The Euro’s Death Knell Could Come As Early As September 2011

Phoenix Capital Research's picture

The primary issue for Europe has been, is, and will be Germany. True, the ECB is the alleged central bank for Europe, but without Germany’s support, the ECB is simply a monetary figurehead representing bankrupt European nations.


The reason for this is because Germany is the largest, strongest, most solvent economy in Europe. And Europe is not the US.


In the US, most people call themselves “Americans.” Even those individuals who like to refer to themselves by ethnicity, the word “American” remains part of their self-description e.g. African Americans, Latin Americans, Native Americans.


This mentality creates a cohesion in the US that does not exist in Europe. While New Yorkers may not especially like Americans from California, they still consider California an important part of the US and a place that is ultimately part of their “home” country.


In contrast, the European Union is the union of 17 separate countries most of which speak different languages, have entirely different cultures, and long-standing histories with their neighbors that usually involve multiple wars.


In simple terms, the people in European countries take pride in their individual countries, NOT in the EU. In fact, they only bought into the notion of the EU because of the alleged economic benefits it was meant to bring them.


Now that the economic benefits of the Euro are falling to pieces, these underlying tensions are coming out. Consider France and Germany, the two largest economies in Europe (and neighbors). France, a country with strong socialist tendencies is extremely supportive of the Euro (67% want to keep it). In contrast, Germany, which eschews loose money policy in general, wants out (only 30% of Germans want to keep the Euro).


And as diverse as Europe is, it is Germany that will decide the Euro’s fate. Without Germany’s backing, the ECB has no clout for the simple fact that it’s nothing more than a Central Bank, un-backed even by a particular country.


Put another way, someone actually has to foot the bill for the ECB’s moves. As the largest most solvent economy in Europe, that someone is Germany. Which is why rather than looking at the ECB’s moves, we need to consider the German political climate today.


Consider the following:


§  86% of Germans think the Euro is at risk.

§  71% of Germans are doubtful about the common currency.

§  56% of Germans say the Euro has brought them economic disadvantages.


These statistics are having a major political impact on German political elections. To whit, current German Chancellor Angela Merkel’s political party took a serious thrashing in the March 2011 regional elections. The results made it clear that Merkel’s pro-nuclear energy and pro-bailout stances have cost her and her party dearly.


On top of this, it’s now clear that the German economy may once again be rolling over. German manufacturing and services data both cooled falling to Mid-2009 levels this month. As leading indicators, these two items imply a much weaker German GDP is coming fast.


Two key surveys of German financial analysts and executives (the ZEW Economic Sentiment and IFO Business Climate, respectively) fell as well indicating that business leaders are concerned about an economic slowdown as well.


So here we have the majority of Germans concerned about the Euro or wanting out of it at a time when the German economy is starting to roll over again and another round of German political elections coming in September.


This is a perfect recipe for another political upset with Angela Merkel and her party losing badly. Remember, politics is all that matters in Europe (not economics). So if it becomes political suicide to back the Euro in Germany even the staunchest supporters of the currency will withdraw support of it. When this happens then the EU and the Euro will collapse soon after.


I fully believe this will prove to be the case this coming Autumn. However, the likelihood of the EU collapsing before then is relatively small due to the seasonal impact of European politics..


In simple terms, no major political decisions are made in Europe during the Summer months. Summertime marks a time of “perceived” economic improvement on the continent with many of the tourism-heavy economies (Spain, Portugal, Greece, Italy) seeing an uptick in economic activity.


So Europe will be “kicking the can” as much as possibly until September. However, at that point the real fireworks could begin. And they could easily make 2008 look like a picnic.


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Good Investing!


Graham Summers


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Richard Whitney's picture

Imagine: for several generations, they have enjoyed essentially free defense at the expense of the United States, and for a generation have enjoyed export hegemony via the EU currency at the expense of their EU neighbors.

And now their economy is rolling over? There aren't any more free lunches out there. They are doomed.

Ghordius's picture

Free defense? You seriously think that having someone's armed forces in your country comes for FREE? You gotta be kidding. How guileless....

DaBernank's picture

The Germans who answered that poll are apparently ignorant of the major export advantages the Euro provides them.

edotabin's picture

I suppose "cohesion" can come over time. It will require longer than 10,20 or 30 years.

"America is the boogie man and we are going to balance it out" is not a sufficient strategy nor is it a solid foundation.  What do you do when/if America is no longer the boogie man? 

Cultures are different everywhere. I think the language is the largest problem. 

Manipulism's picture

If you have read this free reports you know why they are free.


zorba THE GREEK's picture

Oh goody, we are back to 17 free pages now. Last article I read only offered 14 free pages. 

I do agree with the fact that the EU is loosely connected group of 17 completely different cultures, and

will probably opt to break up under a significant amount of stress. In that respect, they are not like the

good U.S. of A.  The last time a part of the U.S.A. tried to break up, millions died and their states were

raped by carpet-baggers for decades.

Debt Rolling's picture

One could seriously wonder why Graham Summers needs the money from his subscriptions if his trades are so successful. I know it is for extra money, and his work must be rewarded by another mean than Google Ads, but still... he spends a lot of time pitching. 

After that, well, he does write excellent articles occasionnally, and he is not the only one out there trying to sell financial newsletters (some are good). I'm just a bit uncomfortable with the idea of providing annualized returns of >1000% steadily. On one trade, it's totally possible, but after that it's best to settle for a while and wait for the next opportunity (which usually comes years after). 

Iam_Silverman's picture

"In contrast, the European Union is the union of 17 separate countries most of which speak different languages, have entirely different cultures, and long-standing histories with their neighbors "

That's dangerous and divisive talk there Mister!  I know from all of the slogan posters at work that Diversity is what gives us our strength.  We even have Diversity Action Committees that help to screen all job applicants and policies even before H.R. gets to.  God bless those groupthink posters in all of our hallways!

problemfixr's picture

Blah, blah, blah...Blah, blah, blah, blah.  Get my report.

DavidDavid's picture

More "doom & gloom" from Phoenix.  Anyone notice that none of his "doom & gloom" predictions ever come true? 

Sudden Debt's picture

Actaully a lot of people over here are talking about the end of the Euro.

And... nobody really asked for it. We where forced into it.

Since we had the euro, inflation has been rampant for everybody.

The day the euro got introduced in Belgium, all prices went up 10% in a matter of weeks.

I won't miss it. The only advantage I see in the euro is when you travel and it saves you 1 hour to exchange your currency.

besides that... I kind of miss the old currency. I still calculate every Euro in the old currency every time I buy something.


and for the Europe unity thing...

Most Belgiums hate all our neighbours :)

The French (arogant)

The Germans (bark like dogs when they speak)

The Dutch (greedy irritating little bastards)

The English (Pigs who like to roll in their own crap)

Ghordius's picture

Don't worry, SD, we all love the Belgians! You gave us... gave us... TINTIN!

The article is the usual hogwash: "I don't really understand the EUR, I have no time to look up 17 countries, blablabla, all about the Germans, blablabla, scrap the currency or give us the EuroBond/EuroTax scheme so that we have more to complain..."

That appreciation at the introduction of the EUR was felt everywhere, yes. Still, it has several years to live yet.

Mec-sick-o's picture

I have a bad feeling on all this nonsense hate.  It has Nationalism stereotypes all over.

Ghordius's picture

He is not hating, he is paraphrasing Charles V (HRE). Cultural reference. Emperor Charles was a bit more diplomatic, though... ;-)

Belgians talk like this because their own country is a result of British Intervention, this leaves some doubts lingering...

disabledvet's picture

so what do your calculations tell u? Is anyone going to Switzerland? How about Brussels? What's considered affordable now?

Debt Rolling's picture

He is right on the fundamentals and has not made any dramatically wrong prediction yet. In fact, he has been right on Europe since the beginning.

The problem is that some of his articles are infomercials adressed to newbies, like this one. 

lawton's picture

They just say the same stuff that Zerohedge does generally and will probably be right but a litlte early on their calls like most of us here due to all the extend and pretend.

brunoaa's picture

Which is no wonder why Axel Weber refused to head the BCE, leaving it to an Italian to explain to the German the sacrifice they have to make to save southern Europe!!!!

Ghordius's picture

Please don't call Mr. Draghi an Italian, he has a Squid passport.