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Guest Post: Yet Another Reason Why the Euro Is Doomed
Submitted by Charles Hugh Smith from Of Two Minds
Guest Post: Yet Another Reason Why the Euro Is Doomed
The euro crisis is already concrete in everyday life in the debtor nations, but it remains abstract in the donor nations. Imposing hardship on the northern citizenry to "save" the euro is politically impossible because the "gains" from the hardship are theoretical while the hardships will be immediate and real.
I have previously discussed the many profound financial reasons why the euro is doomed. But there is another political/financial reason why the euro's unraveling is inevitable. To understand this dynamic, we must start with this reality: in the wealthy countries of the north, the crisis is abstract; there is so much wealth and apparent financial stability, the notion that some sort of real-world hardship could actually spread from the southern Eurozone to the north is simply impossible to grasp.
In the nations impacted directly by the crisis, there is nothing abstract about the unraveling; it is now part of everyday experience.
We can distill this profound disconnect between the abstract (northern member nations) and the concrete (southern member nations) down to a simple question: how can leaders of still prosperous nations to whom the crisis is completely abstract in terms of daily life possibly make the kinds of decisions needed to impose hardship on their populations for a "cause"--"saving the euro"--which has no apparent connection to their everyday lives?
The answer is that it will be impossible for political leaders to impose hardships in the real world (higher taxes, austerity, etc.) for "gains" (saving the euro) which are invisible and abstract.
The costs of austerity and much higher taxes needed to fund trillions of euros of bank/sovereign bailouts will be immediately felt by the taxpayers and citizens of the northern "donor" nations, while the supposed gains reaped by saving Euroland banks and bondholders from any losses are at best theoretical: in practice, the real benefits would flow from forcing the banks into recognizing their insolvency and by writing off all the bad debt in the Eurozone, effectively wiping out the banks and bondholders.
Erasing debt also erases assets. But if the debt can never be paid, then the asset has already ceased to exist in every way but a bogus accounting entry.
My interview with Max Keiser and Stacy Herbert (recorded live in Paris).
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This should be good for another 300 bps rally in the Euro cross.
Here's a look at the credit markets. They tell a very different story than the S&P.
http://seekingalpha.com/article/299769-stocks-a-critical-showdown-begins-on-monday
but...but....the sidewalks in europe are made out of gold!
"This should be good for another 300 bps rally in the Euro cross."
Do the bloody "Euro is doomed" articles then stop?
The whole "we need to save the Euro" theme is bogus - it's about bailing out banks and letting Greece fall in a way that "satisfies all involved parties".
The EUR itself does not need to be saved - except from the TBTF banks which see the ECB as a piggy bank to be crashed for profit.
Smith should talk once to a more representative bunch of Europeans inside the EuroZone - no perceived value in a common currency? HA! Do you really think that smaller EU currencies would thrive in this huge speculative pressure zone? Here we remember well how it was before and you know what? No, thanks, we'll keep the EUR for a while...
This article seems to miss the main point: the fine upright northerners don't really have a choice whether or not to subsidize their swarthy, feckless southern neighbors. It's already been done. Their banks already lent huge piles of Euros to those lazy Greeks et al. Now they face a classic choice of whether to throw good money after bad (in illusory hope of making the bad money good again) or end the game and face their losses. The northerners enjoyed a fake prosperity thanks to their banks buying high-yielding PIIGS bonds at 50:1 leverage, and when the game ends, the northerners will have to bail out their banks or lose their savings. No one can just walk away.
Ha ha: notice the word "dreams" in the following recent release:
when are the fireworks supposed to start? my popcorn's getting stale.
These things do drag on a long time... I would have never predicted the trajectory that the equitries markets (bonds too) would have taken way back in the scary first part of 2009.
This WILL end horribly. But, having dragged out so long, that has given me a chance to buy more gold than I had in 2009.
Patience and preparations are key.
The fireworks started last week and it's called the Euro
CHS seems like a nice chap - and he is correct that:
"the real benefits would flow from forcing the banks into recognizing their insolvency and by writing off all the bad debt in the Eurozone, effectively wiping out the banks and bondholders."
And that - equates neither the dismise of the EUR nor EU.
Simple fact.
...writing off all the bad debt in the Eurozone, effectively wiping out the banks and bondholders."
...but that smacks of fairness, aka justice.
...and unfairness leads to chaos, but with privileged exceptions.
Alas, the privileged class has only to make such easy decisions.
Rothschilds disagree on that Euro doom.
The North is indeed rich. Anyone who thinks they will quietly accept severe austerity and higher taxes for NO gain to their present well being is simply dreaming. They will cut the south loose to wallow in their debts. Will the north impose the taxes and austerity to save the bankers and their bond holders? Their leaders may try it, but the people will bring those governments down in quick order.
When they do that, the South will stop sending food, cheap slave labor.... and oil to the north.
Oh, and they will stop buying crap shit from the north too.
Ain't hard to figure out who wins in the end.
I disagree. The northern part of Europe is much stronger than the south. The south does not produce much food anyway. And who would buy wine? Germany.
Re products from the north of Europe. Hey, if Germany cannot sell their BEARINGS to Italy, Greece, et al, than lower the prices, and WE will buy them...
spain, greece and italia produce most of the eurozone's vegetables and fruit.
China is the world's largest wine buyer, followed by the US. Germany is a beer place. Tsing-Tao brewery is about to buy off most belgian and german breweries (it would be more precise to say that China already bought them with the last eurobond purchase, which they agreed to with a fine print which called for collateral of several key industries, beer breweries were at the top of the list, because we all know when all hope is lost, at least you can get pissed drunk to forget your debt!).
When the food riots break out in europe, those bearings you want will be cheaper than chinese bearings.
But then again, the rest of the world will not allow imports from bubonic plague infested eurozone when TSHTF.
yes, every major economic collapse the world has experienced is misteriously followed by a massive plague of biblical proportions. This time, it won't be different.
Most Vegetables are produced in central - eastern europe. Poland, Ukraine, Hungary, Romania etc. So south can stick it up their arse.
As well add to it Ireland, which is basically veggie country, and sweden + denmark, lots of crops there. We will be totally fine, without southern suckers.
there you go some stats
http://epp.eurostat.ec.europa.eu/statistics_explained/images/f/f7/Agricu...
Refresh my memory again about the Great Plague of the 1930s?
You keep writing posts about Europe while you obviously have no clue about the region...
.. or history for that matter.
We're kinda set on oil, thanks. (at least seen from Norway's perspective)
Their leaders may try...
Leaders or misleaders?
Cheerleaders.
The main reason for the eventual demise of the euro remains simple; the less productive, more corrupt nations in southern europe simply cannot compete without the ability to devalue, nor can they pay their debts when they are denominated in such a hard currency.
No matter how the northern prosperous nations perceive the problems of the indebted southern nations of Europe,
the effects of a default of debt in the south will be devastating to all the EU banks, therefore devastating to the
prosperous nations to the north. That is why the only acceptable solution will be ECB QE. That will be soon followed by U.S.
QE and further UK and Chinese QE. The world is on track to devalue all fiat currencies, which means inflation is coming to a
town near you.
Yes.
Yes, ECB QE, been saying this for going on 2 years now. Things will have to get a bit worse first. A while after that, Germany unleashes the Neu D-Mark.
Ummm... Madoff was not a banker, he was a stockbroker...not protecting the bankers or Madoff, just saying....
From each according to their abilities to each according to their needs.
I'm not qualified to do that...gimme something anyways.
My abilities include Angry Birds and drinking.
I agree with most of what you say apart from this bit
Erasing debt also erases assets. But if the debt can never be paid, then the asset has already ceased to exist in every way but a bogus accounting entry.
with a few exceptions like derivatives or some other financial nothingness, solid items will always have a value, even as scrap, and IP or licences would have a value, so even if you erase the debt in most cases you could be left with something
Yes, the world will be left with something....like 7 billion fewer inhabitants.
Rallies are now at their peak. A massive bull-trap shakeout is due.
EUR under pressure now
The Germans are screwed no matter how you slice it, except for the unthinkable. In order for Germany to get full par on her foreign holders as a creditor is to literally sieze foriegn hard assets (i.e. property, historic sites, resources) in lieu of repayment with currency; and that will not happen without the PIIGS populations revolting. Alternatively, if the PIIGS leave the EURO, the Germans get paid back in depreciated local script - they lose. If Germany leaves the EU, the EURO currency collapses relative to the Deutschemark and German creditors get hosed as theire foreign holdings are denominated in depreciating Euros. Germany is screwed.
If I am a bank and I lend a poor man living in a hobble $1 million and he blows all the money on wine, women and crack, and then loses his job, and has his hobble foreclsoed on, and has no assets or savings to speak of, then the bank is out $1 million. The money is gone. The bank cannot get blood out of a turnip. Of course, the bank can coerce the government to assume to loss and spread it out amongst the entire taxpaying population. But in the end, the people and the nation are poorer and weaker. The process is pernicious so when one begins to notice the economic damage in a big way, you can rest assured that it has been going on for a long time and we are very close to the climactic collapse.
Germany is fucked. And the DAX is one that I'm seriously considering going short before next weeks fireworks start. The DAX has rallied 17% from its lows, yet no matter what the outcome is come Oct. 23 it cannot possibly bode well for Germany. They fund the EFSF and lever up the country? Social unrest ensues and debt becomes a drag on growth in the best case scenario. if they force 50% haricuts first, and don't want to socialize the losses in the banking system, they are fucked as total chaos ensues and the dominoes fall faster than I can imagnine. If they force 50% haircuts, and socialize the banking losses, and force austerity on all as they try to usurp control, guaranteed chaos will ensue.
Plus, I don't think the ALGO's are in the DAX quite like they are here. I believe this entire rally, moreso than the U.S. markets, in the DAX is a complete sucker rally. I'm thinking the DAX goes down 50% from here. It's counter to what most think, Germany so strong, strong exporter, etc. blah blah blah. But they have beneftied greatly from the EURO, now it's simply going to bite them in the ass.
The DAX is going down. But probably not this week, next week all bets will likely be on.
Yeah Germany is done. China crunching (yes they are) will take out Germany's export market. They are a hair away from recession anyway. DAX is a very good short, once it hits topped our ranges, it tanks.
It will be S&P that will bring the reality to the show. The manical EU/IMFMerka/Sarkocksy team up ala G20 jerk off will gurnatee a France down grade and put the CDS/bund spread to new blowout levels. Hopefully this will mobilze the German Occupy Frankfurt divisions into action.
The biggest con job Europe has ever witnessed (apart from their bad old commie days) is about to unwind. And yes it will cause a collpase the EUR will be beaten to nothing with the next 3mths. Another major riot/protest should freak out the HFT's like May 6 2010. And this could go down (major protests) in Germany, say Frankfurt
Yes, the CAC would also make a fine thesis for going short. Does anyone remember what happened in U.S. markets when our debt was downgraded? Ah......yes, France is fucked as well. Along with 15 other EZ countries. ROTFL.
That is why those a-holes at the G20 are keeping this quite till market open on the 25th Monday. Cept we know some leaks will come out. My bet, if they don't suggest a 50% haircut on Greek bonds and allow the French/Germans backs to take a hit, I think Germany will erupt via these occupy protests.
...If I am a bank and I lend a poor man..."
But the PERSON who made the loan already pocketed his fees/commissions/bonuses/perks..and to hell with the bank and its stockholders, et al.
The PERSON is not the bank, nor likely the bank's long-dead founder who had skin in the game. The privatized gains come from hollowing-out fat institutions/corporations.
Fraud is a very clear concept.
OMG.
I just found the precise event that immediately precedes the Euro financial collapse, the SPX dive to 700 and exactly when to go long gold and and short the market.
http://www.universetoday.com/18364/the-suns-death/
austerity sucks, BiCheZ!
however, austerity is not backed by the swiss franc and a fleet of clown cars full of finiminis...
Nonsense. What do you think we (Northern-Europeans) are, silly? Our governments have already bailed out banks, pledged money to the rescue fund, etc, and our pension funds have made cuts in payouts. Our public debts have soared and we are well aware of the dangers that southern sovereign debt poses to our financial institutions, and so, to our savings and pensions. It's tough but politicians won't have a hard time explaining that - we already know. Where opinions differ is whether we should bail out PIGS nations or our own financial institutions, and whether we should pay for that through austerity or through increased public debt. There's a strong political commitment to the Euro and to the EU itself and there is a sense of solidarity with the debtor nations (as long as they make the necessary sacrifices). So, I wouldn't expect the Euro to disappear soon.
Meanwhile, what American commentors conveniently ignore in their apocalyptic visions of Europe is Europe's exposure to a de facto bankrupt USA. That's a greater risk to Europe than e.g. Greece is. We have invested trillions in the US bond and stock markets and own more than 50% of American residential mortgages - our losses there are what got our banks and pension funds into this mess in the first place.
Europe is as ready for the Euro as America was/is ready for the Federal Reserve.
The unwillingness of elites, who are the movers and shakers of government, to apply justice rots-out the system...any system.
At least this Northern European is honest enough to admit that our banks and pension funds were speculating for high returns when they mindlessly invested in securitized products in the US and, as is possible with any investment, they lost money. We gambled and lost. The US has been bankrupt for many years but people keep playing the game because it's the same game as it ever was only with bigger numbers. Most of the world, including the Chinese, are not sure what the game is in Europe. They do not want to buy peripheral (which soon includes France, non?) debt until the ECB does but the ECB can't... yet. I just hope my leaders in Vienna have some spare shillings around, we are stocking up on Philharmonics just in case.
Hello Slewie! The Euro is regionalized. " Nothing MORE & Nothing LESS "... The chocolate has no " COW'S?
It takes milk to make chocolate? / NO?
On a lighter note. Buy calls , sell puts. Or is that Sell calls and " BUY" puts?
any port in a storm!
i don't think the short squeeze will last much past the New Year, do you?
I See your point Slewie. It takes some " pirate" , voracity to create a valid port of entry!
Slewie, just stick with consumer cyclicals. You have a family.
luxury retail ok?
L0L!!!
Do not invest this week Slewie! Wait until November. A Friend..
Slewie you can email me hotfx@ymail.com The Tylers", are pretty much spot on in a MACRO way.
Stupid nonsense. USA has even greater income and productive differences between states and cities but somehow it is all dollar zone still. Some places in the US look like Somalia and then some suburbs are at the other extreme.
"how can leaders of still prosperous nations to whom the crisis is completely abstract in terms of daily life possibly make the kinds of decisions needed to impose hardship on their populations for a "cause"--"saving the euro"--which has no apparent connection to their everyday lives?"
Like people living in the Hamptons really "feel" the recession?
The US can pull it off because they have one leader; well that's a loose statement, but you know what I mean. Europe has tons of states all with diferent wellfare programs, etc.
I'm looking at the " Baltic dry", why has no one mentioned that!? FoX hunting time!
Albeit it's not a primary indicator. It's a great denominator.
These darn , Stupendiously Tylers, can surly remove a post!
I spent all this money on a front row seat to the collapse and the show seems like it's starting late. What's the deal? Is Bernanke stalling until his girlfriend gets here?
November 3rd, is Farcical. This will drag on well into the Holidays. It's all about the kicked out politicians and jobs!
There are two big reasons for this. the bailout plans have had dubious results. Secondly, people know by now that any proposed plan won't be the last. They can't overcome the nature of fiat currency.
http://georgesblogforum.wordpress.com/2011/07/19/unnatural-law-fiat-curr...
Its been a long time since I posted this, when will you begin to see your planned future? I don't support. Keep warning and the dear in the headlight look still resonates amongst the herd.
Ministry Messiah
Have fun http://www.thebulletin.org/
Keep loading up on the dow and s&p short etfs. The more this insane market goes up, the more you load up
AT the end of the day, the problem is socialism. BTW socialism es muerte:)
Unless you sign a piece of paper. Then it's a "mortgage."
i swear one of these days that wolf really is gonna show up!
A small part of little Belgium alone (the area around some smal cities in the west) is good for 46% of all frozen vegetable production of the entire European Union, and Iceland EXPORTS fresh vegetables, due to their large greenhouse-towns (free heat and electricity, you know...). I still consider Belgium a part of the "richer North", so I think the North can cope perfectly well when it comes down to food production, if needed, and can be self-sustainable if they wanted.
Trichet was warming up the world for the coming ESM.
ESM will make an united states of europe with immune gouvernors, full secrecy and full mandate over how high the pot of non existing money should be and how to spend it. All de countries allready signed the dreaded treaty, it only needs to be approved bij all the perliaments.
After holland voted for the €440bln efsf, dutch media asked some parliament members is they knew what they voted for. The reactions where scary to say the least:
"support for greece, right?"
"national budget for 2012, right?"
Where a few of the answers. This says a lot about the Dutch parliament members; they have absolutely no clue what the hell is going on and what to do. This is because a lot of left-wing parties have under educated, cross-section people on their list who are pretty good at debating about some minor national issues, but keep on arguing on minor shifts and have no idea how the world works.
Is should be pretty easy to get ESM through parliament, thén Europe is finally doomed...
Same in Germany, clueless idiot MPs.
Yet another piece of clap-trap dooming the Euro?
Do a ZH "Euro is doomed" search and see how many and for how long these piece of shit articles have been appearing.
I am seriuosly getting bored of this UK US MsM and ZH anti-euro fixation bullshit.
Europe is kicking the can down the road too long, macro enocomis differences in a monetarian union, local politics vs european policy demands, burocratic and corrupt european parliament, etc all ingrediënts for a recipe for disaster. It is a miracle it's taken so long and maybe they can kick the can even further, but something's gotta give; it's a matter of looking at the facts.
Damn right. If this EFSF paper thin leveraged fail safe net flies in the next two weeks to save Greek 'uncontrolled' collapse by notching up this hybrid five legged beast to say 2.5 T bad bank status, it will only be can kicking of dangerous magnitude 2008 recession squared or cubed, UNLESS in 2012/2013 EU comes up with a concerted plan to :
1° Create fiscal union amongst 17
2° Create two tier monetary system or re-evaluate exchange rate mecanisms which allow Club MED PIIGS to devaluate their currencies by 30-40% relative to North Europe countries in what will be a 'confederated' structure of nation sates. As the nation state weakens it means transferring MORE democratic power to EU parliament. People representation has to be implemented, not symbolic at EU level, currently run by technocrats.
3° That within EU there is a concerted budget + monetary financial policy to bring back jobs industry to EU, by selective protectionism based on strategic/qualitative criteria, not accross the board tariffs. Growth in BRIC economies has to be linked to growth reversal of industries in EU. Its gotta be "you win in certain areas and we in others, but we keep world growth on a forward plateau."
4° We have to develop a new energy/environment paradigm world wide. Protectiing Air and Ocean and survival of populations on primary necessities has to be, accross continents, a major issue. (Potable water, arable land, local economic stimulation on renewables to avoid costly energy/hi transport component imports).
5° We have to regulate world financial markets, SEVERELY, with prosecution of past criminals, away from casino bubble economy, back to true mercantile/industrial/non financial service sector/government infrastructure induced type economy.
...One helluva shopping list to discuss in this tower of babel that is EU in current configuration!
Live n hope but not as impotent dopes. As proactive citizens.
ESM is totalitarian; no controll but a 3 headed audit crew appointed by the gouvernors themselves; immune tot whatever is thrown at them etc etc... that's gonna be disastrous and WILL cause civil unrest to say the least... exciting times, but i've lost my faith in our leaders quite some time a go. And <1% of Dutch citizens has any idea what's going on. When you tell them, they say you're crazy and everything will be fine, like thát's gonna happen etc.
ESM won't be the saviour of Europe, it will be the final blow to it's disformerd bulgy head!
If a Northern-Euro zone will come into existence, industrial and disciplined Northern Italy will want to be part of it. Italy as a united country may not survive.
Lisbon treaty would demand te northern countries stepping out the EU.
This would make the Euro collaps because the northern countries are the only hope now for the Euro now. Southern countries would be instantly downgraded, banks wil be fubar etc. Northern countries export pretty much to all of Europa, with southern countries pretty much down the drain, stepping out would be a expensive deal. New currency would be over valuated compared to euro, further damaging exports.
Don't think that's gonna happen yet...
The Euro will die sooner or later just like all fiat currencies before it. In the meanime they will make Greece a municipality of Europe which will be under foreign management to ensure that it does not stray financially again and to give the banker capitalists a front row seat in the fire sale of Greek assets.
Not only that, they will also use Greeks as lab rats for every new computerised tax gathering and information gathering system they eventually want to introduce in Europe. If they can control the Greeks, they can ontrol the world.
The Euro reminds me of a college apartment. Couple of guys get together to pool expenses and have more fun.....til one of the greeks starts raiding the refridgerator and takes everyone elses food and then stays up all night partying too often. There are only two possible outcomes. Expell them from the house or break up the house. One or the other WILL happen. No question.
Both the Euro and the Dollar are simply paper promises that people exchange with each other, nothing more. When trust disappears promises are not kept and the system crashes because the paper, in itself, is worth nothing. Money based on solid assets, not promises, is the only legitimate medium of exchange. Everything else, as has been said many times, is simply a Ponzi scheme.