From Mark Grant author of Out Of The Box
The Three Ring Circus
The Golden Rule of the Marketplace
“He who has the Gold; Rules.”
This simple little proverb and what it means will help you to understand what is going on in Europe presently. It will also help to keep you out of trouble as various headlines are flashed across your screen and you either scramble to get out of their way or make some valiant effort to grab on to them as they squiggle past. The European Union has become a tripartite system which is divided into the European Parliament which thinks that a United States of Europe has already been established and they are in charge, the troubled and about to be troubled nations that are scheming, planning and writing wishful theses in an effort to wrestle even more money from Germany and the financially sound nations and finally Germany and her allies that, while dispensing some charity, are determined not to have their borrowing costs rise or their standard of living fall. It is three distinct groups now and they should be viewed in this fashion so you can appreciate what is real, what will likely happen, what is important and what are just fanciful notions tossed about to gather more money from those nations that have it.
First and foremost; nothing is happening in the European Union without the agreement of Germany. They have the gold and they will make the rules regardless of the words bandied about proclaiming brotherly love and the solidarity of the European nations. This is all drivel, just politics and a subject that can be ignored as you concentrate on what is really important. When Germany speaks, on a scale of 1-10 with 10 being the most important; Germany is a 10 and the only 10 on the Continent. I would rate the importance of the French statements at an 8 now heading to 7 and then the Netherlands, Austria, Finland at a 7 while the fluff coming from the bailed out nations at 1 or 2 and Spain and Italy at a 3 or 4. The statements from this or that high mucky-mucky in the European Parliament carry a weighting of 3 and their grand plans of an integrated Europe that they can rule has a value of about 1.5; good for flag raising, speeches to 6th graders and the like but of no real importance.
I think it can be said with accuracy that nothing of importance and I mean nothing will be happening in Europe unless Ms. Merkel agrees and that is just that. This is why that each time some grand design is laid on the table and some new summit to end all summits and each new silver bullet play is brought out and waved like a magic potion that can cure all of the ills of Europe that nothing happens. Germany would have to foot most of the bill and Germany will not do it and if the boys want to muck around in the sandbox that is all fine, let them amuse themselves, but Germany will decide what is what and nothing else matters; really. If you understand all of this, if you get the joke here, you will not wander around making stupid bets and supposing that the headlines generated by Barroso or Van Rumpoy have any real significance; they do not. Of even less significance are the calls in the wild made by the Spanish Prime Minister or any personage in Ireland or Portugal; gasps for breath, prayers in the Chapel heard by no one; the asking for alms disguised as dreams of “more Europe” which is little more than “more gruel if you please sir.”
And now; a little game of “Chicken”
So Greece has a new government and they will be trotting off to Berlin soon. To describe this process as “hat in hand” is an understatement. The three members of the Greek coalition have sat in Athens and devised schemes which I am sure include feint and shuffle plays that are all intended to accomplish one purpose and one purpose only; to get more money out of Germany. They will try “good guy and bad guy” and threats of Default and European harmony and brotherhood and whatever else might work. The Greeks have been doing this for the last one hundred years so they have some skills here but, in the end, it will all get down to money.
The Germans, while they are politely waiting for the Greeks to show up have made their own calculations which one hopes are correct and not based upon the Ponzi numbers that Europe distributes to the rest of us. If Germany believes and acts upon its own jargon then the game will turn out badly as Germany will draw the line in the sand too early and not get the consequences of default right. Greece is a little country with a giant debt that totals approximately $1.3 trillion and small nation or not the size of the debt and the consequences of default are considerable. So the Greeks will beg, plead, threaten, become hysterical and do anything else they can think of to get at the cash while the Germans, with that resolute frown of which they are more than capable of placing upon their Teutonic faces, will calculate the costs and then, at some point during the discussion, make a decision based mostly upon economics but partially upon what is politically possible to get re-elected and then it will be checkmate.
The outcome of this game will center upon if the Germans are willing to give them more money and enough new money to continue on or whether they will not. Extensions of timelines and somewhat easier terms are totally irrelevant now. The Greeks cannot pay back their debts under any circumstances and it will all get down to new money or no new money which can be translated as a bigger debt and the continuation of the tail wagging the dog. It would have to be debt forgiveness and another round of cash to kick this can down the road any further and if the Germans say “Nein” then Greece will have no choice but to default and head back to the Drachma as the only choice that is left to them whether they like it or not. Perhaps Greece remains as one of the EU-27 and not the EU-17 and gets a handout as part of the package but unless the new money is significant; Greece cannot proceed the way thing are because they are virtually out of cash and they have robbed every Peter for Paul in their country to keep themselves afloat to this point. Who was elected in Greece was but a sideshow; the meeting in Berlin is where the cards will get played!
The world is now looking at Spain and Italy thinking that the election was the matter of importance but they are wrong. That event was really nothing more than whether a more or less friendly group of people would be heading off to the people that control the counting house. Nothing more than that. The big event, the really big show is just about to take place now and very few are paying attention as everyone has sighed and turned away and that is a huge mistake in my opinion. It is down to debt forgiveness and more money or default and this is where the holding of breath should begin; the elections were little more than a side show at the carnival of European politics.
The third ring of the circus having now been observed we are about to enter the main stage where the antics of the clowns will hopefully not release the lions and tigers and bears; oh my.