Nicolas Sarkozy

As every major developed economy hits Bass's Keynesian Endgame, the status quo is set to change dramatically. Nowhere is this climax playing out louder than in Europe and the implicit solution of Germany-uber-alles (while seemingly inevitable though nevertheless lengthy in execution) is likely to not sit well with many of the EMU nations. To wit, The Telegraph today reports that Britain's Foreign Office is advising its overseas embassies to draw up plans to help expats should the collapse of the Euro turn explosive. Almost incredibly, a senior minister has revealed that Britain is now planning on the basis that a euro collapse is matter of time.

It's official - Germany has become just like China (or, rather, has always been like it): the more it is pushed to do something (let ECB print), the more it will do the opposite. Half a year ago we discussed that the weakest point of the European bailout language was its reliance on Collective Action Clauses which imply that any resolution which does not have 100% backing of all bondholders would potentially push a country into default. In essence, this took control out of the hands of the Eurozone head, Germany, and put it to the bondholders. Well, according to a preliminary draft released by the Telegraph and FT, as part of the new bailout 'indenture' contained in the ESM, "under a section headed “The establishment of a procedure for an orderly default as part of the ESM”, Berlin makes clear that countries which are deemed to be insolvent – rather than just suffering a temporary loss of access to the financial markets – would be allowed, in effect, to declare bankruptcy and default on their bonds: If [a debt sustainability review] is negative, the affected member state would instead receive loans for a limited time only, during which the procedure for an orderly default would be prepared. In order to make sovereign defaults possible where they are unavoidable, the threat of instability in the financial system resulting from such a default must be able to be credibly excluded. A plan to maintain the stability of the financial system in the event of an orderly default needs to be developed in close co-operation with European banking regulators. This would determine which banks would be restructured and/or recapitalised, which will necessitate the drawing up of Europe-wide rules on bank restructuring." And as we discussed previously, the voluntary language will likely be taken out from the final draft, effectively giving Germany the unilateral ability to kick countries out. Which explains why the market is about to plunge: according to just released information from DPA, "the German Foreign Ministry on Friday confirmed that Germany was considering the possibility of more eurozone "orderly defaults" beyond that of Greece, as suggested by a paper leaked by the British press." In essence, what this means is that instead of relenting on the ECB issue, which as every investment bank has said would be the end of the world unless massive printing is permitted, Germany would rather kick countries out of the Eurozone instead of entering a hyperinflationary collapse. Perhaps it is now time for the banks to start toning down their language on the imminent destruction that would ensue if the ECB does not print, as this is apparently not happening...

It is clear as day that the EU in its current form is finished. I’ve been saying this for months, but now even the mainstream media is picking up on rumblings that Germany wants to exit the Euro or at least restructure the entire EU.

European Central Bank policy makers said the bank can’t do much more to stem the region’s sovereign debt crisis, suggesting they are reluctant to significantly ramp up bond purchases to lower Italy’s borrowing costs.

The failure of the Eurozone and the European monetary union looks increasingly likely. This has incredible political, economic and monetary implications for the world and could lead to shockwaves akin to or surpassing that seen after the collapse of the Soviet Union. Given the scale of the crisis, we continue to amazed at the lack of animal spirits in the gold market – both from media coverage and from public participation. The majority have no idea of the ramifications of these momentous geopolitical developments. The public knows the developments are negative but most are resigned to their fate and many are like deer in the headlights failing to join the dots and realize the ramifications for their investments, savings and financial wellbeing. While demand in Asia has fallen from the very strong levels seen recently - demand continues and Chinese New Year should see Chinese demand pick up again in the coming weeks. Western investment demand continues as seen in increasing allocations to the SPDR trust.

If anyone needed the proper epitaph for the insane stupidity out of Europe, Reuters may have just provided it. In an exclusive article, Reuters stuns us with the following: "German and French officials have discussed plans for a radical overhaul of the European Union that would involve establishing a more integrated and potentially smaller euro zone, EU sources say. French President Nicolas Sarkozy gave some flavour of his thinking during an address to students in the eastern French city of Strasbourg on Tuesday, when he said a two-speed Europe -- the euro zone moving ahead more rapidly than all 27 countries in the EU -- was the only model for the future." It gets much worse: "The discussions among senior policymakers in Paris, Berlin and Brussels go further, raising the possibility of one or more countries leaving the euro zone, while the remaining core pushes on towards deeper economic integration, including on tax and fiscal policy." Not sure how to further clarify this: Europe is preparing for its own end, and the dissolution of the existing structure of the Eurozone, which likely means an end to the EU in its current format, a reshaping of the customs union, and the overhaul of the zEURq.PK in its current form. Ironically, this may end up being favorable for the Euro... and detrimental for Germany. So the question is: will Germany go for it? At this point, it probably has no choice, unless it wants a mutiny on its hands.

All you need to read.

All you need to read.

I vote, No Confidence.

The G-20 expected relaxed photo ops, handshakes, and fancy dinners, interrupted by rubber stamping the Grand Plan of bailing out Greece, bondholders, and banks. But then Papandreou fired his bazooka....

Greece's government was on the brink of collapse on Thursday, casting doubt on plans to hold a referendum on staying in the euro zone, as European leaders contemplated a Greek exit to preserve their single currency.

Spiegel continues to pile it on. Following yesterday's heartfelt thanks to G-Pip (as he is now known due to his impact on the EURUSD with every single public appearance), today they follow it up with: Greek Exit From Euro Zone Just A "Matter Of Time." To wit: "Despite its location on France's glamorous Cote d'Azur, Wednesday evening's meeting likely won't be a pleasant one for Giorgios Papandreou. The Greek prime minister is set to meet with German Chancellor Angela Merkel and French President Nicolas Sarkozy. None of them, one presumes, will be in the mood to enjoy their enchanting surroundings...Should Greek voters, frustrated by round after round of deep austerity measures, reject the bailout deal, it could result in an uncontrolled national bankruptcy. Markets will likely remain nervous until the results of the ballot are in -- meanwhile the euro will move even closer to the abyss. As if to highlight the dangers, German banks on Wednesday announced they were postponing their acceptance of the Greek debt haircut until after the referendum. Without voluntary bank approval, Greece faces a disorderly bankruptcy which could accelerate contagion throughout the euro zone. Papandreou's decision, said European Commissioner for Energy Günther Oettinger, "puts the euro in even greater danger."

Yu Yongding: "Europe’s courtship of Beijing is moving to a more intense level. Klaus Regling, the chief of the eurozone bail-out fund, is in Beijing discussing possible support. Just a few days ago French President Nicolas Sarkozy conferred with Hu Jintao, his Chinese counterpart, to win Beijing’s support. They should not hold out their hopes too high. The two will have had a courteous hearing: China is willing and able to help. Since the beginning of Europe’s sovereign debt crisis, Beijing has repeatedly expressed its wish to offer “a helping hand” to Europe. Eurozone countries, however, have to understand that they will have to save themselves. Expectations of a “red knight” riding to the rescue are sorely misplaced."

All you need to read.