With Citigroup raising the odds of a Greece exit from the Euro to between 50 and 75% in the next 12-18 months, it is perhaps worth reflecting on just what is holding them back and where Europe goes next. There has been and will continue to be much written on the faulty premise or failed-experiment of the Euro and using George Soros' recent less-than-sanguine discussion (at the INET conference as we noted here) of Europe in general (how did they get here? exactly where are they? and what are the scenarios going forward?) Gordon T Long and John Rubino expand on these thoughts in a must-watch-before-you-hit-the-BTFD-button clip this week.
Starting from the ground up with a brief discussion of the misgivings of the Monetarist and Keynesian schools' perspectives on the possibility of a crisis such as this even occurring, the two gentlemen calmly step through the lead-up to the crisis, debt saturation, and how rather than kick-the-can, central bankers and politicians have brought forward the inevitable endgame (as global balance sheets become more and more unstable).
Focusing specifically on the European problems (a fiscal, banking and balance-of-payments crisis), they address the Maastricht Treaty head on questioning whether the originators were idiots (with no exit plan and an implicit hard-currency regime) or potentially more cunning with the strategy to create a true political union akin to the US - though it seems now that Germany (knee-deep in its own vendor-financing-endgame and inflation concerns as deposits flood to the core) are separating themselves - just as people begin to realize just how un-decoupled the world (US from Europe and Core from Periphery) really is.
If there was a dummies guide to Europe's problems, this is it - plain and simple - and as this weekend's elections perhaps reflect "when you borrow too much money as a nation - you become ungovernable - as there is no painless way out."
The initial introductions and background on the general fiat fiasco with a focus around 5:00 on the debt saturation of the world;
At around 7:40 they start discussions of Soros' recent INET conference speech on the Euro Endgame;
The discussion veers at around 10:00 to specifically address Soros reflexivity (not reflexology) and how that fits with the Austrian school (along with a brief diversion on behavioral economics)
The meat of the discussion starts at around 13:50 where the flaws in the Maastricht Treaty begin their dummies guide to the European problems...
The difficulties of Greece (or any other country) leaving the Euro is addressed at around 18:20 (especially noteworthy given the potentially optimal strategy for Greece of an overnight devaluation back to the Drachma which leads to a massively sub-optimal run on every other peripheral nation pre-emptively)...
As the conversation progresses the interdependence of Europe's nations becomes clearer and clearer and it is not until we get to around 28:40 that the dangers of Hollande's election (which has now occurred) and the Greece austerity-revolt - "when you borrow too much money as a nation you become ungovernable" and the true problem of a break in the political compact that will bring Europe to its knees.
At 32:30 they expand on the potential scenarios for the endgame...expecting a very significant drop in the EURO currency relative to hard assets and other fiat currencies (with less concern over stocks interestingly).
At 34:50 - the prognosis - Economic Stagnation and the EU is unlikely to survive...
While we are sure we will hear lots of chatter of decoupling and how small Greece is relative to European GDP, we would hope our recent discussion of this very disingenuous (and always wrong in a world driven by collateral) argument would turn even the most vehement - the US is an island and we're gonna be fine - crisis-deniers.