This is a great opportunity to make a killing. Don't focus on doom and gloom so much, this is an opportunity to buy assets cheaply. It's a god damn fire sale. It's just a cycle when the winners are setting up for another killing. It happens in all markets. The true winners mouth's are watering positioning themselves. Lol. Read between the lines. Peace my brothers...

 

[QueEx]

<font size="6"><center>
Germany's Choice </font size></center>

Strategic Foredasting, Inc.
Geopolitical Intelligence Report
By Marko Papic and Peter Zeihan
February 8, 2010


The situation in Europe is dire.

After years of profligate spending, Greece is becoming overwhelmed. Barring some sort of large-scale bailout program, a Greek debt default at this point is highly likely. At this moment, European Central Bank liquidity efforts are probably the only thing holding back such a default. But these are a stopgap measure that can hold only until more important economies manage to find their feet. And Europe’s problems extend beyond Greece. Fundamentals are so poor across the board that any number of eurozone states quickly could follow Greece down.


And so the rest of the eurozone is watching and waiting nervously while casting occasional glances in the direction of Berlin in hopes the eurozone’s leader and economy-in-chief will do something to make it all go away. To truly understand the depth of the crisis the Europeans face, one must first understand Germany, the only country that can solve it.


<font size="4">Germany’s Trap</font size>

The heart of Germany’s problem is that it is insecure and indefensible given its location in the middle of the North European Plain. No natural barriers separate Germany from the neighbors to its east and west, no mountains, deserts, oceans. Germany thus lacks strategic depth. The North European Plain is the Continent’s highway for commerce and conquest. Germany’s position in the center of the plain gives it plenty of commercial opportunities but also forces it to participate vigorously in conflict as both an instigator and victim.

Germany’s exposure and vulnerability thus make it an extremely active power. It is always under the gun, and so its policies reflect a certain desperate hyperactivity. In times of peace, Germany is competing with everyone economically, while in times of war it is fighting everyone. Its only hope for survival lies in brutal efficiencies, which it achieves in industry and warfare.

Pre-1945, Germany’s national goals were simple: Use diplomacy and economic heft to prevent multifront wars, and when those wars seem unavoidable, initiate them at a time and place of Berlin’s choosing.

“Success” for Germany proved hard to come by, because challenges to Germany’s security do not “simply” end with the conquest of both France and Poland. An overstretched Germany must then occupy countries with populations in excess of its own while searching for a way to deal with Russia on land and the United Kingdom on the sea. A secure position has always proved impossible, and no matter how efficient, Germany always has fallen ultimately.

During the early Cold War years, Germany’s neighbors tried a new approach. In part, the European Union and NATO are attempts by Germany’s neighbors to grant Germany security on the theory that if everyone in the immediate neighborhood is part of the same club, Germany won’t need a Wehrmacht.

There are catches, of course — most notably that even a demilitarized Germany still is Germany. Even after its disastrous defeats in the first half of the 20th century, Germany remains Europe’s largest state in terms of population and economic size; the frantic mindset that drove the Germans so hard before 1948 didn’t simply disappear. Instead of German energies being split between growth and defense, a demilitarized Germany could — indeed, it had to — focus all its power on economic development. The result was modern Germany — one of the richest, most technologically and industrially advanced states in human history.


<font size="4">Germany and Modern Europe</font size>

That gives Germany an entirely different sort of power from the kind it enjoyed via a potent Wehrmacht, and this was not a power that went unnoticed or unused.

France under Charles de Gaulle realized it could not play at the Great Power table with the United States and Soviet Union. Even without the damage from the war and occupation, France simply lacked the population, economy and geographic placement to compete. But a divided Germany offered France an opportunity. Much of the economic dynamism of France’s rival remained, but under postwar arrangements, Germany essentially saw itself stripped of any opinion on matters of foreign policy. So de Gaulle’s plan was a simple one: use German economic strength as sort of a booster seat to enhance France’s global stature.

This arrangement lasted for the next 60 years. The Germans paid for EU social stability throughout the Cold War, providing the bulk of payments into the EU system and never once being a net beneficiary of EU largesse. When the Cold War ended, Germany shouldered the entire cost of German reunification while maintaining its payments to the European Union. When the time came for the monetary union to form, the deutschemark formed the euro’s bedrock. Many a deutschmark was spent defending the weaker European currencies during the early days of European exchange-rate mechanisms in the early 1990s. Berlin was repaid for its efforts by many soon-to-be eurozone states that purposely enacted policies devaluing their currencies on the eve of admission so as to lock in a competitive advantage vis-à-vis Germany.

But Germany is no longer a passive observer with an open checkbook.

In 2003, the 10-year process of post-Cold War German reunification was completed, and in 2005 Angela Merkel became the first postwar German leader to run a Germany free from the burden of its past sins. Another election in 2009 ended an awkward left-right coalition, and now Germany has a foreign policy neither shackled by internal compromise nor imposed by Germany’s European “partners.”


<font size="4">The Current Crisis</font size>

Simply put, Europe faces a financial meltdown.

The crisis is rooted in Europe’s greatest success: the Maastricht Treaty and the monetary union the treaty spawned epitomized by the euro. Everyone participating in the euro won by merging their currencies. Germany received full, direct and currency-risk-free access to the markets of all its euro partners. In the years since, Germany’s brutal efficiency has permitted its exports to increase steadily both as a share of total European consumption and as a share of European exports to the wider world. Conversely, the eurozone’s smaller and/or poorer members gained access to Germany’s low interest rates and high credit rating.

And the last bit is what spawned the current problem.

Most investors assumed that all eurozone economies had the blessing — and if need be, the pocketbook — of the Bundesrepublik. It isn’t difficult to see why. Germany had written large checks for Europe repeatedly in recent memory, including directly intervening in currency markets to prop up its neighbors’ currencies before the euro’s adoption ended the need to coordinate exchange rates. Moreover, an economic union without Germany at its core would have been a pointless exercise.

Investors took a look at the government bonds of Club Med states (a colloquialism for the four European states with a history of relatively spendthrift policies, namely, Portugal, Spain, Italy and Greece), and decided that they liked what they saw so long as those bonds enjoyed the implicit guarantees of the euro. The term in vogue with investors to discuss European states under stress is PIIGS, short for Portugal, Italy, Ireland, Greece and Spain. While Ireland does have a high budget deficit this year, STRATFOR prefers the term Club Med, as we do not see Ireland as part of the problem group. Unlike the other four states, Ireland repeatedly has demonstrated an ability to tame spending, rationalize its budget and grow its economy without financial skullduggery. In fact, the spread between Irish and German bonds narrowed in the early 1980s before Maastricht was even a gleam in the collective European eye, unlike Club Med, whose spreads did not narrow until Maastricht’s negotiation and ratification.

Even though Europe’s troubled economies never actually obeyed Maastricht’s fiscal rules — Athens was even found out to have falsified statistics to qualify for euro membership — the price to these states of borrowing kept dropping. In fact, one could well argue that the reason Club Med never got its fiscal politics in order was precisely because issuing debt under the euro became cheaper. By 2002 the borrowing costs for Club Med had dropped to within a whisker of those of rock-solid Germany. Years of unmitigated credit binging followed.

The 2008-2009 global recession tightened credit and made investors much more sensitive to national macroeconomic indicators, first in emerging markets of Europe and then in the eurozone. Some investors decided actually to read the EU treaty, where they learned that there is in fact no German bailout at the end of the rainbow, and that Article 104 of the Maastricht Treaty (and Article 21 of the Statute establishing the European Central Bank) actually forbids one explicitly. They further discovered that Greece now boasts a budget deficit and national debt that compares unfavorably with other defaulted states of the past such as Argentina.

Investors now are (belatedly) applying due diligence to investment decisions, and the spread on European bonds — the difference between what German borrowers have to pay versus other borrowers — is widening for the first time since Maastricht’s ratification and doing so with a lethal rapidity. Meanwhile, the European Commission is working to reassure investors that panic is unwarranted, but Athens’ efforts to rein in spending do not inspire confidence. Strikes and other forms of political instability already are providing ample evidence that what weak austerity plans are in place may not be implemented, making additional credit downgrades a foregone conclusion.


<font size="4">Germany’s Choice</font size>

As the EU’s largest economy and main architect of the European Central Bank, Germany is where the proverbial buck stops. Germany has a choice to make.

<font size="3">Option 1: Let Greece and Others Fail</font size>​

The first option, letting the chips fall where they may, must be tempting to Berlin. After being treated as Europe’s slush fund for 60 years, the Germans must be itching simply to let Greece and others fail. Should the markets truly believe that Germany is not going to ride to the rescue, the spread on Greek debt would expand massively. Remember that despite all the problems in recent weeks, Greek debt currently trades at a spread that is only one-eighth the gap of what it was pre-Maastricht — meaning there is a lot of room for things to get worse. With Greece now facing a budget deficit of at least 9.1 percent in 2010 — and given Greek proclivity to fudge statistics the real figure is probably much worse — any sharp increase in debt servicing costs could push Athens over the brink.

From the perspective of German finances, letting Greece fail would be the financially prudent thing to do. The shock of a Greek default undoubtedly would motivate other European states to get their acts together, budget for steeper borrowing costs and ultimately take their futures into their own hands. But Greece would not be the only default. The rest of Club Med is not all that far behind Greece, and budget deficits have exploded across the European Union. Macroeconomic indicators for France and especially Belgium are in only marginally better shape than those of Spain and Italy.

At this point, one could very well say that by some measures the United States is not far behind the eurozone. The difference is the insatiable global appetite for the U.S. dollar, which despite all the conspiracy theories and conventional wisdom of recent years actually increased during the 2008-2009 global recession. Taken with the dollar’s status as the world’s reserve currency and the fact that the United States controls its own monetary policy, Washington has much more room to maneuver than Europe.​

Berlin could at this point very well ask why it should care if Greece and Portugal go under. Greece accounts for just 2.6 percent of eurozone gross domestic product. Furthermore, the crisis is not of Berlin’s making. These states all have been coasting on German largesse for years, if not decades, and isn’t it high time that they were forced to sink or swim?

The problem with that logic is that this crisis also is about the future of Europe and Germany’s place in it. Germany knows that the geopolitical writing is on the wall: As powerful as it is, as an individual country (or even partnered with France), Germany does not approach the power of the United States or China and even that of Brazil or Russia further down the line. Berlin feels its relevance on the world stage slipping, something encapsulated by U.S. President Barack Obama’s recent refusal to meet for the traditional EU-U.S. summit. And it feels its economic weight burdened by the incoherence of the eurozone’s political unity and deepening demographic problems.

The only way for Germany to matter is if Europe as a whole matters. If Germany does the economically prudent (and emotionally satisfying) thing and lets Greece fail, it could force some of the rest of the eurozone to shape up and maybe even make the eurozone better off economically in the long run. But this would come at a cost: It would scuttle the euro as a global currency and the European Union as a global player.​

Every state to date that has defaulted on its debt and eventually recovered has done so because it controlled its own monetary policy. These states could engage in various (often unorthodox) methods of stimulating their own recovery. Popular methods include, but are hardly limited to, currency devaluations in an attempt to boost exports and printing currency either to pay off debt or fund spending directly. But Greece and the others in the eurozone surrendered their monetary policy to the European Central Bank when they adopted the euro. Unless these states somehow can change decades of bad behavior in a day, the only way out of economic destitution would be for them to leave the eurozone. In essence, letting Greece fail risks hiving off EU states from the euro.

Even if the euro — not to mention the EU — survived the shock and humiliation of monetary partition, the concept of a powerful Europe with a political center would vanish. This is especially so given that the strength of the European Union thus far has been measured by the successes of its rehabilitations — most notably of Portugal, Italy, Greece and Spain in the 1980s — where economic-basket case dictatorships and pseudo-democracies transitioned into modern economies.

<font size="3">Option 2: Bail out the Greeks</font size>​

And this leaves option two: Berlin bails out Athens.

There is no doubt Germany could afford such a bailout, as the Greek economy is only one-tenth of the size of the Germany’s. But the days of no-strings-attached financial assistance from Germany are over. If Germany is going to do this, there will no longer be anything “implied” or “assumed” about German control of the European Central Bank and the eurozone. The control will become reality, and that control will have consequences. For all intents and purposes, Germany will run the fiscal policies of peripheral member states that have proved they are not up to the task of doing so on their own. To accept anything less intrusive would end with Germany becoming responsible for bailing out everyone. After all, who wouldn’t want a condition-free bailout paid for by Germany? And since a euro-wide bailout is beyond Germany’s means, this scenario would end with Germany leading the EU hat-in-hand to the International Monetary Fund for an American/Chinese-funded assistance package. It is possible that the Germans could be gentle and risk such abject humiliation, but it is not likely.

Taking a firmer tack would allow Germany to achieve via the pocketbook what it couldn’t achieve by the sword. But this policy has its own costs. The eurozone as a whole needs to borrow around 2.2 trillion euros in 2010, with Greece needing 53 billion euros simply to make it through the year. Not far behind Greece is Italy, which needs 393 billion euros, Belgium with needs of 89 billion euros and France with needs of yet another 454 billion euros. As such, the premium on Germany is to act — if it is going to act — fast. It needs to get Greece and most likely Portugal wrapped up before crisis of confidence spreads to the really serious countries, where even mighty German’s resources would be overwhelmed.

That is the cost of making Europe “work.” It is also the cost to Germany of leadership that doesn’t come at the end of a gun. So if Germany wants its leadership to mean something outside of Western Europe, it will be forced to pay for that leadership — deeply, repeatedly and very, very soon. But unlike in years past, this time Berlin will want to hold the reins.



This report is republished with permission of STRATFOR.

 

[NnubianN]

<font size="6"><center>
Germany's Choice </font size></center>

Strategic Foredasting, Inc.
Geopolitical Intelligence Report
By Marko Papic and Peter Zeihan
February 8, 2010


This report is republished with permission of STRATFOR.

Awesome read. Imagine Germany having to 'save' Europe after all the Hell it went through during the first half of the 20th Century. I thought this kind of irony only existed in fairy tales

 

[Dallas Bueller 2010]

observation: Why do you support the Keynesian economic model that prop up the very corporations you claim you despise so much?

Fact: The Depression of 1920–21 was an extremely sharp deflationary recession in the United States, shortly after the end of World War I. It lasted from January 1920 to July 1921. The extent of the deflation was not only large, but large relative to the accompanying decline in real product.

It only lasted 18 months because the govt did not interfere in the market! 18 months, that why I said we'd be on our way back to recovery if we allowed the banks to fail 16 months ago.


Why You've Never Heard of the Great Depression of 1920

http://www.youtube.com/watch?v=czcUmnsprQI

Good post Mar

 

[thoughtone]

Government spending can be good. But like anything can be abused. What private organization would or could create the interstate highway system. What private organization would or could create the space program, from scratch. What private organization would or could create the postal system, from scratch. Keynesianism did not cause or propagate this crisis it was the Supreme Court Case Santa Clara County v. Southern Pacific Railroad. I have serval posts about it, which is kryptonite to Libertarians and conservatives. When corporations no longer answered to the will of the people and became omnipotent. With this ruling people began to serve capitalism instead of capitalism serving the people.

 

[QueEx]

Experts: Euro was troubled from birth

A single European currency, linking the Arctic to the Azores, made its debut
December 2001 | Stephan Schraps/MCT



McClatchy Newspapers
By Matthew Schofield
Thursday, May 10, 2012


WASHINGTON — In the 1990s, as they prepared to launch the euro, the continent’s political leaders said they couldn’t imagine a Europe without Athens or go forward without the glory of Rome.

While some finance ministers and many economists around the continent worried whether the fiscal policies and economic cultures of more than a dozen countries could be united under one currency, politicians answered forcefully – even poetically. The divisions of the past were past, they argued; a single currency would bind a continent that so often had been torn by war.

Today, as Greece seems likely to leave the euro – and with Ireland, Italy and even France deep in debt and hampered by the single currency – Europe’s bold fiscal experiment faces its gravest crisis yet. But all these problems were predictable: From its inception, the move to the euro was not as much about money as about political unity and guarding against another European conflict. The economics were always known to be, at best, difficult.

The financial crisis has erased those attempts at unity, said European political expert Richard Whitman of the University of Kent in England.

“This first cut has released all the old demons,” Whitman said. “We’re back to calling the Greeks lazy, the Italians shady, the British disconnected, and the Germans bent on domination. It didn’t take long, did it?”

While talk about what’s wrong with the euro focuses on complex matters – national debt ratios, labor market reforms, pension protections – one fundamental problem with the currency now shared by 17 nations is simple: Blame Hitler.

After the fall of the Berlin Wall, a newly unified Germany was bent on leaving behind not only its recent division but also the much darker and more threatening past of World War II. Germany had to make sure the rest of Europe knew it now came in peace, and the best way to ensure that was to tie its own success to that of its neighbors.

Helmut Kohl, then the German chancellor, called it “a bit of a peace guarantee.”

Germany and France, the drivers of the euro project, pushed to be as inclusive as possible despite the economic risks. In fact, had all nations followed the rules they signed up for upon joining the eurozone, say experts, this crisis could have been avoided.

Among them: Nations must not carry debt greater than 60 percent of their gross domestic product. Yet Greece’s debt ratio is 165 percent, Italy’s is 120 percent and Ireland’s is 107 percent, according to the CIA World Factbook. France’s debt ratio is 86 percent and stable Germany’s is 81 percent.

For comparison, the CIA lists the United States at 69 percent, although that number that does not include Social Security debt, which would bump the U.S. number up to around 100 percent.

European officials identified Greece as a problem from Day One of eurozone discussions.

The Greeks, after all, were wedded to their retirement age of 55 (with sunbathed cafes on every corner, why not?) and saddled with red tape that made launching any new business almost prohibitive. The government had a reputation for not collecting taxes – $65 billion in back taxes are now outstanding – and overall, Europeans regarded its economy as a mess.

But Greece also had the Acropolis. It was the cradle of European civilization, the birthplace of democracy. How could such a place be left out of a greater Europe?

“The decision to let in Greece was purely sentimental,” said Jeffrey A. Frankel, an international finance professor at Harvard University’s Kennedy School of Government. “That’s a sign that they weren’t moving forward in the best way possible in forming their new currency.”

Greece was an extreme example, but many countries had debt and labor regulation problems. Even beyond specific policy concerns was this: While sharing a single currency, individual nations would continue to handle their own tax and pension programs. Local politicians, therefore, respond to local wishes before considering eurozone needs.

“The nickname is ‘one-size-fits-none monetary policy,’” said Kathleen R. McNamara, director of Georgetown University’s Mortara Center for International Studies. “Now, the truth is it’s astonishing the European project has come as far as it has. Seventy years ago, with Greece as weak as it is, it would have been invaded. This is a good thing. But to say that makes the euro work is magical thinking.”

In some ways, the currency delivered what everyone wanted. The southern nations had traditionally tied their unpredictable currencies to the German deutschemark but didn’t like the constant devaluations that entailed. The French were looking for a bold expansion of their European dream and favored the stability of the German model. The northern countries were looking for greater integration. Their smaller economies could use room to grow, and the currency stabilized that.

The Germans wanted to assure Europe they were now part of a whole and wouldn’t launch another war. But that sort of talk was all political.

Experts say the notion that countries that weren’t abiding by agreed-upon debt ratios or hadn’t made needed reforms would suddenly grow into the responsibility of a shared currency was laughable.

Adriaan Schout, a European expert at the Clingendael Institute in The Hague, said that the euro rules include penalties on countries for noncompliance – but he pointed out that in reality, those fines would never be paid.

“What country will agree to pay fines for acting on its own policies?” Schout said. “Politicians will vote to spend beyond their means, then vote to pay the fines for that? Politicians know they’d never survive an election after that.”

Protecting the euro meant restricting who was let in. But those decisions also were political. The German newsmagazine der Spiegel reported this week that in 1998, Dutch officials complained to Germany that “without additional measures on the part of Italy . . . acceptance into the eurozone is currently unacceptable.” German officials balked . If Rome was out, Chancellor Kohl said, Paris was out, and that just wasn’t possible, according to the magazine.

McNamara said little of this is surprising.

“Currencies are deeply political,” she said. “The dollar wasn’t accepted as the single American currency until the Civil War, and there wasn’t a lasting U.S. central bank for half a century after that.”

And the United States was a single nation, able to impose a single fiscal policy. If Europe was to do that, it would mean either a mishmash of policies or that everyone would agree to follow German rules. Stephen Kinsella, an economist at the University of Limerick in Ireland, pointed out that one failure of the currency was that it allowed Ireland’s debt to be treated the same way as Germany’s debt – which would be a mistake, he argued, because Germany has a much more robust economy.

Which means the European Central Bank established to regulate the common currency has to serve both a booming German economy and a tanking Greek one. It has to keep interest rates low to spur borrowing and growth in the south, while keeping rates high enough to avoid inflation in the north.

Paola Subacchi, a European expert with London’s Chatham House think tank, said that a single fiscal policy would be only part of a solution. A total solution would have to address the inequities between national economies. This won’t be easy, she said, and it may not be possible.

“For Greece, that means it would have to be totally redone,” she said. “But, again, it is a political decision, not an economic one. Right now, the Greek people want not to meet the terms of their last bailout, but also not to leave the eurozone. They cannot have it both ways.”



email: mschofield@mcclatchydc.com


http://www.mcclatchydc.com/2012/05/10/148409/euro-was-troubled-from-birth-experts.html