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The Previously Unthinkable Becomes A Planned Event

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Wolf Richter   www.testosteronepit.com

Governments and companies around the world have been preparing for a collapse of the Eurozone—simple prudence requires them to do that. Theoretical exercises for a hypothetical scenario, they call it. But recently, these theoretical exercises have taken on practical overtones.

In early December, Swiss Finance Minister Eveline Widmer-Schlumpf told parliament that the Swiss government was preparing concrete measures to defend Switzerland against a collapse of the euro. And then, just before the Brussels summit, Nicolas Sarkozy voiced his existential concerns about the Eurozone (Sarkozy: “The Risk that the Euro Will Explode”). Large corporations are also preparing.

"Our teams work on all possible scenarios, including an exit from the Eurozone,” said Gilles Schnepp, CEO of Legrand, a French industrial company, during an interview with Les Echos on December 19. “We are doing simulations of what the exit of one or the other country would mean for our activities, balance sheet, and cash flow.”

Daimler is looking for a stabilizing force in ... China. Chairman Dieter Zetsche is offering Chinese investors, including state-owned China Investment Corporation, a 5% or 10% stake (Manager Magazin, December 20). Daimler is also building up its joint venture with Chinese partner Baic. Greater reliance on China could afford the company some protection from the travails of the Eurozone. Every major company must have some irons in the fire.

But now the collapse of the Eurozone has entered public discussion via the front pages of the largest daily newspapers in France and Germany. And increasingly, regular people are comfortable debating an issue that not long ago was completely out of the question.   

"The Explosion of the Eurozone is now possible," said today’s headline of Le Monde. The French daily, a staunch supporter of the euro, dove into details: French banks have steeped themselves in silence. "Not part of our scenarios," said Baudouin Prot, president of BNP Paribas. And Société Générale considered that issue something "that cannot be considered." The largest retailers Carrefour and Casino haven't made any announcements either, but they too will have to deal with these questions, "given the size of their supply chains in euros and dollars." According to Le Monde:

If most executives want to make believe that such an eventuality is unthinkable, in the shadows, economists of large financial institutions are simulating the effects of an implosion of the monetary union on the needs of their clients, investors, traders, and entrepreneurs.

Le Monde got specific. "Those that have funds ask us into which bank they should deposit their money," said Nikan Firoozye, an economist at Nomura in London. He co-wrote a report that explored the subtleties of a Eurozone explosion. For example, a foreign professional bought assets in euros and hedged them against euro-dollar exchange risk. What would happen to that hedge if the investment were converted to pesetas? "I don't have an answer to everything," he admitted.

The German Handelsblatt featured a long discussion today on what would happen if Germany reverted to the Deutschmark. And it advised its readers on how to prepare their finances for that event.

"A share would remain a share," it started out comfortingly, and price would be determined by supply and demand, as before. The rest could be iffy, however. Stock exchanges could be closed for a while to implement the conversion. Once trading restarts, shares would plummet, and the crash would cascade around the world.

It would be a challenge for Germany’s export-dependent companies. Their customers in Southern Europe, whose currencies would be devalued, could no longer afford German products. Revenues would collapse. Recession and large-scale unemployment would follow.

So what should German investors do? The Handelsblatt is clear: Don't load up on equities, and focus on German companies that do most of their business within Germany. Kabel Deutschland, for example. Its revenues come from German subscribers, and they will still watch TV, even if they get their Mark back. And don’t end up with stock in an Italian company at the moment when the euro converts to other currencies. Those shares would be valued in lira whose future devaluation would be immediately priced into the shares.

German Bunds would likely be converted to Deutschmarks and would be guaranteed in Deutschmarks, a safe bet, presumably. Corporate bonds would be riskier. Contracts don't include language that would allow for them to be paid back in a different currency. Perhaps a voluntary conversion would be the solution. Fly in the ointment: if Germany by law converted all euro debt of German companies into Deutschmarks, it would replace debt denominated in a softer currency with debt denominated in a harder one, which might make it impossible for companies to pay it off, and bankruptcies might ensue.

Investment in real estate, the Handelsblatt suggested, would be relatively safe because “a house will remain a house.” But values could come under pressure in a long recession. And there is always gold, physical gold ... coins, actually.

"For all those who have to deal with money in Frankfurt, the Deutsche Mark scenario is a horror." Breaking apart the ECB payment system would be tricky. And the logistics of reintroducing the various currencies would be a nightmare. From ticket vending machines to ATMs to banking computers, everything would have to be converted—a three-year process to get things to where they were before.

The fact that major newspapers advise their readers on how to deal with a Eurozone collapse suggests that the people are coming to grips with the scenario. And once a certain comfort level sets in, popular support for the many financial, political, monetary, and democratic sacrifices required to save the euro will dwindle. Which would spell the end of the euro. Meanwhile, the European Union would go on as a free-trade area, though perhaps in altered form.

Sarkozy, the only French president since World War II with two recessions under his belt, faces a tough reelection campaign. Front runner François Hollande vows to oppose the German dictate on how to save the euro. For how that election could unravel everything, read... Political Realities Threaten To Split The Eurozone.

 

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Wed, 12/21/2011 - 15:10 | 2001871 johnjb32
johnjb32's picture

The unthinkable is breaking out all over. There's only one problem with the construct... Many of us have been thinking and writing about it for a long time. This is almost as credible as, "We had no idea that planes could be flown into buildings." -- Michael C. Ruppert

 

http://www.collapsenet.com/154.html

Wed, 12/21/2011 - 07:19 | 2000404 AtomicWarhead
AtomicWarhead's picture

Ha ha ha ...

Wed, 12/21/2011 - 06:57 | 2000382 Zero Govt
Zero Govt's picture

"Nicolas Sarkozy voiced his existential concerns..."

You mean he talked out of his arse yes??

"Gilles Schnepp, CEO of Legrand, a French industrial company.. “We are doing simulations of what the exit of one or the other country would mean for our.. cash flow.”

ie. scrabbling to find his next taxpayer funded revenue stream to prop up his bankrupt State-aided business model

"Nikan Firoozye, an economist at Nomura in London... "I don't have an answer to everything.."

ie. I've not a clue about anything.. especially where to park your money safely

"Handelsblatt suggested, would be relatively safe because “a house will remain a house.”

And the Roman Empire remained the Roman Empire.. until it wasn't

"Sarkozy... faces a tough reelection campaign"

He's (French) toast ...charcoaled to a crisp

i'm taking bets from anyone who thinks this posturing frog shit has even a snowball in hells chance of re-election?

PS. Wolf Richter - your article managed to quote a large collection of totally clueless idiots.. was this an attempt to show what a bunch of morons the poverty of 'experts' are across Europe? If so you nailed it

Wed, 12/21/2011 - 06:21 | 2000362 Moe Howard
Moe Howard's picture

This is nonsense. Three years to convert back to a currency they left ten years ago? I could see if it was fifty years or since 1913 for example. Countries like Poland use their own money for most transactions, there are only seventeen countries using the Euro as circulating currency. Just one for one in Dmarks all over Europe, then the Italians can trade 1 Dmark for 100000 lira, etc.

Wed, 12/21/2011 - 06:16 | 2000360 Sudden Debt
Sudden Debt's picture

GOLD & SILVER! IT'S THAT EASY!

Together with some friends we're also preparing for a euro collapse and we spend pretty much on brainstormig about where to park our funds.

1/4 of mine in mostly in silver and 1/20 in gold. Next to that, I have 1/3 in dollars and 1/10 in Yuan.

I still have a pretty large amount of cash because I sold some real estate this summer which I thinking of converting in Australian dollars so in case I can use to buy citizenship for my wife, kids and me so we can move out there for a few years.

2 years ago, this kind of thinking for me would be unimaginable.

 

Wed, 12/21/2011 - 05:09 | 2000327 I got the Bull ...
I got the Bull by The Horns - HELP's picture

What is Capital? Think about it.

A caveman rolled out of his grassy mat (Think of a Gorilla in the Jungle). He strolled and ate berries, took a toilet break. Fell asleep, woke the next day. Where is his capital?

Fast forward 20,000 years. The Caveman now uses sticks to catch ants. He expends effort to snap sticks and fashion tools. His labour and mind creates a tool. He has capital. Capital = energy expended (Labour units)

Fastfoward another 20,000 years. The caveman makes tools and swaps them with other cavemen for other tools. The capital stock of the Caveman tribe increases.

2011-2012 Humans have promised to work for the rest of their lifes, to repay the Caveman Chiefs, for all the goods they used over the last 10 years.  You see they attached interest. There is no free lunch. You have to expend labour if you want to earn something useful. Otherwise, you can borrow to receive now, and pay for it with increased labour costs. The Caveman Chiefs are living fat of the accumulated spears of generations of forefathers.

Wed, 12/21/2011 - 04:18 | 2000294 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Still no news of this across the pond.

Wed, 12/21/2011 - 03:57 | 2000280 alma77
alma77's picture

No doubt that this is a dfficult problem for all goverments and companies around the world but I do believe, with good and proper financial management it will be proven wrong soon. Hopefully the <a title="Cash Advance Loans Increase Consumer Confidence" href="https://personalmoneynetwork.com/cash-advance/">cash advance</a>

Wed, 12/21/2011 - 02:38 | 2000206 the tower
the tower's picture

So... when is the dollar going to break up?

A Euro break-up will do nothing about the real problem: debts.

The Euro will not break up as it will only make things worse. It might split into a hard and a soft Euro, which would allow the soft Euro states to devalue and become more competitive. With a debt write-off this might just give some air to the continent...

The Anglosaxon media are only on top of this to keep the attention away from their own collapsing economies. Let's not forget: Europe actually has a reasonably healthy economy, and is well prepared for the future. The Anglosaxon economies are a dead-end street on the other hand...

Wed, 12/21/2011 - 02:42 | 2000211 jimmyjames
jimmyjames's picture

The Anglosaxon media are only on top of this to keep the attention away from their own collapsing economies

************

Good point-all bearish eyes are on Europe and it's usually something we aren't paying attention to that comes out of left field and surprises everyone-

Wed, 12/21/2011 - 01:38 | 2000134 Tic tock
Tic tock's picture

Still it will be for Nothing, if 'traders' remain as 'owners' of the 'people and their government'. ..except this time, the (shell) game shall not be played out first. Either corporations learn how 'greed' is misplaced, or, one way or another, Europe will be flattened.   

Wed, 12/21/2011 - 01:32 | 2000121 Pythaes
Pythaes's picture

Jamie Dimon told his wife in September 08 to get as much cash out of the bank as possible... everyone was doing it...in a way, through a feedback loop a bank run or potential hoarding of goods in europe, action will have to be taken...we always talk about the market forcing action, but when its the actual world market (every equity, commodity, car for sale, pharmacy item, bread, diapers, water) the psyche changes...When it is apparent that fear is rampant the bottom will come and the politicians will have to act. Participants will feel pain. we will bitch about corruption but as long as we are on the right side we can buy lamborghinis and farmland. inflection points are a bitch(especially when you see them form on charts) bring the noise

http://www.youtube.com/watch?v=8ADMgFhD8Yc&ob=av2n

Wed, 12/21/2011 - 00:33 | 2000047 indio007
indio007's picture

ohmmm bad post... from me that is...

Wed, 12/21/2011 - 00:20 | 2000033 Georgesblog
Georgesblog's picture

Planning is good common sense. Having a good plan is practicality.  The combination produces independence. The people that no one would listen to,10 or 20 years ago, had it right. Batten down the hatches. It's going to be rough seas,for a while.

http://georgesblogforum.wordpress.com/2011/11/02/the-daily-climb-2/

Wed, 12/21/2011 - 01:37 | 2000132 Pythaes
Pythaes's picture

it gives you an extra 72 hours and, if planes arent flying, that is a solid trip to canada if you need it (mexico fiberoptic is primitive)

Wed, 12/21/2011 - 00:03 | 2000009 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

This is going to get ugly no matter how it goes down. It is plain and simple, Europe is a society who has massive debt, an aging populace and industry (capital production) has been moved elsewhere. Take out the welfare state, it is impoverished. Controlled collapse will just favor the insiders.

Wed, 12/21/2011 - 01:47 | 2000147 Pythaes
Pythaes's picture

export-import-benefits of currency fluctations ...we all know this, but it gets messy if you punish certain countries lie greece and pour hyperinflation on them by throwing them out of the euro/or thus limiting their buyin power for a considerable amount of time...germany owns this story...you throw out greece, they wont even be able to afford to buy your exports...same will go for the US when china goes ballistic, the price shock of domesticating your output cannot be absorbed efficiently, i think, in under 5 years time...be nimble. met a guy at the gym the other day from croatia, im 50%. he goes "fuck it i've seen pain" end of discussion. the best thing we can do is remain vigilant and educate ourselves constantlyt

Tue, 12/20/2011 - 23:58 | 1999996 Big Ben
Big Ben's picture

Suppose that the German gov. converts all euros and euro debt within the country to DM's at a 1:1 rate. That could mostly work except that German banks and companies might be holding debt from other countries that is scheduled to be paid off in euros. If the DM strengthens against the euro before the euro debts are repaid, the holders of those euro debts could face major losses. It could get very messy.

Breaking up is hard to do!

Tue, 12/20/2011 - 23:46 | 1999980 Westcoastliberal
Westcoastliberal's picture

And there goes the normalcy bias.  Once the masses accept something it creates it's own momentum.  Unless up pops a "bad guy" to blame it all on, and then you have war.

Tue, 12/20/2011 - 23:38 | 1999958 ebworthen
ebworthen's picture

I can see a country like Germany setting an exchange value on extant Euros as they re-introduce the Deutschmark.

Keep your money in a German bank and you get a favorable rate or parity.

Bring the money in from outside Germany and you get 0.70%

Wed, 12/21/2011 - 01:08 | 2000094 Calmyourself
Calmyourself's picture

"I hate all of them they have destroyed the beautiful world for nothing." 

Personally I find Mercedes and Porsches quite beautiful and marvel at the products of men's minds who make them more efficient each and every year. Did the computer manufacturer who built your computer so you can spew also ruin the beautiful world?  I know he has contributed to detracting from my enjoyment of it.

 Steve your a bit of an idiot get off the coast it is poisoning your soul..

Tue, 12/20/2011 - 23:33 | 1999948 steve from virginia
steve from virginia's picture

In early December, Swiss Finance Minister Eveline Widmer-Schlumpf told parliament that the Swiss government was preparing concrete measures to defend Switzerland against a collapse of the euro.

Rignt: Swiss assets in hundreds of billios in francs with liabilities in ... wha? exactly? We can see a financial Schrödinger's cat, a devalued 'hard currency'.

 "A share would remain a share," it started out comfortingly, and price would be determined by supply and demand, as before. The rest could be iffy, however. Stock exchanges could be closed for a while to implement the conversion. Once trading restarts, shares would plummet, and the crash would cascade around the world.

A share of what? A share is nothing but a slice of debt that does not 'expire' but can be rendered worthless. Keep in mind the Europeans will likely have to buy dollars in order to buy petroleum. All will pay including Germany whose economy is built around wasteful guzzling.

If Germany by law converted all euro debt of German companies into Deutschmarks, it would replace debt denominated in a softer currency with debt denominated in a harder one, which might make it impossible for companies to pay it off, and bankruptcies might ensue.

Germany abandonment of the euro is a German default, it becomes the new Argentina with lederhosen, without oil fields. (there is lederhosen in Argentina). If Germany doesn't abandon the euro it will be left holding the bag on the eurozone's liabilities. Why? Because it will not have abandoned the euro!

The EU is a ponzi scheme, the first out survives. Ask any of Bernie Madoff's 'customers'. UK was the first out the door, they live to tell the tale. I figure Swiss will be next and float the franc. Who's next? Could be France, Finland, even Greece but the next one racing for the exits will have Germany hard on her heels or Germany is ruined.

Couldn't happen to a nicer bunch of car manufacturers. I pray to live long enough to dance on the graves of Mercedes and Porsche.  I hate all of them they have destroyed the beautiful world for nothing.

The alternative is for Germany to repudiate trillions non-German originated euro loans.

Wed, 12/21/2011 - 04:27 | 2000303 rufusbird
rufusbird's picture

Steve from Virginia's post without italics, I wanted to rec it....

"   In early December, Swiss Finance Minister Eveline Widmer-Schlumpf told parliament that the Swiss government was preparing concrete measures to defend Switzerland against a collapse of the euro.

Rignt: Swiss assets in hundreds of billios in francs with liabilities in ... wha? exactly? We can see a financial Schrödinger's cat, a devalued 'hard currency'.

     "A share would remain a share," it started out comfortingly, and price would be determined by supply and demand, as before. The rest could be iffy, however. Stock exchanges could be closed for a while to implement the conversion. Once trading restarts, shares would plummet, and the crash would cascade around the world.

A share of what? A share is nothing but a slice of debt that does not 'expire' but can be rendered worthless. Keep in mind the Europeans will likely have to buy dollars in order to buy petroleum. All will pay including Germany whose economy is built around wasteful guzzling.

    If Germany by law converted all euro debt of German companies into Deutschmarks, it would replace debt denominated in a softer currency with debt denominated in a harder one, which might make it impossible for companies to pay it off, and bankruptcies might ensue.

Germany abandonment of the euro is a German default, it becomes the new Argentina with lederhosen, without oil fields. (there is lederhosen in Argentina). If Germany doesn't abandon the euro it will be left holding the bag on the eurozone's liabilities. Why? Because it will not have abandoned the euro!

The EU is a ponzi scheme, the first out survives. Ask any of Bernie Madoff's 'customers'. UK was the first out the door, they live to tell the tale. I figure Swiss will be next and float the franc. Who's next? Could be France, Finland, even Greece but the next one racing for the exits will have Germany hard on her heels or Germany is ruined.

Couldn't happen to a nicer bunch of car manufacturers. I pray to live long enough to dance on the graves of Mercedes and Porsche.  I hate all of them they have destroyed the beautiful world for nothing.

The alternative is for Germany to repudiate trillions non-German originated euro loans."

Wed, 12/21/2011 - 01:42 | 2000139 jimmyjames
jimmyjames's picture

Germany abandonment of the euro is a German default, it becomes the new Argentina with lederhosen, without oil fields. (there is lederhosen in Argentina). If Germany doesn't abandon the euro it will be left holding the bag on the eurozone's liabilities. Why? Because it will not have abandoned the euro!

***********

Germany and the northern members should keep the Eur a N-EUR and the southern members should have a separate Eur-S-EUR

The southern members should be free to devalue and deleverage-

Of course it would wipe out the big German and French banks/bond and shareholders and this would be a good thing-then they could nationalize and print enough to keep the depositors whole and poof-debt gone and the bottom is in and the currency is saved-

Wed, 12/21/2011 - 01:39 | 2000135 jimmyjames
jimmyjames's picture

Germany abandonment of the euro is a German default, it becomes the new Argentina with lederhosen, without oil fields. (there is lederhosen in Argentina). If Germany doesn't abandon the euro it will be left holding the bag on the eurozone's liabilities. Why? Because it will not have abandoned the euro!

***********

Germany and the northern members should keep the Eur a N-EUR and the southern members should have a separate Eur-S-EUR

The southern members should be free to devalue and deleverage-

Of course it would wipe out the big German and French banks/bond and shareholders and this would be a good thing-then they could nationalize and print enough to keep the depositors whole and poof-debt gone and the bottom is in and the currency is saved-

Wed, 12/21/2011 - 01:50 | 2000151 Pythaes
Pythaes's picture

and hyperinflation

Wed, 12/21/2011 - 02:03 | 2000167 jimmyjames
jimmyjames's picture

and hyperinflation

**************

Not even a one liner-

Care to explain further?

Wed, 12/21/2011 - 01:33 | 2000127 Doña K
Doña K's picture

German trains go everywhere and are always on time. MB's and Porsches are for fun. Not for commuting.

You meant to say that American SUV's are wasteful. BTW: Very few Cayennes, MB's and BMW SUV's in Germany. The Cayenne the M class and the BMW X's were designed for Americans. BMW and MB SUV's are made in the US down south somewhere.

Stick to the point about the Euro. The Euro is doomed in its present format. One liner boom. Matter of time.

Wed, 12/21/2011 - 01:49 | 2000149 Oracle of Kypseli
Oracle of Kypseli's picture

True.

An American's daily commute is euivalent in mileage to a German going on vacation to another country once or twice a year.

Stuttgart to the Austrian border in two hours. Granted at an efficient 120 MPH +

Tue, 12/20/2011 - 23:16 | 1999915 f16hoser
f16hoser's picture

The only thing left is a drunken Bernanke to stumble in thru the door and slap a trillion or two down on the table. That's it. Either way, this will be chaotic to say this least. Blow-back to the US will be huge. Get out of all brokerage accounts and keep little in the bank. At least thru April.

Also, buy PM's on the dips. Thats what rich people are doing. Why do you think they keep Gold/Silver down while talking it down as abad investment. Billionaires don't become billionaires by blowing-up markets/sectors. They do it quietly and methodically. We should be doing the same thing. BTFD's

Tue, 12/20/2011 - 22:42 | 1999840 Ima anal sphincter
Ima anal sphincter's picture

Planned failure, or is this thing REALLY coming apart. I can't imagine the big boys don't have every angle covered. If not....this will be messy.

Wed, 12/21/2011 - 01:53 | 2000154 Pythaes
Pythaes's picture

would you let all of those mobsters down, funny thing about the 1 percent, those that have no wealth riot, those that have it all and get scared, bomb banks...bell curve has its tails...appeal to the the tails,contain and mitigate risk, fuck the the middle(class)....

Wed, 12/21/2011 - 01:00 | 2000091 OldTrooper
OldTrooper's picture

Just because it's planned doesn't mean it won't be messy.

Wed, 12/21/2011 - 04:38 | 2000309 blunderdog
blunderdog's picture

Not to mention...it's only been planned this way by one of the competing factions.

Tue, 12/20/2011 - 23:37 | 1999961 gorillaonyourback
gorillaonyourback's picture

part of me hopes that the "big boys" have it all figured out but my gut tells me they haven't a clue to what will happen.  my guts basically 100% and thats why i am kinda scared, nervous,etc....   I really believe it all boils down to peak oil and peak everything.  we are the bacteria in a finite little petri dish.

Tue, 12/20/2011 - 23:22 | 1999933 HarryM
HarryM's picture

They probably do have it figured out , so if the market slumps it probably won't happen , best if they pump up the market then go short right before they drop the bomb.

Tue, 12/20/2011 - 23:27 | 1999941 HarryM
HarryM's picture

Based on the above news , I suspect the opposite.

Lure the bears in with a little chum, then squeeze em.

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