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Forget The Election Results - Greece Is Still Doomed And So Is The Rest Of Europe

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Forget The Election Results - Greece Is Still Doomed And So Is The Rest Of Europe

The election results from Greece are in and the pro-bailout forces have won, but just barely.  It is being projected that the pro-bailout New Democracy party will have about 130 seats in the 300 seat parliament, and Pasok (another pro-bailout party) will have about 33 seats. Those two parties have alternated ruling Greece for decades, and it looks like they are going to form a coalition government which will keep Greece in the euro. 

On Monday we are likely to see financial markets across the globe in celebration mode.  But the truth is that nothing has really changed.  Greece is still in a depression. The Greek economy has contracted by close to 25 percent over the past four years, and now they are going to stay on the exact same path that they were before.  Austerity is going to continue to grind away at what remains of the Greek economy and money is going to continue to fly out of the country at a very rapid pace. Greece is still drowning in debt and completely dependent on outside aid to avoid bankruptcy. Meanwhile, things in Spain and Italy are rapidly getting worse.  So where in that equation is room for optimism?

Right now the ingredients for a "perfect storm" are developing in Europe.  Government spending is being slashed all across the continent, ECB monetary policy is very tight, new regulations and deteriorating economic conditions are causing major banks to cut back on lending and there is panic in the air.

Unless something dramatic changes, things are going to continue to get worse.

Yes, the Greek election results mean that Greece will stay in the euro - at least for now.

But is that really a reason for Greeks to celebrate?

Right now, the unemployment rate in Greece is about 22 percent.  Businesses continue to shut down at a staggering rate and suicides are spiking.

So far this month, about 500 million euros a day has been pulled out of Greek banks.  The entire Greek banking system is on the verge of collapse.

Meanwhile, the Greek government is still running up more debt.  It is being projected that the Greek budget deficit will be about 7 percent of GDP this year.

The Greeks went to the polls and they voted for more of the same.

Are they crazy?

Someone once said that the definition of insanity is doing the same thing over and over again and expecting different results.

Unfortunately, it looks like things are going to continue to get worse in Greece for quite some time.

And the rest of Europe is heading into a very bleak economic future as well.

At the moment, unemployment in the eurozone is at a record high.

Most analysts expect it to go even higher.

To say that Spain has an unemployment problem would be a massive understatement.  The unemployment rate in Spain is even higher than the unemployment rate in Greece is.  In fact, unemployment in Spain is the highest that it has ever been since the introduction of the euro.

The Spanish banking system is a complete and total disaster at this point.  The Spanish government has already asked for a 100 billion euro bailout for its banks.

But that might not be nearly enough.

Spain is facing a housing collapse similar to what the United States went through back in 2008 and 2009.  Right now, home prices in Spain are absolutely collapsing....

Fresh data yesterday shows how desperate the crisis is becoming in Spain. The property crash is accelerating. House prices fell at a 12.6pc rate in the first quarter of this year, compared to 11.2pc the quarter before, and 7.4pc in the quarter before that. Prices have fallen 26pc from their peak.

"Fundamentals point to a further 25pc decline," said Standard & Poor's in a report on Thursday. It may take another four years to clear a glut of one million homes left from the building boom.

Meanwhile, money is being pulled out of banks in Spain at a very alarming rate.  As panic spreads we are seeing slow motion bank runs all over Europe. Over the past few months massive amounts of money have been moved from troubled nations to "safe havens" such as Switzerland and Germany.

Investors are getting very nervous and yields on Italian and Spanish debt are spiking again.

Last week yields on Spanish debt hit their highest levels since the introduction of the euro.  Without massive ECB intervention the yield on 10 year Spanish bonds will almost certainly blow well past the 7 percent danger mark.

The credit rating agencies are indicating that there is danger ahead.  Moody's recently downgraded Spanish debt to just one notch above junk status.  Spain is heading down the exact same road that Greece has gone.

The situation in Europe is very grim.

Greece is going to need bailouts for as far as the eye can see.

Spain is almost certainly going to need a huge bailout.

Italy is almost certainly going to need a huge bailout.

Ireland and Portugal look like they are going to need more money.

France is increasingly looking vulnerable, and Francois Hollande appears to have no real solutions up his sleeve.

As I have said so many times before, watch Europe.

Every few weeks there are headlines that declare that "Europe has been saved" but things just keep getting worse.

The governor of the Bank of England, Mervyn King, said the following a few weeks ago....

"Our biggest trading partner is tearing itself apart with no obvious solution."

And that is the truth.  There is no obvious solution to the problems in Europe.  The politicians could kick the can down the road for a while longer, but in the end there will be no avoiding the pain that is coming.

The equation for what is happening in Europe that I have shared before still applies....

Brutal austerity + toxic levels of government debt + rising bond yields + a lack of confidence in the financial system + banks that are massively overleveraged + a massive credit crunch = A financial implosion of historic proportions

We are watching a slow-motion financial train wreck that is absolutely unprecedented happen right in front of our eyes and our politicians are powerless to stop it.

It is going to be a long, hot summer for the European financial system.

On election day in Greece, the mood was incredibly somber.  Instead of celebrating, most Greeks seemed resigned to a very hard future.  As an article in the Telegraph described, the entire nation seems to be grinding to a halt....

This is the election that is supposed to decide whether Greece stays in the euro. Yet as it, and Europe, face what could be their Katrina moment, the dominant sense here is not of panic, or fear, or even hope - but of a country in suspended animation, grinding to a halt.

The Athens Heart shopping centre, in the southern suburbs, is polished, full of big brands, and almost totally empty of customers. "We've had five sales all day," says Steryiani Vlachakou, the assistant in the Champion sportswear store. "It's been getting a lot, lot worse."

Sadly, it is not only Greece that is doomed.

The truth is that all of Europe is doomed, and when Europe falls the entire globe is going to feel it.

So get ready for the hard times that are coming. The pain is going to be immense and most people are not even going to see it coming.

 


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Mon, 06/18/2012 - 21:38 | Link to Comment steve from virginia
steve from virginia's picture

 

 

Silly rabbits, (rabbis?) this is an easy crisis to solve.

Europe cuts its energy use by 2/3ds. That by the second year. At the end of five years it cuts energy use to 10% of today's rate of use (waste). It's the non-remunerative waste that is bankrupting Europe (and Japan, China, US and cetera).

The game is to choose cars or countries (which at the end of the game will be car-free anyway), that is your choice. There are no others.

Oh yeah ... this game can go on as long as you can stand up. You can have cars or food. That one is the killer ... cars - v - food.

Toys: cars, freeways, hi-rise towers, insurance companies, airplanes, power stations, banks, submarines, parking garages, suburbs (Spain/Ireland, anyone?) All worth-destroying junk.

Mon, 06/18/2012 - 20:45 | Link to Comment John_Coltrane
John_Coltrane's picture

Here's the startling thing.  If Greece has a deficit of ~7% as claimed in the article, they only need to cut 7% of the government workforce and/or 7% of the salaries and pensions to be cash flow neutral.  And this is called "austerity"?  Even if the real deficit is 10% a 10% cut in the size of the bloated public sector is nothing!  The same applies to the US Federal budget.  And remember, its unlikely that much of this government function is vital.  When they closed down the US government in 1994, the big complaint was that people couldn't get into national parks-and you can guess how small the national park budget is!

"Productive people need a bloated nannycrat central government like a fish needs a bicycle"

Mon, 06/18/2012 - 17:38 | Link to Comment automato
automato's picture

"The pain is going to be immense and most people are not even going to see it coming."

They CAN see it coming just like the head-on collision that you can do nothing to avoid when you see it happening to you. The most can you hope for is to turn hard and hope the car does not flip end over end sending everyone flying through the air.

Mon, 06/18/2012 - 16:25 | Link to Comment carbonmutant
carbonmutant's picture

Are the efforts to prop up the Euro dragging down the Eurozone?

Mon, 06/18/2012 - 16:08 | Link to Comment BeetleBailey
BeetleBailey's picture

High points of the week:

Germany vs Greece in the Euro Cup on Friday (so aptly named) - should be a barn burner.

Bernanke and the FOMC  Wednesday. "Operation 3 Card Monte" announced - in the secret language of Aramaic - 99% of the US public already bamboozled, won't get it.

Mon, 06/18/2012 - 15:46 | Link to Comment rsnoble
rsnoble's picture

So in other words fuckthepoor fest 2012 (QE3 from the FED and other global morons) is still coming. Thank god for the bankers.

Mon, 06/18/2012 - 15:44 | Link to Comment ebworthen
ebworthen's picture

Problem?  What problem?  Surely the G-20 Summit in Mexico offers hope.

The banks wouldn't possibly let things get worse; everything can be ring-fenced and contained.

There are not Trillions of debt and unfunded liabilities.

Click your heels three times...

Mon, 06/18/2012 - 14:53 | Link to Comment Snakeeyes
Snakeeyes's picture

Agree with that sentiment. Greece cannot be saved. In fact, efforts to save them are destructive in terms of moral hazard risk.

Angela isn't going along with it.

http://confoundedinterest.wordpress.com/2012/06/18/bailout-fizzies-spanish-italian-yields-jump-spain-10s-over-7/

Mon, 06/18/2012 - 16:15 | Link to Comment ebworthen
ebworthen's picture

Moral Hazard?

What is that?

Furthermore, what are "morals" and what are "hazards"?

I don't find them in my Wall Street dictionary nor thesaurus.

Mon, 06/18/2012 - 14:51 | Link to Comment shovelhead
shovelhead's picture

Wake me up when we have real money and a govt. not bought by WORLD INC.

I'm packed and stacked and too old and slow to chase crooks. You're always welcome to stop by and reload or get patched up.

Have fun.

Mon, 06/18/2012 - 14:40 | Link to Comment Vince Clortho
Vince Clortho's picture

So all parties are still safely on board the Titanic.

Whew! close call.

Mon, 06/18/2012 - 14:39 | Link to Comment Snakeeyes
Snakeeyes's picture

Agree with that sentiment. Greece cannot be saved. In fact, efforts to save them are destructive in terms of moral hazard risk.

Angela isn't going along with it.

http://confoundedinterest.wordpress.com/2012/06/18/bailout-fizzies-spanish-italian-yields-jump-spain-10s-over-7/

Mon, 06/18/2012 - 14:22 | Link to Comment The worst trader
The worst trader's picture

Pigs on a wing

Mon, 06/18/2012 - 14:02 | Link to Comment sunny
sunny's picture

I might have missed it....  What exactly is in the post that hasn't been mentioned at least 100 times on ZH over the last several months?

sunny

Mon, 06/18/2012 - 13:53 | Link to Comment skepticCarl
skepticCarl's picture

This article is a laundry list of the well-known financial problems in Europe.  The May decline was the market's response.  The June rally is the market's next reaction, of "so what?  Every western government has been in debt for the last 50 years....?"

Mon, 06/18/2012 - 13:52 | Link to Comment Vegetius
Vegetius's picture

Its not like they were not told this would happen just ask the Iron Lady

"The European single currency is bound to fail, economically, politically and indeed socially, though the timing, occasion and full consequences are all necessarily still unclear." -- Margaret Thatcher

Mon, 06/18/2012 - 16:58 | Link to Comment Ghordius
Ghordius's picture

Another reason why this opinion is such an article of faith in the UK...

Mon, 06/18/2012 - 13:49 | Link to Comment lamont cranston
lamont cranston's picture

Love the pic of the "Smart" Car smushed. All Tree Huggers should be forced to drive one, Al Gore included (if he can lose 80 lbs. and fit in). 

 

Mon, 06/18/2012 - 13:49 | Link to Comment sgt_doom
sgt_doom's picture

Excellent blog posting, Ms. Ilene.....

Mon, 06/18/2012 - 13:40 | Link to Comment otto skorzeny
otto skorzeny's picture

high unemployment in 18-30 year old males- always a recipe for disaster- at least the europeans can always get a good riot started- in the US the young "men" are too busy facebooking, jerking off to online porn and making sure their gay-looking lowrider jeans are hanging off their skinny asses just right

Mon, 06/18/2012 - 13:22 | Link to Comment Winston Smith 2009
Winston Smith 2009's picture

"The Greeks went to the polls and they voted for more of the same.

Are they crazy?

Someone once said that the definition of insanity is doing the same thing over and over again and expecting different results."

Which is precisley what happens here in the US every time someone votes for most any  republican or democrat.

Mon, 06/18/2012 - 13:48 | Link to Comment sgt_doom
sgt_doom's picture

Could this be why (the item below) Mr. Winston???

The Sunday News

This morning on one of the American Propaganda Network nodes, CBS, they were reporting the "news"?

First, the career propaganda specialist, Dan Levine, interviewed the shill from RAND.

This was the "news"?

Next, Dan interviewed the shill from the Brookings Institution.

This was the "news"?

The events on 9/11 were constantly mentioned --- the superficial events, that is.

Somehow, all of them had amnesia regarding the announcement by the Pentagon's comptroller on 9/10/01 of the unaccounted for $2.3 trillion missing from the DoD's budgets?

Somehow, all of them had amnesia regarding the destruction of that auditing team the very next day on 9/11 --- when a plane crashed into the west wall of the Pentagon --- the very same DIA auditing team who had uncovered that unaccounted for $2.3 trillion?

Now that would have been news!

[Special note: 38% of union households in Wisconsin once again voted for Gov. Walker --- guess where they get their "news" from?]

Mon, 06/18/2012 - 13:22 | Link to Comment Baron Robber
Baron Robber's picture

Stop making sense

Mon, 06/18/2012 - 13:19 | Link to Comment mirac
mirac's picture

the quote about "insanity is doing the same thing over and over again and expecting a different result" was Einstein

Mon, 06/18/2012 - 13:17 | Link to Comment km4
km4's picture

It is going to be a long, hot summer for the European financial system.

http://www.youtube.com/watch?v=s1_8909dNJ0

Mon, 06/18/2012 - 13:14 | Link to Comment falak pema
falak pema's picture

the world economy needs to shrink by 25% and stop consuming so much, especially in first world. Let those who live on the perpetual growth escalator then burn. Then lets build a new paradigm which is not a continuation of what we have. 

Mon, 06/18/2012 - 17:16 | Link to Comment battle axe
battle axe's picture

Forget Greece, watch FRANCE, that is where things are going to get really ugly. 

Mon, 06/18/2012 - 16:11 | Link to Comment BeetleBailey
BeetleBailey's picture

Nice thought. Won't happen. Like telling a crack addict they have to cut down 25% - they'd cut you - then roll you for your wallet.

Mon, 06/18/2012 - 14:38 | Link to Comment AnAnonymous
AnAnonymous's picture

the world economy needs to shrink by 25% and stop consuming so much, especially in first world.

---------------------------

True as some parts of the world have never begun to consume.

Tue, 06/19/2012 - 00:15 | Link to Comment Poor Grogman
Poor Grogman's picture

Free Tibet!

Mon, 06/18/2012 - 15:03 | Link to Comment shovelhead
shovelhead's picture

Usual nonsense.

If you're alive, you consume. It's just that some haven't learned to do it with efficiency thereby leaving less to consume.

Mon, 06/18/2012 - 16:43 | Link to Comment akak
akak's picture

I don't think shamelessly prejudiced, pro-dictatorship, automatically anti-American Chicom webbots such as AnusAnonymous meet the definition of "alive" --- although I sure do wish they would fuck off and die.

Mon, 06/18/2012 - 13:45 | Link to Comment iDealMeat
iDealMeat's picture

+1,  exactly..  Stop coveting useless shit..

 

Mon, 06/18/2012 - 13:43 | Link to Comment LawsofPhysics
LawsofPhysics's picture

While I am sure that there are many enlightened, educated, or wise folks who would agree, what you propose would mean the immediate destruction of everyone's percieved "wealth".  This would be most harsh for TPTB.  So, as I have said before, nothing changes until heads actually start rolling, period. 

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