The Countdown To The Break Up Of The Euro Has Officially Begun

ilene's picture

The Countdown To The Break Up Of The Euro Has Officially Begun

Courtesy of Michael Snyder of Economic Collapse

The tremendous backlash against the austerity approach that Germany has been pushing.  All over Europe, prominent politicians and incumbent political parties are being voted out. In fact, Nicolas Sarkozy has become the 11th leader of a European nation to be defeated in an election since 2008.  We have seen governments fall in the Netherlands, the UK, Spain, Ireland, Italy, Portugal and Greece.  Whenever they get a chance, the citizens of Europe are using the ballot box to send a message that they do not like what is going on. 

It turns out that austerity is extremely unpopular.  But if newly elected politicians all over Europe begin rejecting austerity, this puts Germany in a very difficult position.  Should Germany be expected to indefinitely bail out all of the members of the eurozone that choose to live way beyond their means?  If Germany pulled out of the euro tomorrow, the euro would absolutely collapse, bond yields for the rest of the eurozone would skyrocket to unprecedented heights, and without German bailout money troubled nations such as Greece would be headed directly for default.  The rest of the eurozone is absolutely and completely dependent on Germany at this point.  But as we have seen, much of the rest of the eurozone is sick and tired of taking orders from Germany and is rejecting austerity.  A lot of politicians in Europe apparently believe that they should be able to run up gigantic amounts of debt indefinitely and that the Germans should be expected to always be there to bail them out whenever they need it.  Will the Germans be willing to tolerate such a situation, or will they simply pick up their ball and go home at some point?

Over the past several years, German Chancellor Angela Merkel and French President Nicolas Sarkozy have made a formidable team.  They worked together to push the eurozone on to the path of austerity, but now Sarkozy is out.

Francois Hollande, the new French president, has declared that the financial world is his "greatest enemy".

He may regret making that statement.

One of the primary reasons why Hollande was elected was because he clearly rejected the austerity approach favored by the Germans.  Shortly after winning the election in France, he made the following statement....

"Europe is watching us, austerity can no longer be the only option"

Hollande says that he wants to "renegotiate" the fiscal pact that European leaders agreed to under the leadership of Merkel and Sarkozy.

But Merkel says that is not going to happen.  The following Merkel quotes are from a recent CNBC article....

"We in Germany are of the opinion, and so am I personally, that the fiscal pact is not negotiable. It has been negotiated and has been signed by 25 countries," Merkel told a news conference.

"We are in the middle of a debate to which France, of course, under its new president will bring its own emphasis. But we are talking about two sides of the same coin — progress is only achievable via solid finances plus growth," she added.

So instead of being on the same page, Germany and France are now headed in opposite directions.

But if the French do not get their debt under control, they could be facing a huge crisis of their own very quickly.  The following is from a recent articleby Ambrose Evans-Pritchard....

“They absolutely must cut public spending and control the debt,” said Marc Touati from Global Equities in Paris. “It will soon be clear that we are in deep recession. If they don’t act fast, interest rates will shoot up and we will have a catastrophe by September,” he said.

Without German help, France is not going to be able to handle its own financial problems - much less bail out the rest of Europe.

Germany is holding all of the cards, but much of the rest of the eurozone does not seem afraid to defy Germany at this point.

In Greece, anti-bailout parties scored huge gains in the recent election.

None of the political parties in Greece were able to reach 20 percent of the vote, and there is a tremendous amount of doubt about what comes next.

New Democracy (the "conservatives") won about 19 percent of the vote, but they have already announced that they have failed to form a new government.

So now it will be up to the second place finishers, the Syriza party (the radical left coalition), to try to form a new government.

Alexis Tsipras, the leader of the Syriza party, is very anti-austerity.  He made the following statement the other night....

"The people of Europe can no longer be reconciled with the bailouts of barbarism."

But at this point, it seems very doubtful that Syriza will be able to form a new government either.

PASOK, the socialists that have been pushing through all of the recent austerity measures, only ended up with about 13 percent of the vote.  In the 2009 election, PASOK got 44 percent of the vote.  Obviously their support of the austerity measures cost them dearly.

So what happens if none of the parties are able to form a new government?

It means that new elections will be held.

Meanwhile, Greece must somehow approve more than 11 billion euros in additional budget cuts by the end of June in order to receive the next round of bailout money.

Greece is currently in its 6th year of economic contraction, and there is very little appetite for more austerity in Greece at this point.

Citibank analysts are saying that there is now a 50 to 75 percent chance that Greece is going to be forced to leave the euro....

Overall, the outcome of the Greek election shows that it will be very difficult to form a viable coalition and to implement the measures required in the MoU. Particularly, the identification of the 7% GDP of budget savings for 2013 and 2014 by the end of June looks very unlikely to us. As a consequence, in a first step, the Troika is likely to delay the disbursement of the next tranche of the programme. Note that for 2Q 2012, disbursements of €31.3bn from the bailout programme are scheduled. If Greece does not make progress, in a second step, the Troika is likely to stop the programme. If that happens, the Greek sovereign and its banking sector would run out of funding. As a consequence, we expect that Greece would be forced to leave the euro area. With the outcome of the election, to us the probability of a Greek exit is now larger than our previous estimate of 50%, and rises to between 50-75%. However, even after the elections in Greece, France and Germany, we regard the probability of a broad-based break up of the monetary union as very low. We continue to expect that in reaction to Greece leaving the euro area, more far-reaching measures from governments and the ECB would be put in place.

But if Greece rejects austerity that does not mean that it has to leave the eurozone.

There is no provision that allows for the other nations to kick them out.

Greece could say no to austerity and dare Germany and the rest of the eurozone to keep the bailout money from them.

If Greece defaulted, it would severely damage the euro and bond yields all over the eurozone would likely skyrocket - especially for troubled countries like Spain and Italy.

If Greece wanted to play hardball, they could simply choose to play a game of "chicken" with Germany and see what happens.

Would Germany and the rest of the eurozone be willing to risk a financial disaster just to teach Greece a lesson?

But Greece is not the only one that is in trouble.

As I wrote about recently, the Spanish economy is rapidly heading into an economic depression.

Now it has come out that the Spanish government is going to bail out a major Spanish bank.  The following is from a recent Bloomberg article....

Rodrigo Rato stepped down as head of the Bankia group as a government bailout loomed after Spanish Prime Minister Mariano Rajoy retreated from a pledge to avoid using public money to save lenders.

Rato, a former International Monetary Fund managing director, proposed Jose Ignacio Goirigolzarri, ex-president and chief operating officer of Banco Bilbao Vizcaya Argentaria SA (BBVA), as Bankia executive chairman, he said in a statement today in Madrid. The government plans to inject funds into the lender by buying contingent-capital securities, said an Economy Ministry official who declined to be named as the plan isn’t public.

But this is just the beginning.

Major banks all over Europe are going to need to be bailed out, and countries such as Portugal, Italy and Spain are going to need huge amounts of financial assistance.

So does Germany want to keep rescuing the rest of the eurozone over and over again during the coming years?  The cost of doing this would likely be astronomical.  The following is from a recent New York Times article....

Bernard Connolly, a persistent critic of Europe, estimates it would cost Germany, as the main surplus-generating country in the euro area, about 7 percent of its annual gross domestic product over several years to transfer sufficient funds to bail out Europe’s debt-burdened countries, including France.

That amount, he has argued, would far surpass the huge reparations bill foisted upon Germany by the victorious powers after World War I, the final payment of which Germany made in 2010.

At some point, Germany may decide that enough is enough.

In fact, there have been persistent rumors that Germany has been very quietly preparing to leave the euro.

A while back, German Chancellor Angela Merkel’s Christian Democratic Union party approved a resolution that would allow a nation to leave the euro without leaving the European Union.

Many believed that this resolution was aimed at countries like Greece or Portugal, but the truth is that the resolution may have been setting the stage for an eventual German exit from the euro.

The following is an excerpt from that resolution....

"Should a member [of the euro zone] be unable or unwilling to permanently obey the rules connected to the common currency he will be able to voluntarily–according to the rules of the Lisbon Treaty for leaving the European Union–leave the euro zone without leaving the European Union. He would receive the same status as those member states that do not have the euro."

Most analysts will tell you that they think that it is inconceivable that Germany could leave the euro.

But stranger things have happened.

And Germany has made some very curious moves recently.

For example, Germany recently reinstated its Special Financial Market Stabilization Funds.  Those funds could be utilized to bail out German banks in the event of a break up of the euro. The following is from a recent article by Graham Summers....

In short, Germany has given the SoFFIN:

  1. €400 billion to be used as guarantees for German banks.
  2. €80 billion to be used for the recapitalization of German banks
  3. Legislation that would permit German banks to dump their euro-zone government bonds if needed.

That is correct. Any German bank, if it so chooses, will have the option to dump its EU sovereign bonds into the SoFFIN during a Crisis.

In simple terms, Germany has put a €480 billion firewall around its banks. It can literally pull out of the Euro any time it wants to.

So has Germany been quietly preparing a plan "B" just in case the rest of the eurozone rejected the path of austerity?

Most people have assumed that it will be a nation such as Greece or Portugal that will leave the euro first, but in the end it just might be Germany.

And the "smart money" is definitely betting on something big happening.

Right now some of the largest hedge funds in the world are betting against the eurozone as a recent Daily Finance article described....

Some of the world's most prominent hedge fund managers are betting against the eurozone -- and not just the peripheral countries everyone knows are in trouble. They're taking positions against the core countries, economies that -- until now -- everyone has assumed were rock-solid.

Yes, the countdown to the break up of the euro has officially begun.

A great financial crisis is going to erupt in Europe, and it is going to shake the world to the core.

If you were frightened by what happened back in 2008, then you are going to be absolutely horrified by what is coming next.

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q99x2's picture

'Should Germany be expected to indefinitely bail out all of the members'

Until they get an army how else are they going to take over Europe? I guess they could hire Blackwater and see how that goes.

Deo vindice's picture

Surely there must be some other sites somewhere that you could repost this same comment?

Give it a break.

trampstamp's picture

The problem with this maddness is that the Germans will make a deal soooo good that these so called goverments pushing for no more austerity will have an oppurtunity to see their future family generations never have to work again.

BlackholeDivestment's picture

...time, one thing running out for Europa and the Bull she rides.

disabledvet's picture

if the fact of "no government for Greece" means Dow down 200...what happens when the same thing happens to France? I say MUCH worse. This is your "shot over the bow" folks. France's PARLIAMENTARY elections is "the big event." No Prime Minister=State of Emergency.

lasvegaspersona's picture

All of this must be watched with an eye on the USA. Like running from the bear the Euro just has to last longer than the US dollar. I wonder what would happen if ALL countries left 'the Euro' (ie went back to their own currencies for internal use) but maintained the Euro for some/all inter-country business. Say if Greece needed a loan for a big project...the new drachma would attract zero interest but a Euro bond...if they showed abiity to service the debt, might sell and it might be their only way to get precious hard currency. Individuals in inflating countries might hold it to protect against the home currency over spending. Gold used to fill this function but the current gold market is ...well not a physical market of those interested in holding gold...

The Euro as it stands is not the currency of any country. Take Great Britain it uses the pound but does deals in Euros. It has the ability to create more currency if it needs to, say in a recession, but can use the Euro for purchases from its trading partners. Now the the Euro is up and running...who needs countries?

xela2200's picture

They don't need the Euro as a reserve currency when They can more easily use the SDR.

hornster's picture

The euro was bourne in a time of optimism.  Volker made central banking credible, pardon the pun.  Now what...

AldousHuxley's picture

now here comes a new currency...Jewro

nmewn's picture

But but but...last night it was Hollande & Krugman had "won".The debate was now over. Austairrriiiteee' and financial prudence were dead issues...then the sun

As a wise old mentor told me many moons ago, in a world inhabited by strangers, there is no free're either cookin it & being paid for it...or eating it & paying for it.

Cash, gas or one rides for free works too ;-)

The Alarmist's picture

Gee, when I was growing up that was "Gas, Grass , or Ass ...."

nmewn's picture


Can I bail out by saying I always had grass?

boiltherich's picture

Minor correction: 

"So what happens if none of the parties are able to form a new government?

It means that new elections will be held."


In fact if none of the parties can form a coalition government with the other parties then a caretaker government will be APPOINTED until new elections can be held (please hold for Goldman Sachs on line one).  It seems that when governments get APPOINTED in Greece they just instantly turn all squiddy and lick Frankfurt's boots selling the people down the Aegean. 

I think the USA has got to start thinking about forming a new currency now, invite the Canadians and Mexicans to join us in making an Amero backed by gold, silver, US technology and military power as well as industrial power, Mexican labor and resources, Canadian resources and strategic location.  Because when the Euro is killed off the trillions in euro denominated debt will be defaulted upon by a haircut of at LEAST 50% if not 100%, and I believe that will force Asian and Latin as well as US American governments to follow suit, all the rest of the world is struggling with debt just as EMU members are and not to ditch their debt puts them at a gigantic disadvantage in relation to the newly solvent Europe no longer dealing with now worthless eurodebt.

It actually makes more sense to me by far that the US and Canada as well as Mexico have a universal currency and integrated financial systems than for the EU to have done it.  I also think that it is not out of the question that an Asian currency block, and a petrocurrency bloc, possibly a Latin American bloc with or without Mexico will emerge.  Though I think Mexico is way too closely tied to the US to snub it in favor of bullshit nut jobs like Castro and Chavez. 

No matter what else may come of it I do think there will be war (s) and oil will be right in the center of it all because when oil can't/won't be sold for either euro or bucks, or for than matter rupee or yen or yuan, because the same storm that devastates the US and Europe will hit them like a tidal wave as well, that will not stop demand for oil.  Ditto demand for agricultural products, though many nations with nothing to trade for food will simply die off.  Most of Africa.  Bad time to be wildlife in that region, kiss your elephants goodbye. 

This actually has the makings if we are not both careful and lucky, to end civilization and depopulate the planet by 75% or more, and that is NOT a good thing though many at ZH are licking their lips in anticipation of it. 

Bennie Noakes's picture

Right! Since the euro is working out so well for the Europeans right now, we obviously need to follow them down the same rat hole and do exactly the same thing here in North America.

That way, instead of just being forced to bail out our own irresponsible politicians and banks, we can also be obligated to bail out those of Mexico and Canada as well.

brettd's picture

More likely we'll see "the south rise again" in the USA.

boiltherich's picture

First, the EU went into monetary union without BACKING it by anything, not even the taxing power of the federal government because they did not have one federal government but 17. 

Second, the US dollar is a confederation of 50 governments that whether by fiat or by choice agree to be in a fiscal monetary union. 

Third, if we did this and it all went to shit the way it has in the EU what on earth makes you think it would be the USA bailing out Mexico and Canada? 

Lastly, we would be starting over with a new currency BACKED by tangible resources every bit as good as and even including gold and silver, it would be a clean slate following a global jubilee.  That means each nation or currency block would be starting over, if they back their money and exercise new found strength over their greed and foolishness they will trade and prosper, if they do not they will stagnate or decline.  If any member of any bloc refuses to practice monetary and fiscally appropriate policy they lose some of the backing of their part of the compact, if it is a chronic situation then they get booted out and the others are not hurt by that because unlike modern EMU and other big debtors there will be no threat of TBTF, or systemic collapse from contagion.  All past bailouts involved the creation of vast debt to repay other vast debt, and it is all null and void when global fiat systems fail.  We will be starting OVER. 

Maybe I should say it a few more times so it sinks in, I am NOT advocating and never have that we or anybody undertake the horrific theft and ponzi that was the EMU.  It never could have worked, even Britain knew that, remember, 26 nations in the EU, 17 in the EMU. 

The Alarmist's picture

The sole saving grace of the US having picked up the tab for Europe's defense all these years is that the entire military establishment has enough firepower to make a European war last about six minutes. The collapse of the Euro would be uncomfortable at worst, ceteris paribas. Your 75% depopulation would have to come from without the region.

boiltherich's picture

So many places it could begin.  India and Paki.  High possibility there especially once the financial shit hits the fan.  China and America/EU are relatively peaceful dance partners at the moment but only because of the economic codependency, it the US and EU essentially default on the trillions in Chinese foreign reserves and China can't buy oil and materials and food I think they could turn belligerent in about 12 seconds.  Japan could easily put it's depression behind them and reemploy it's workers by doing what it did in the thirties when it got painted into a tight box. 

But the ONLY thing standing between mankind and depopulation to a realistic carrying capacity now is the relatively well functioning global flows of funds and goods, what might well happen starting with the Greek exit from the EZ would actually freeze global trade, nearly 800 million of Africa's population are barely staying alive now with close to 50,000 hunger related deaths every day, some starvation but mostly diseases related to malnutrition.  Most of OPEC in the ME has become quite overpopulated because they have been able to buy what they needed, crash the global economy and all they will have is a lot inedible gooey black sand. 

What I am saying is that it might not happen but it has always been possible, and the odds have just gone way up in the wake European elections.  Stresses in just about every system in every corner of the world are reaching the breaking point, not all can or will light the fuse the way the Black Hand did when they assassinated the Austrian Archduke, but containing the possible triggers for global catastrophe are getting harder every day, the spiral is winding tighter and tighter. 

Does anybody here really feel as if things on a macro global level are actually decompressing and getting better?  Not just economically, but with justice, with poverty, with population, with climate, with water, with infrastructures, with good old livability?  I am betting most do not.  We are on a slippery slope and better find a way to act soon or we will not be ABLE to stop the slide.

NIRee's picture

The only thing you forgot was to bend over for the globalist agenda.

When something new you tried didn´t quite work out, you dont go around looking for more s*** to fuck up. You go back and do what worked before.

DeadFred's picture

The defining difference between conservatives and progressives is arrogance. Both see the same problems and know things need to be fixed. Conservatives are wary because they've seen unintended consequences so many times before. Progressives are quite sure of their plans because, after all, they've thought it out haven't they? Often the possibility that they might be wrong has never even occured to them.

boiltherich's picture

I can go along with fiscal and financial conservativism but I have yet to meet the first one that does not go and ruin their economic credentials by insisting also that people agree with their "morals."  Or, religion.  And they just can't keep their fat greedy snouts out of my bedroom.  We might well have fixed our economic and financial problems long ago or never had them to begin with had the right stuck to fiscal issues but I will hold my nose and vote for Obama before I would vote for that paternalistic asshat with the magic underpants because he actually thinks his "bible" and yours has more legal authority than the constitution that has to be made to cover ALL citizens. 

Augustus's picture

Declare yourself a Muslim.  Then you can stay within the beliefs and marry as many nine year old girls as you want and screw goats.  Why worry about morality?

DonGenaro's picture

yea, you war-pig Christians are real beacons of morality

FeralSerf's picture

Better yet, if you declare yourself a Jew, you won't have to wait until they're nine.  Three years old is fine.

All the Abrahamic religions are morally challenged.

boiltherich's picture

I rarely say this but stick it up your ass moonbat!

dogbreath's picture

Come on Germany you bitch,  dump the Euro, I dare you.

rsnoble's picture

Ilene are you bipolar?  Seems like you've been on an optimistic kick lately and now this article? LOL. Just jacking with you.

ebworthen's picture

Ilene is the edtior/submitter, Michael Snyder wrote the article.

"Courtesy of Michael Snyder of Economic Collapse"

disabledvet's picture

did you ever consider changing your name to hefeweisen?

ebworthen's picture

No, but I have considered "Mit Hef".

Acorn10012's picture

"Eb Worthen". Wasn't that the guy on "Green Acres?"

dexter_morgan's picture

Ha, they are just doing what we in US did 3.5 years ago - went with hopium.

DeadFred's picture

I'm sure it will work for them too.

Count de Money's picture

None of the outcomes are good but the least worst would probably be Germany leaving the Euro. What would help is forming a new currency union of Germany, Austria and Netherlands.

One thing needed is you would need a new currency to go to and you can bet the Germans have that covered. There have been rumors for years that all the old Deutschmark bills and coins turned in during the switchover are secretly stashed away in warehouses all over the country for just this situation.

Civil Shepard's picture

Wheres the offical or officially part?

AmazingLarry's picture

Said Greeze..."It's not you, it's me."

TheObsoleteMan's picture

The euro currency will not go so quietly into the night. Allot of big egos are involved here. For years the globalist set the stage for regional government, and they are dedicated to preserving it AT ALL COSTS. An earlier poster noted that bond yields for the PIIGS were falling as prices were appreciating. He is right, SOMEBODY IS BUYING THE BONDS. The real question is this: Who is/are the buyer{s}.  The funds? I doubt it. China? I'd bet they are involved to some extent. The ECB? Bet your arse on that one, however they can't buy at the level they would like to, as they are crippled. How about our Fed? Why would'nt they? They bought GM and AIG. With a track record like that, I'd suspect they'd buy almost anything. I am in the camp that says this thing will play out allot longer than many think it will. Paper and ink buy time. But they don't buy solventcy.

dinastar2's picture

Hedge funds + large traders+ commercial hedgers are shorting the Euro and buying the US $ and the Yen etc..but the ECB receives huge secret loans in US $ from the Fed, wich costs nothings ( electronic money ) and act counter to the reevaluation of the $. With those secret Us $ loans the ECB buys all the distressed T bonds of the of the PIIGS.So it' s azero sum gam and actually the Eur/US $ is nailed, pegged to 1,3 $/1 Euro

Conax's picture

If Germany won't bail them out, Berknucklehead will.

They'll hide it via that swap thing they are running.

midgetrannyporn's picture

Winner, winner, chicken dinner. There will be bloo- er, bailouts.

The Alarmist's picture

So is Uncle Ben going to borrow the collateral from China to bail out Europe?

FeralSerf's picture

He doesn't borrow the money from China anymore.  He creates it right there in WDC and NYC.

Conax's picture

"Of the $16.1 trillion loaned out, $3.08 trillion went to financial institutions in the U.K., Germany, Switzerland, France and Belgium, the Government Accountability Office’s (GAO) analysis shows."

The same place they got this.  They are the gods of Moneta. For now.


AntiLeMaire's picture
Greek election: Syriza 'to tear up EU austerity deal'

The leader of Greece's left-wing Syriza bloc has said he will try to form a coalition based on tearing up the terms of the EU/IMF bailout deal.

Hah! No more money for you then.

Excellent. Good riddance!
Bye, bye!

What a moron, what a tosser...