On The Inevitability Of EU-thanasia

Tyler Durden's picture

Starting from the level of global savings and forecasts by the IMF, Lombard Street Research's Charles Dumas explains to the FT's John Authers how this 'glut' of global savings exacerbated by 'accounting' of negative economic policies is choking economic growth. This fiscal responsibility versus growth (saving vs. investment) argument is nowhere more evident (for now) than in Europe, where the two chaps progress, in this worthwhile clip, to the extremely dispersed (and not at all united) unit labor costs of European nations as the crux of where Europe goes next. In Dumas' words: "people have got to make up their minds how much they are prepared to pay and for how long" and the longer the time where these relative costs diverge the greater the inevitable costs, leaving only two EU solutions: either the 'Irish' mass-emigration/devalue/economic-collapse in the hopes of improving competitiveness; or 'inflation in Germany' - which is abhorrent to the people of that country. The only possible route back to growth in the short-term is an 'amicable' break-up of the Euro - which as Dumas points out is attractive politically to Ms. Merkel heading into next year's election (as opposed to her keep having to back-down again and again). This is in line with our view that when push comes to a big shove, Germany will be the optimal defection from the game-theoretical game of chicken being played in Europe (and anyone who feels the technical measures from the last summit solve the problems, in Auther's words "is being very 'hopeful' indeed").