How Many Euro Crises Will This Make? It's Getting Hard To Keep Track

Tyler Durden's picture

Submitted by John Rubino via DollarCollapse.com,

Every few years, it seems, one or another mismanaged eurozone country falls into one or another kind of crisis. This leads to speculation about the end of the common currency, which in turn spooks the global financial markets. Then the ECB conjures another trillion euros out of thin air, buys up and/or guarantees all the offending country’s bonds, and calm returns for a while.

At least, that’s how it’s gone in the past.

The latest crisis has more than the usual number of flash-points and could, therefore, be something new and different. Currently:

Greece. This charming but apparently ungovernable country only got into the eurozone in the first place because its corrupt leaders conspired with Goldman Sachs to hide the true condition of the government’s finances. It quickly blew up and has been on intensive care ever since. Now the latest bailout has become deal-breakingly messy:

‘From bad to worse’: Greece hurtles towards a final reckoning

(Guardian) – With another bailout set to bring more cuts, quitting the euro is back on the agenda.

 

The country’s epic struggle to avert bankruptcy should have been settled when Athens received €110bn in aid – the biggest financial rescue programme in global history – from the EU and International Monetary Fund in May 2010. Instead, three bailouts later, it is still wrangling over the terms of the latest €86bn emergency loan package, with lenders also at loggerheads and diplomats no longer talking of a can, but rather a bomb, being kicked down the road. Default looms if a €7.4bn debt repayment – money owed mostly to the European Central Bank – is not honoured in July.

 

Amid the uncertainty, volatility has returned to the markets. So, too, has fear, with an estimated €2.2bn being withdrawn from banks by panic-stricken depositors since the beginning of the year. With talk of Greece’s exit from the euro being heard again, farmers, trade unions and other sectors enraged by the eviscerating effects of austerity have once more come out in protest.

 

This is the irony of Syriza, the leftwing party catapulted to power on a ticket to “tear up” the hated bailout accords widely blamed for extraordinary levels of Greek unemployment, poverty and emigration. Two years into office it has instead overseen the most punishing austerity measures to date, slashing public-sector salaries and pensions, cutting services, agreeing to the biggest privatisation programme in European history and raising taxes on everything from cars to beer – all of which has been the price of the loans that have kept default at bay and Greece in the euro.

 

The arc of crisis that has swept the country – coursing like a cancer through its body politic, devastating its public health system, shattering lives – has been an exercise in the absurd. The feat of pulling off the greatest fiscal adjustment in modern times has spawned a slump longer and deeper than the Great Depression, with the Greek economy shrinking more than 25% since the crisis began.

 

Even if the latest impasse is broken and a deal is reached with creditors soon, few believe that in a country of weak governance and institutions it will be easy to enforce. Political turbulence will almost certainly beckon; the prospect of “Grexit” will grow.

Italy. A few months ago the centrist president, Matteo Renzi, resigned after losing a referendum (don’t bother with the details, they were never very interesting and in any event have been overtaken by events), making a new election necessary. There was a chance that Renzi would be returned to office, which would reset the clock on Italy’s inevitable descent into Greek-style chaos. But yesterday he resigned, throwing the upcoming elections into disarray and opening the door to eurosceptic populists. Combine political turmoil with a moribund banking system and Italy becomes a prime candidate for Big European Crisis of 2017.

Italy’s Renzi resigns as party leader, in tussle over how to counter rise of 5 Star

(MarketWatch) – Italy’s governing center-left Democratic Party was locked in a fierce battle Sunday over the best way to pull the country’s economy out of the doldrums and blunt the momentum of antiestablishment politicians—as mainstream politicians across the Continent struggle to come up with winning strategies in a year of major elections across the European Union.

Former Prime Minister Matteo Renzi, who resigned as premier after losing a referendum vote on constitutional changes in December, formally stepped down as leader of the party after facing sharp criticism for his inability to stem the mounting popularity of the rival 5 Star Movement, a euroskeptic party that wants Italians to have a national vote on whether to leave the eurozone.

 

5 Star, which opposed Renzi’s proposals in the plebiscite, and the Democrats are running neck-and-neck in public-opinion polls. Both parties have pushed for fresh parliamentary elections this year. The country is now being run by a caretaker administration.

France. Each new immigration horror story adds a bit to the popularity of the anti-immigration National Front, and increases the odds that party leader Marine Le Pen makes a strong showing in upcoming elections. The odds are still against her actually winning, but as the polls tighten, French bonds are sold off by nervous traders, widening the spread between French and German yields. A widening yield is a sign of approaching trouble:

Political Turmoil Returns To Europe: French-German Spread Blows Out

(Zero Hedge) – European political fears have returned this morning, leading to a blow out in French government bond yields, pushing the 10y yield now higher by 5bps and 5y up 8bps, as early losses extend after latest poll shows support for anti-euro presidential candidate Marine Le Pen rising in both election rounds.

 

As a result, the French-German 10Y govt spread has jumped to 85 bps, following an accelerated selloff, to the widest level since July 2012.

 

 

And those are just the front-burner problems. The Dutch are also holding general elections next month in which their version of Donald Trump will likely be the leading vote-getter. Germany has two elections this year, and opposition parties are gaining on Chancellor Angela Merkel. So there will be no shortage of scary headlines from the Continent going forward.

Why should non-Europeans care about any of this? Because the EU is the biggest economic entity on the planet and the euro is the second most widely-held currency. Turmoil there means turmoil everywhere else, though the form is hard to predict. A euro crisis might send terrified capital into US stocks and bonds, extending the bull market in domestic financial assets – and making the current US administration look like a bunch of geniuses. Or it could spook capital out of financial assets altogether, crashing stocks and bonds while boosting the price of real things like farmland, solar farms and precious metals. Or it could buoy all US assets, with “anywhere but Europe” becoming the dominant investment theme for a while.

OR the ECB could try to paper over the mess by devaluing the euro even further, setting off a trade war with the US, Japan and China, all of whom need weaker not stronger currencies to hide their own financial mismanagement.

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Yen Cross's picture

   We have a huge crisis in the United States.  Denial is the first response<

  I have all these bars of gold and silver, and I feel like people are trying to divest me of my wealth.

  ~Yen Cross '17 February ~

Haus-Targaryen's picture

I'd like to think this upcoming Greek/EU/IMF clusterfuck will finally put a stake in the heart of the EMZ's problems.  

Most Greek debt is held, at this point, by "public" finance institutions, with the EFSF holding the overwhelming majority of Greek debt, the ECB holding a good chunk and then a few misc. hold outs from bailouts gone by and the famous Greek return to the debt markets a few years ago that was some 2x oversubscribed (lol).

If Greece was to leave the EFSF would be insolvent immediately, but most of their "accounts payable" is to other publically backed finance institutions, either at a "national" level of the "EU" level.  

The ECB would need a recap, but given how ridiculous the EU is willing to "bend" rules in times of chaos they'd likely just CRTL+P the money and recap themselves.  

The biggest risk in a GREXIT is the few billion in Greek debt held by private creditors.  Its only a few billion (smaller than Lehman) and I imagine it would get papered over as well.  

If Greece was to leave and the ECB paper over the problems, the German account trade surplus would explode on an even weaker EUR further smothering the remaining ClubMed nations.  

This cannot continue as it has forever, and like many of you where, I eagerly await the day when the system finally does break. 

wildbad's picture

Haus,
any insight on the lack of visible inflation? is it simply the long term nature of the previous ECB print(s) or is it some other less visible mechanism?

when will the chickens come home to roost? does that require a sovereign default?

Haus-Targaryen's picture

The Euro will never experience any serious inflation like the yen or usd will.

The euro will simply collapse. It'll be there one day and gone the next. The euro bills will get stamped making them one country exclusive until new currencies can get printed up and circulated.

Some of these new currencies will collapse into hyperinflation soon. Italy and Portugal are good examples of this.

Other currencies will explode in value.

Chris Dakota's picture
Chris Dakota (not verified) Haus-Targaryen Feb 21, 2017 4:53 AM

George Soros the crisis man.

he needs to be gassed.

androkles's picture

Eurocrats will go very far (burn the village to save it from nationalism) in trying to keep the utopian dream alive, so maybe we get a northern and a southern euro first. Talked about it with a friend last night: What will we in the north get at which valuation.? My friend said: maybe we all get an half northern half southern, and the the financial markets will take over. Interesting times. My savings are in USD, feels a lot safer, but that's just emotion and maybe it's an opportunity for trading my USD back to euro-in-a-northern-european country, have it revalued and then back to USD.   But..., let's be careful outside.

 

Singelguy's picture

I think the only way you get a northern euro and a southern euro is if Germany, France, and the Netherlands elect nationalist parties to govern. That seems unlikely in Germany at this time but given the events of the past year anything is possible. If LePen wins in France and she holds a referendum and France withdraws from the EU, it is game over. The euro collapses. You are wise to hold savings in USD, but that is only a short term solution. The USA has its own problems. In the long run, the best hedge is tangible assets. I am expecting a euro collpase, at which point real estate prices will drop as mortgage financing disappears, and prices will be very cheap in USD terms. Buy prime real estate at that point.

androkles's picture

Ty. I agree with your political analysis: it is to be decided between the two remaining powerful countries and France will be the first to turn nationalistic.

I follow the outlined plan, except perhaps in the kind of assets to buy eventually. It has to be cheap at that point in time and I'm also considering gold and stocks in first class companies (also real if not tangible). A Dutch blogger who was a banker in his working life (Diederik Schmull, writes mostly in Dutch) says there is likely to be a period that gold will go down a lot (when many are scrambling to get liquid $). Well, no hurry, there is enough time to think and study.

SoDamnMad's picture

Other correncies would explode in value"

Explode higher or explode into oblivion.  I find problems with many of the "sound" currencies; immigrants, oil price, trade issues.

Give me a hint please.

Der Libertäre's picture

Maybe I sit on my brain-cable, but why would that be?

If one goes bankrupt and gets a new currency, would that not be a fresh start? And you think a German Mark(?) would explode in value? My problem is the economic downturn and the huge surplus - all fabrications will have to adjust there economies of scale. And while the other guys like Greece etc have already adjusted to smaller slices of bred, the Germans feed some extra millions of migrants as they think they have it. Germans still believe "all is fine". The coming adjustment to reality I imagine as more brutal and the reason is the big export. If one has a huge inside economy a downturn is proportional, but if the own economy is relatively small compared to export, a downturn must be over proportional. And with that I see no strength in German Marks. I imagine Germany to be again "the sick man of Europe" if not the dead man.

Or am I mistaken somewhere?

androkles's picture

The situation in the Netherlands is the same: "all is fine". Restoration of the old system of each nationstate its own currency will not restore the old situation. I cannot begin to grasp what will happen when the EMU has to unwind, all the skeletons that will fall from the cupboard along the way, and were we will end up. And in the meantime we could very well be in a worldwide deflationary period with overcapacity. Yes it's bad, I guess there will be many sick men in the end. Save your own ship, prepare for a storm.

My two eurocents, which have grown to 2.7 eurocents, if I change back today from USD, and who knows were it will end?

Singelguy's picture

Two points.
1. There is visible inflation. Just take a look at ShadowStats. The government is cooking the numbers so it appears that there is no inflation, or very little. All you have to do is compare your grocery bill this month to the same bill a year ago and compare product size, not the package, but what is actually in it, and the inflation is obvious.
2. The bulk of the inflation resulting from all the QE programs is reflected in asset prices.

The chickens will come home to roost when confidence is lost in the currency and the central bank that is trying to control it.

turnball the banker's picture
turnball the banker (not verified) Feb 21, 2017 2:12 AM

xynthos in 3 2 1

cossack55's picture

110 billion Euros is the biggest financial bailout in global history?   Rrriiiiggghhttt......

petar's picture

It is not for sure.. ZeroHedge making up fake news?

Yen Cross's picture

 lol> rest-assured, you've NOT the slightest inclination of Z/H wealth.

petar's picture

Ohhh, there is propaganda in ZH. Showing stats, graphs, data in a way to prove a point, or a long-term narrative they are following. They are consistent, its very rare to see deviation from their long-term message. However, many times they are manipulating data (especially) and news (over or under reporting) to fit their message.

are we there yet's picture

The Euro and Greece is like a bad marriage where the love is gone and all they have in common is an old cat, that both are waiting for the cat to die to go their separate ways. It is not even a likable cat.

HRH Feant's picture
HRH Feant (not verified) Feb 21, 2017 2:47 AM

3, 2, 1: Ctrl P. Fixed it! Woo hoo lets go party!

mosfet's picture

EU starts going belly up and all markets will panic.  But like water, TINA money will flow back into US markets & the Dollar - pushing both way up and maybe PM's down for a while.  Buy the dip in PMs cause contagion will lag but inexorably arrive to clean house in banks & markets.  Fed will panic and (with Congress' approval) begin a 3 pronged multi-trillion asset purchase program of treasuries, mortgage backed debt & corporate bonds/ETFs.  Doesn't matter where the S&P is by then...That will be the time to get into stocks and buy a house, but hold PMs cause the US debt bomb will be kicked down the road for at least 7 more years thru massive printing (Markets will love it, and who's going to complain when the US is the only game in town).  Formation of housing bubble 3.0 will be the fastest in history and finally be the catalyst for major wage & price inflation.

androkles's picture

Not sure of everything -or too ingnorant- but all my scenarios start with breakup of EU and the a lot of debth restructuring and ECB restructuring will take place, perhaps it will be funded by a EMU-wide "0ne-time" tax on deposits.

Also very convinced the dollar will hold for quite a while, and as a long term trend, will get stronger.

All good reasons not to be in euros, except for groceries and bills.

fredquimby's picture

"loans that have kept default at bay and Greece in the euro"

I've already won many bets these last years on there not being a Grexit. Basically you can't leave the EU once you give up your own currency and go all in and start using the EURO. It was purposely designed that way.

If you think there will be a new drachma in the next years you are simply delusional. (unless a crypto-drachma appears and takes off, which it won't).



mosfet's picture

I would tend to agree but it's only a matter of time til Greece starts missing and eventually all-together stops making repayments.  Instead of Grexit it might be called Grec-off cause the EU might cut their losses & kick em out.

JohnGaltUk's picture

They could just adopt the USD

GreatUncle's picture

Or any country with a FIAT paper that is fiscally stable.

Zimbabwe dollars would be horrendous.

Dilluminati's picture

You are a fucking idiot.. don't want them.. laughing that was said by idiots of south america and do not want

they don't want it either.. look at Greece

Itally just as bad just that Greece is the dirty shirt de-jour

Why not convert it all to swiss francs?  Laughing because it doesn't dillute or mix currency/ or convert them, unless you alos redistrbute the wealth

Germany needs to write a 90 billion loan to Greece for the illusion that Greece is servicing their debt to Germany

No we don't want to do that!

GreatUncle's picture

Agree and if the UK had been in the EZ we would be suffering a similar fate to Greece. Greece missed the chance to escape years ago, ditch the EU and leave and during that period seeing as the rest would be trying to support themselves they rebuild their economy they just might have made it like Iceland.

If the UK had voted BREMAIN then the pound would have been removed within months under the guise of supporting the euro but in reality to lock the UK into the EU. Now GS supported the former so I expect them to realise the latter so they are part of the EU commission.

We have not seen the worst of the EU yet, as the economic conditions deteriorate I fully expect the EU to become a dictatorship where ever increasing draconian law is used to suppress populations. The popularist concept you see is the blowback to this and the more they double down the greater the popularist voice.

The worst thing for the EU now is for populations to realise there is NO WORKING DEMOCRACY in the EU because as soon as they do the population is no longer chained to some poxy vote that means nothing.

Then when other nations realise this

http://www.euronews.com/2017/02/20/france-to-host-germany-italy-spain-su...

READ THIS

“It’s not about deciding between the four of us what Europe should be. That’s not our conception, but we are four important countries and it is up to us say what we want to do with the others, together,” Hollande said at a news conference

Are they discussing EU PIZZA and the economic rape of nations?

Sure looks like it to me and what Hollande says is no different to Clinton calling all those deplorable who objected to her.

Dots are joining up just fine and like in France now Le Pen being investigated confirms their fears when Martin Schultz comes out with https://www.rt.com/news/378057-nationa-front-raid-funds-fraud/

"One cannot be paid by the European Parliament and work for a party,"

 Well gee whiz Martin it is a good job Merkel does not work for the EU parliament in the commission then SO WHO THE FUCK IS SHE WORKING FOR?

 

 

 

Singelguy's picture

I disagree. It seems there is an anti-globalization wave sweeping the West. Nationalist parties in many countries are gaining in popularity. As the EU in Brussels continues to prove how dictatorial and more importantly, how ineffective they are in solving the problems that face Europe, the greater the probability the EU will collapse, and the member nations will return to their own currencies. The best case scenario is that the EU reverts back to a common trading market, which it was originally touted to be, although that was never the real plan. I agree with the author that as a collapse becomes more probable, capital will flee out of the EU, strengthening the dollar. For EU investors, I think it would be prudent to get out of euro denominated investments and buy PM's. Gold prices will rise relative to the euro but are likely to decline against the US dollar in the short to medium term. If the Fed decides to raise interest rates, that will just add more fuel to the fire. Adding more pressure is Trump's demand that the EU contributes their fair share to NATO forcing member countries to spend more money on defense; money that they don't have.

Dilluminati's picture

Adding more pressure is Trump's demand that the EU contributes their fair share to NATO forcing member countries to spend more money on defense; money that they don't have.

I agree with all that you previously stated and think that any poll that doesn't show a landslide victory for seperatist sentiment in the EU is simply cooked.  However the EU suffers so many self inflicted wounds that they are functionally no longer capable of integrating as part of an effective deterent, part of their argument of the EU was stregthening a common market and thus by logical extension the mutual defense treaty, but I would argue BOTH FAILED.

No matter how much more debt is applied to Greece, Itally, Spain and other non-German nations of the EU it isn't going to allow debt to prosperity, if anything it makes deeper the deflationary spiral.

The simple post WWII plan which was recently adjusted that 2% of GNP be spent on defense was revenue and trade-adjusted nuetral, what we have effectively is one possibly two nations, France and Germany capable of actually making a 2% spending, but they failing to do so as they are now financing the rest of the EU who have lower GDP.

BOTH FAILED

Meanwhile under very poor management, forced to become a saver by trade restrictions, and not enduring self-inflicted wounds of immigration nations like Iran and Russia are doing better, sad to say but true.

Short term the bubble market could go higher, but by April or certainly August this will adjust.  If Gold Silver is lower due to strong dollar during this time buying is still iffy because when everybody is scrambling to service debt in the dollar you have too many debts chasing too few dollars, and gold and commodites will drop in price.

So now we are just rotating bubbles and you should be hedging a % of that in physical delivery, does the merry go round just stop?  Do the chairs all disapear from the deck of the titanic? Nope.... theory of least dirty shirt in the basket

But what is short term obvious is that the EU is non-functioning and accelerating in it's conclusion of failure.

It's is ironic the MSM and globalists made such a big deal of Trump not being "smooth" or well functioning machine in his first month, even funnier that the UK wants Trump not to visit.  Frankly the UK and their now limited military and finance and the state of their nation provides a welcomed distraction for the reality of the EU.  They got a chunnel out of the deal, but their footage and video of London from post WWII and now is also indellibly different.

I wish them good luck..  The UK, Germany, and France

My trades are made..

And gold isn't a destination it's a hedge, I actually think it a poor investment generally for growth

But I'm acknowledging the fact the EU did fail and will position money on that reality

I'm not expecting a jump in the markets post brexit, post trump next time around...  and no higher bidder will run up gold

Kalymnian's picture

If Golden Dawn win the  the next election or  the one after, i will bet my nuts thar they will leave the Euro. 

Interesting to note that GD get a hell of alot worse media attention than Trump. 

ErikE's picture

The back of Wall Street will crack this Summer.

andrej's picture

If Greece defaults... I wander what's going to happen with credit default swaps. Nobody is talking about that lately.

logicalman's picture

When all that has to be done to 'fix' a financial crisis is to add a few more zeros and ones to a bunch of hard drives, how can the Eoro fail?

It will fail when people wake up to the fact that they are being screwed over, and not before.

As for Greece ado[ting a new currency, how does replacing one fiat currency with a different one make any real difference?

HenryKissingerChurchill's picture

It will fail when people wake up to the fact that they are being screwed over, and not before. As for Greece adopting a new currency, how does replacing one fiat currency with a different one make any real difference?

isn't that screwing over happening WORLDWIDE?

HenryKissingerChurchill's picture

the EUROcrats are going to need an EURO army... for guillotine avoidance

Kalymnian's picture

Heres a brief history.

Greek debt was constructed to steal a sovereign state and to make sure its important geographical position remains in the hands of the globalist nwo .

1919 Greece began taking back Greek land from turkey

Fsught valiently and got half way untill they were betrayed by the  Britain and US oligarchs.

 

The Nazis and Italians invaded stealing agricultural equipment food and looted banks.

Greeks booted them both out despite the wests embargo causing mass starvation.

Germany owes greece 279 billion for war reperations.

Unrest continued after the wars with western backed civil war and street assasinations much like Ukraine ensuing

Puppet governments installed ever since draining coffers.

The people voted against the loans in a referendum a couple years ago but were denied by a fake keftist government.

Thats just in the last century .

Greeks owe nothing to nobody .

HenryKissingerChurchill's picture

Greek debt was constructed to steal a sovereign state and to make sure its important geographical position remains in the hands of the globalist nwo .

isn't EVERY debt of every country exactly the same case?

Youri Carma's picture

Hear me, and hear me well. The day will come. Oh yes! Mark my words, EU. Your day of reckoning is coming, when an evil wind will blow through your little play world and wipe that smug smile off your face. And I'll be there, in all my glory, watching, watching as it all comes crumbling down.

Let it Go's picture

If things were not already difficult for the Euro-zone they became even more so with the election of Donald Trump. President Trump has dramatically changed the balance of power in Britain’s trade negotiations with the EU. Any hope the Euro-zone is about to suddenly turn the corner is more based on false hope and a wish than a reflection of events on the ground.

The fact is their banks are neither "fixed" or the system healthy. Greek debt it again an issue. Italy is deeply in debt, unemployment is high in many countries especially among the youth population, and refugees continue to flood in adding more stress to an overburdened social system. The article below delves into these problems.

 http://brucewilds.blogspot.com/2017/02/euro-zone-woes-continue-enshrouded-by.html

ukipboy's picture

In this article, there was mention of Greece, Italy and France. But there was no discussion of Spain (with no majority government) Portugal (whose banking system is also in meltdown but on a smaller scale) Finland (only Scandinavian country using the Euro and still trying to recover) Cyprus (whose pensioners saw their savings stolen by Euro-dictat). The writer did say that the three countries he discussed were on the front burner but let us not forget the chaos and mayhem that this misbegotten currency has caused on the backburner - the parts of Europe that are overlooked. 

 

 

androkles's picture

But in the end France and Germany are the only powerful countries left. What happens will be decided between them.