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The Eurozone Rift: It Would Be Wrong “To Give In To Panic”
Wolf Richter www.testosteronepit.com www.amazon.com/author/wolfrichter
Euros entered circulation on January 1, 2002, and for six years, they were practically growing on trees in southern Europe. But the bubble got pricked. Since then, the monetary union has been in crisis—almost half of its existence! Until late last year, when it was decided that the worst was over, that the problems had been solved. But now, confidence in the future of the monetary union is weaker than ever. And this time, there is a hue of resignation in Germany.
The Federal Association of German Banks (BdB), not normally given to pessimism, is worried. During the bi-annual economic forecast on Wednesday (slide show and speeches), Stefan Schilbe, chairman of the Committee for Economic and Monetary Policies, described 2013 as an “economically difficult and bumpy year.” The Eurozone would see “more or less stagnation,” spread unevenly between countries. For Germany, he forecast growth of only 0.7% in 2013—after a “the collapse” in the fourth quarter that had been “surprisingly steep.”
The largest threat: the election results in Italy. The top three parties distanced themselves from, or outright attacked, the reform and austerity policies that Prime Minister Mario Monti, Germany’s hand-picked and now deposed point man, had implemented. And that, Schilbe said, ignited “new uncertainties” about “the future of the European monetary union.”
Under this uncertainty, companies would be less inclined to make investments and contribute to growth. He saw other threats as well: deficit targets for 2013 were moving out of reach in some countries. The fiscal problems in the US were “piling up ever higher.” And then there were the “side effects of expansionary monetary policies,” among them: risks to price stability, the formation of bubbles, and “an escalating currency war.”
“The past few days added new uncertainties,” echoed Hans-Joachim Massenberg, Member of the Executive Board, during his part of the presentation. The belief before the elections in Italy that the debt crisis had been overcome proved “deceptive,” he said. But it would be wrong “to give in to panic.”
There had been signs of progress, he said, including in Italy where the deficit had dropped below 3% of GDP. Economic reforms needed time. Confidence in the future of the monetary union could only be strengthened if fundamental efforts were undertaken toward more stability and competitiveness. Austerity all the way through. “Turning around would be fatal,” he said—fatal for the monetary union.
Then he plowed into monetary policy, how different groups expected to solve the crisis through a prolonged phase of negative real yields—”a hidden and creeping asset tax” that is politically easy to push through. But he warned that “grave problems” would arise from them that could counteract any seeming benefits in overcoming the debt crisis.”
The longer this period of extremely low interest rates continued, the greater the danger of directing capital into the wrong channels and assessing risk incorrectly, he said. Investors and savers who wanted to safeguard the real value of their assets could do so only by exposing themselves to large risks. This would boost “the formation of new bubbles and imbalances that can in the end only lead to a new financial crisis.”
Pension funds and life insurers that had to reach a minimum yield would get into particular trouble. To counter the problems, regulatory restrictions would have to be softened. And investors would therefore “be forced to take on higher risks.”
Low interest rates caused other problems: They eliminated the incentive for countries to reduce deficits. And low returns could hinder investments in the real economy and therefore impact future growth. Thus, Eurozone governments should “under no circumstances seek this seemingly easy path” to reduce the debt burden. “We must not underestimate the risks of these policies,” he added.
Neither the BdB nor the speakers represent Germany, or the German government. But their emphasis on “staying the course” by pursuing reforms is part of the German solution. Consistent austerity all the way through. Or else, “the future of the European monetary union” would be at risk. Because the rift between the countries would be too wide.
Their response to the Italian election results—including the word “panic,” albeit in an encouragement not to—has a hue of resignation now visible elsewhere as well: that the days of the monetary union in its current form—given the resistance to austerity in some countries and their need to devalue the currency instead—might be numbered.
And in Italy, they’ve had it. Former Italian senator Sergio De Gregorio confirmed that he’d received €3 million in 2006 from Silvio Berlusconi. “Of course I took the money,” he said. It brought Berlusconi back to power. Seeing this sort of thing on a daily basis, 8.7 million Italians voted for Beppe Grillo’s 5-Star movement. It wasn’t enough to govern, but it was enough to give the political establishment conniptions. And show that anger and frustration finally count. Read.... Fear of Nuremberg Trials For Corrupt Italian Politicians.
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As in the past, all it takes is a little Bank in Austria or perhaps Italy, Spain or Portugal to start the unraveling. German bankers are worried knowing they will not be in a position to stop the avalanche with Euros and credit for the Southern slackers. Similarly, LaGarde will be unable to restore confidence with her good looks and wagging tongue. Goodbye social experiment, Euro, paid monthly vacations , eternal medical care and Hello Nationalism, inflation and protectionism. At the same time the US and China will be wondering whatever happened to the Global Trade Model permitting most manufacturing to be outsourced to the lowest labor cost nations leaving developed nations without any comparative advantage----except of course the financial industry with a reserve currency and the nation with the lowest manipulated currency valuation. Europe is in the process of floating away and sinking when Germany and US can no longer provide a financial lifeline.
You don't think Lagarde looks like a tranny freak? i.e. was a many changed into a woman
It doesn't matter, Germany will hold on to the Euro until it descends into total bankruptcy and lawlessness.
Germany is getting worried more and more with each passing day. That is noticeable. Forget the noise. Germany has been holding this shithouse together because the German banks were in a death spiral and needed to get saved. Italy is openly discussing a Euro exit. Greece never dared to go there for whatever reason. If Italy walks, the Germans don't want to be caught without a strategy for the aftermath.
The euphoria and the pomp and glory which were put on by the ruling elite when EURO was introduced will NOT be repeated when the EURO gets sacked. It will be a very somber procedure and it will create lots of anger, frustration and nationalism will re-emerge.
Blame who you want. To me it's a typical problem of having too many paper pushers and too few farmers. A farmer recognizes when there's a problem in his system and he has got no other choice but to correct it at the first onset of symptoms or the entire herd will die of disease or starvation. Paper pushers will try and create legislation to keep the diseased and starving population on life support even when that means the herd is slowly dying away and is not replacing itself.
In the end, evolution and history show that the farmers survive because they know what's best. Paper pushers go up in flames when the paper they created gets burned in a gigantic pile. Or something like that. You all get the picture.
"Bankers have the early seats"
WE have to make them get off the lifeboats then we chain them in the engine room of thr sinking ship. That's called a popular revolution...
Liked the article and the writing style. I'm still not sure what anger and frustration count for. I guess, change: that element used to win elections in America.
Another quote that sounds like a German Radio Broadcast from 1944; why is this feeling more and more like the last year of the Third Reich?
The Federal Association of German Banks (BdB) rightly point out many of the dangerous risks of following current policies, but they don't offer up any real alternatives, just more austerity and member-state reforms to improve their productivity. Right, how many generations should we wait for that before concludng that some member states cannot step up to what's demanded of them?
It is past time for the EU elites to confront the multiple elephants in the room and actually take actions which would deal with the crises overwhelming the EZ and by extension, the whole EU. This means a break-up of the EZ, however much damage it does to the egos of those in EU politics.
Clearly they are offering seriousness of purpose. "they understand there's a problem here" and normally that is 100 percent of the problem. What it "means" is as of yet to be determined. Great article though...clearly as there always is "there are some differences which simply can't be papered over."
I wonder if folks will panic when they don't have enough fiat for an essential commodity or their fiat is no longer accepted, or there simply isn't any of that commodity for delivery? Same as it ever was.
"The longer this period of extremely low interest rates continued, the greater the danger of directing capital into the wrong channels and assessing risk incorrectly, he said."
Yup, just look at the U.S. equity markets; talk about mis-allocation of capital. Phew!
The last seat in the lifeboat is the most panicy. Bankers have the early seats.
Now or by the end of the month would be a good time to sell. Pick back up in 2018.
Yes,and don't be tempted to hang in there.
I got ut in 2007,a little early but truly thankful.
Unfortunately Beppe Grillo will amount to nothing more than a blip. The establishment was surprised, but they're back and they're in 100% control. The establishment in Italy will fall when there's blood in the streets and not before. Those who have made a lifetime pursuing power do not fold this easily. Democracy is a technique to get the sheep to roll over and go back to sleep while they are being fleeced. But at the moment democracy actually poses a threat to the establishment, democracy is shelved in favor of "emergency measures", "stability" and "what's best for the people".
Wake me up when the shooting starts.
Card playing on the Titanic. The end is coming towards the Eurotrash and they are powerless to stop it. So much for the Eurotrash Aristocracy
“Every age that has historical status is governed by aristocracies. Aristocracy with the meaning - the best are ruling.
Peoples do never govern themselves. That lunacy was concocted by liberalism. Behind its "people's sovereignty" the slyest cheaters are hiding, who don't want to be recognized.”
-Joseph Goebbels
In a sense you could say that Herr Goebbels is speaking for his Eurotrash followers
Well, you might say he was an expert on sly cheaters in hiding. His wife killed all her children herself, one by one; then killed herself and left a suicide note saying how happy she was to die next to her Fuhrer. Hard to figure people sometimes.
There most likely is one more monetary expansion before the fiat implodes. I think it is March 2013 to August 2013.
Yes that is right, this will be a short lived expansion, so get your finances in order and sell your shit to the Muppets.
It could be June/December, whatever it will be short lived, trust me.
Take advantage, dumb the house, stocks, and get into physical metals, farms, shit that will ride out inflation or deflation.
These monetary expansions are like labor contractions, they get shorter and shorter as time moves forward. We are entering one now.
Yes. Whether you are European or American, the best place to hold your wealth now is in physical gold, in your own possession.
I have been marveling at the stock market rallies (in America and Europe), and am salivating at the chance to unload some stocks and go shopping for more gold upon my return to the USA next week.
Maybe I will buy a LOT this time...
Bill Whittle for you flying fans.
http://www.youtube.com/watch?v=hwNn7VlnczQ