A Short Story of a Greek Tragedy, a Euro Crisis and an Inevitable Collapse of The Monetary Union
The Euro Crisis and the Coming Euro Collapse Act II- Time to Check How Austerity Is Going
In January 2010, when every body was predicting the dollar to fall, we wrote in 11 Big Surprises for the Next Decade our prediction:
1. The Collapse Of The Euro- With Germany having such a different economy than the PIIGS (Portugal, Ireland, Italy, Greece, and Spain) the weaker economies of the Euro region had a choice- to leave the Euro or to suffer massive deflation (since prices where too high and devaluation impossible due to the fact that they didn’t have control on the currency). Massive deflation meant budget deficits north of 10% of GDP and with no monetization possible the sovereign debt market of the PIIGS started to collapse. Some countries tried to cut the budget, which brought severe civil unrest while the economy continued to detoriate. Others refused to physically reform which resulted in further revolts in their sovereign bond markets. The first domino to fall was Greece- when the yield on the 10 year government bond reached 8% percent it was clear that without a bailout from Germany they where bust, and bust they went. Like after the collapse of Lehman Brothers, the collapse of Greece caused a general panic in the markets, with government bonds of the rest of the PIIGS collapsing since it was clear that Germany will not bail them out. European banks refused to lend to each other and the havoc was over only when the rest of the PIIGS left the currency.
The Coming Euro Collapse- Germany and France Examine 'two-tier' Euro
A European official has told The Daily Telegraph the dramatic option was being examined at cabinet level.
Senior politicians believe their economies need to be better protected as they could not cope with another crisis on a par the one in Greece. View from the lab: continental driftThe creation of a "super-euro" zone would initially include France, Germany, Holland, Austria, Denmark and Finland...
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The Euro Crisis- a look at Spain's great depression
Spain's needs a 35 % internal devaluation (wage cuts), or in leave the Euro zone. All the other options will not work quickly enough. Either Spain leaves, or , or Germany will inevitably have to go back to the Mark. The system won't hold otherwise. Opinions on the subject have changed radically in Spain and around Europe in just six months, and nothing can be ruled out.
When we wrote about the Euro Collapse a few months back nobody listened and it looked to many like fear mongering but now it is a reality
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Political backlash from the Greek bailout intensifying in Germany
German anger at the 750billion Euro Greek bailout is swelling as world markets slid after initial excitement at the bailout fizzled out.
Though the package has helped ease near-term concerns about a wave of defaults across Europe, concerns about the solvency of the indebted countries remain - whether governments, which are still running sky-high deficits, will be able to push through massive austerity measures for years to come.
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We are early 2008 all over again. When the sub prime crisis hit in late 2007 the Federal Reserve started to inject liquidity in to the system and slash interest rates. The immediate response of markets was to sell the dollar and take commodity prices to the moon, with oil hitting 147 dollars a barrel. At some stage, the central planners where worried about the rising food prices and the fed stopped slashing interest rates and the ECB even raised them a bit. The lack of liquidity caused the markets to collapse in late 2008. Only when the FED resumed the money printing, this in time on a much larger scale did markets recover with oil hitting 86 dollars a barrel. Since the 31st of March 2010 the FED stopped printing money and the lack of liquidity caused the dollar to strengthen and brought a liquidity crunch in Europe. The ECB has taken the FED's place with steroids. It is now buying not only AAA paper like the FED did it is buying junk bond in Greece and across Europe. This effectively will turn the euro in to the Drachma. Today the short Euro+ stocks is reversing and the Euro is rising as a result. But that will not change the big picture- If the ECB continues to print money like crazy the Euro will crash and commodities will go throw the roof in Euro terms. At some stage the ECB will be forced to stop and then the Euro will fall apart.
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The Euro Crisis and The Euro Collapse- Germany is pushing Greece into debt deflation
Albert Edwards seems to agree:
Southern European countries are trapped in an overvalued currency and suffocated by low competitiveness, a situation that will lead to the break-up of the euro bloc, according to Societe Generale SA’s top-ranked strategist Albert Edwards.
The problem for countries including Portugal, Spain and Greece “is that years of inappropriately low interest rates resulted in overheating and rapid inflation,” London-based Edwards wrote in a report today. Even if governments “could slash their fiscal deficits, the lack of competitiveness within the euro zone needs years of relative (and probably given the outlook elsewhere, absolute) deflation. Any help given to Greece merely delays the inevitable break-up of the euro zone.”
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The rate of worker participation in trade union organizations has been calculated at about 28%. More specifically, the level of trade union membership is substantially different between the private and public sectors.
2. In the private sector, union the density is not higher than 18% and stands at around 472,304 workers, as of 2007 data. The number of union members among public sector employees is calculated at 311,000 persons and represents about 60% of employment in the public sector. The latter number does not include unionized employees of the security forces who are not represented by the public sector trade union, nor does it include non-unionized military personnel. In certain areas of the public sector such as banks and enterprises under state control union density verges on 90%.
3. The Greek trade unions are represented at the highest level by two confederations the Greek General Confederation of Labor, founded in 1918, which includes all trade unions covering employees under private law labor relations in the private and broader public sector – that is, 70 union federations and 83 labor centers with a total of 472,304 voting members and the Confederation of Public Servants, established in 1947, which includes the trade unions of public administration, where public law labor relations app
ly. ADEDY is a three-level organization, encompassing 1,260 first-level trade unions organized in 46 federations and representing a total of 311,000 voting members.
Complete list HERE
The Euro Crisis- Budget Cuts Are Doomed To Fail
It is no coincidence that countries such as the UK and Iceland, which had massive domestic bubbles don’t suffer large unemployment like Greece, Ireland, Portugal and Spain. The UK and Iceland could devalue and thus wages went down via the exchange rate mechanism and not in nominal terms. In the PIIGS, unemployment will stay in depression levels until:
a) They leave the Euro
b) Nominal wages fall, probably below the minimum wage.
The price level there is too high and wages most go down on the international level, while the budget cuts needed for these countries to remain solvent during a deflationary depression enforced on them by Germany via the Euro are so staggering that no modern democracy will be able to handle. As the riots in Greece have shown, any government in the world that will try to make public spending cuts in double digit percentage points will not survive. Not to talk about the fact that will need to lower the minimum wage during a depression, an action never done by any government.
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