Guest Post: The Next Eurozone Crisis

Tyler Durden's picture

Submitted by Charles Hugh Smith from Of Two Minds

The Next Eurozone Crisis

Europe is currently basking in the temporary calm of official reassurances and half-measures. The calm won't last long.

Two of the more interesting dynamics at work in our world are geometric growth and stick-slip events. Geometric growth (or progression) is also known as exponential growth, where the initial phase accelerates into a steep rise--the famous "hockey stick." Exponential growth is unsustainable and either levels off or crashes.

Here is an example of exponential growth that has not yet crashed: bank assets:

Stick-slip events are of interest because the pressures that lead to sudden, unpredictable rupture are hidden from view. All appears well until the catastrophic break in the Status Quo. Earthquakes are one example: pressure along a fault zone builds to a point that stability becomes instability, and the tectonic plates suddenly slip into a new equilibrium.

Perhaps human crises progress along an exponential curve. I prepared this graphic to depict the progression of human crisis from denial and phony reforms to half-measures and official reassurances to the final phase of uncontrollable crisis and a crash to some new state of equilibrium:

The eurozone is currently in Phase II, basking in the temporary calm of official reassurances and half-measures. Notice that the crisis level, the pressures building beneath the surface, are significantly higher than the initial crisis phase.

In the third and final phase, pressure skyrockets as the time available to reach a new equilibrium is compressed. If we boil away the distracting propaganda and complexity, the European crisis is not one of dodgy debt; it is two interlocking crises:

1. An inherently unstable currency that the Powers That Be in Europe are attempting to stabilize by brute-force money-printing and public-relations artifice.

2. The European model of generous social welfare is breaking down for demographic and financial reasons that are independent of the euro currency crisis. Two workers cannot support one beneficiary, and no state or aggregate of states can borrow enough to mask this reality for long.

Financialization and the build-out of China provided Europe the illusion that the worker-to-retiree/beneficiary ratio could fall to 2-to-1 and be maintaned indefinitely. Now that the fast-growth phase of China's build-out has ended, and the disastrous consequences of financializing everything under the sun are apparent, the illusion has run aground on fiscal reality.

Expectations that have been raised to unrealistic levels for decades are now in the process of being adjusted down to reality, and everyone who felt entitled to promises that cannot be kept is angry, frustrated, disillusioned and seeking a scapegoat for processes that are running entirely independent of the leadership of the moment.

How long will this false calm of official reassurances last? Nobody knows, but if crises track an exponential curve like so many natural dynamics, the next phase of the Eurozone crisis will quickly reach escape velocity and accelerate beyond the reach of politicos and PR.

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idea_hamster's picture

FWIW, geometric and exponential growth are not the same:

Geometric: y = x^2 or y = x^4

Exponential: y = 2^x or y = 4^x

True exponential growth is uncommon and eventually outstrips geometric growth regardless of the parameters of each system.


sockratte's picture

not really uncommon. in nature you will find exponential growth everywhere. of course it also finds a natural end...

Bunga Bunga's picture

Exponential growth is policy of Federal Reserve and government. Their goal is to reach a "constant" growth target. "Constant" growth means for them adding every cycle a proportional fraction of the total, e.g. every year 3% of current GDP:

GDP'=GDP*(1+[rate of growth per t])^t

which is essentially the same as:


Geometric growth would mean adding a constant amount to GDP, e.g. every year $500 bln.

Exponential growth is not uncommon, it is even a target of economic policies.









Twiggles's picture

and we bitch that leaders are mathematically illiterate?

geometric growth is exponential...


"Geometric growth would mean adding a constant amount to GDP, e.g. every year $500 bln."

False, this is linear growth.  Assuming you mean quadratic; quadratic growth would be to say:

"the amount by which we increase spending every year increases by a constant amount"

Bunga Bunga's picture

You are correct, this is linear growth. I mixed constant value increments up with equal intervals of definition.

Twiggles's picture

Geometric and exponential growth are the same.

y= x^2 is quadratic, which is not geometric 


seriously guys.

lasvegaspersona's picture

my excuse for not correcting you earlier is that I last thought about math (my college major) the day I graduated = let me see x+1...or so...

I am grateful everyday that it does not require advanced calculus to be a doctor....

Dareconomics's picture

The Europeans are lying about their fiscal condition, and the mainstream media is eating it up:


Charles is right about the catalyst for the crash being hidden from view. Remember Greece? In the cradle of democracy/eurocrisis the fraudulent accounting brought to light by the change in governments is caused the collapse. It is no different with Spain, and it will be no different in Italy, France and whatever domino falls after that.

When people are ready to discard their delusions, they will see the true extent of the problem, and the whole thing will run right off the rails.

LMAOLORI's picture



+1 about the debt so up arrow I think they can keep this charade up for much longer then people think though it all depends on what method they use to default on the debt

Major Insider: The Vast Majority of Global Debt Will Be Defaulted On


US Meltdowns: History Lessons for the Euro


Pooper Popper's picture

Feeling very neighborly today!

Wont you please,wont you please?

Please wont you be my Neighbor!

Hi Neighbor!

BlackVoid's picture

And why only Europe?

The same curves are everywhere for all countries.

RSloane's picture

Please!! I cannot keep up with the current Eurozone Crises let alone examining future ones. I just got adjusted to envisioning the Eurozone as the ground on which the mother of all populist riots would take place, but now you're saying its just going to implode into one gaping stinkhole.

q99x2's picture

Maybe they can apply mechanical resonance to rehypothecation and contain infinity within a greater infinity thereby increasing the time to make their escape away from the gallows that await them.

CrashisOptimistic's picture

Wait a minute.  Who said the present crisis is over?

Did the Troika send a check for the next tranche to Greece?  I thought they missed their targets.  If the next trache doesn't send (and the Dutch said absolutely NO in their campaign) then Greece can't service the debt to the IMF and EU and ECB and it all blows up.

That's resolved?

adr's picture

The worker to lazy ass government tit sucker ratio in the USA will hit 1:2 very soon.

We already have over 160 million people deriving their income from the government. Full time jobs, minus government jobs, are rapidly falling towards the 50 million level.

Can 50 million people support the welfare lifestyles of 200 million while still being able to provide for themselves?

My answer to that question is a giant no.

Darth Rayne's picture

I think that for every worker we need two retirees, three health workers, four government employees and five unemployed young people.

This should see us through to 2020. I've run the numbers, twice, on my Ben Bernanke Calculator. Everything is fine.


You zero hedge people see problems everywhere.


By 2020, technological advances and mumble mumbe mumble will mean that we now only need one worker for every three retirees, six health workers, eight government employees and ten unemployed young people.


Run the numbers. Honestly, Ben knows best otherwise the President wouldn't have chosen him.


Goatboy's picture

Why constantly insisting on ratio of workers vs people on benefits? What value does that have devoid of context?

500 years ago similar claims could be made that ratio of peasants growing food vs aristocracy is dangerously low, say 2:1. What does that have to do with reality of today when ~2% of population produce food for domestic consumption, fuel production and export!

Face it, whether you like it or not, today there is no meaningful production/service role for ~70% of developed countries citizens. Or do we need further consumerism brainwashing and unsustainable exponential growth just to justify "economic" theory of bygone era? Of jooobs and slave master's insistence on "work ethic", always for someone else rarely for their own children.

Tough question is what to do meaningfully about it to usurp and distress as less people as possible.. not reshuffling and bowing to old gibberish of unemployment and worker:beneficiary ratio.

aleph0's picture

"1. An inherently unstable currency that the Powers That Be in Europe are attempting to stabilize by brute-force money-printing and public-relations artifice."

Brute force and ignorance I would say !

payment expert's picture

We have been watching carefully since the Eu crisis has began arising, an interesting trend is the Do not Honor decline response from overseas (non eu) banks as per honoring purchases from Eu acquierers which is incresing on the monthly analisys. These is only corroborating the fears on Eu Banking from the foreign perspectives as banks may become too week to honor their commitments. source:


Nobody For President's picture

Full unemployment, BitChez!

The Employment Act of 1946 stuck the Federal Guburnmint with the chore of price stability and full employment as a goal of gobernment policy.

Forty some years later, and continuing to nowish, the US has been exporting jobs and allowing its messy manufacturing to die as we transition to a 'service economy'. Well, we have arrived - real unemployment, underemployment, and labor force participation rate make the consequences of NAFTA and all the rest very clear; and things ain't getting much better with the rise of robitics.

So what we need is a Full Unemployment Act of 2013. With the fiscal cliff ahead, we may get it whether we want it or not.