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The Ugly Truth For Northern Europeans

Tyler Durden's picture


As Europe's exuberance from the LTROs fades (with Italian banks now negative YTD, Sovereigns wider than LTRO2 levels, and financials desparately divided by the LTRO Stigma) Jefferies David Zervos uncovers the sad reality that faces peripheral creditors and Northern Europeans - as we noted a month ago here. The 'success' of the LTRO monetization scheme (as opposed to EFSF/ESM transfer dabacles) is what enabled the Greek restructuring, and as Zervos notes, the losses that the big boys (Spain and Italy) need to take will not be taken via a haircut but a monetization as the number 1 rule is we must always assume that losses will be taken in a way that protects the large northern banks, northern jobs and most importantly Northern politicians. If the loss realization is not managed correctly (and losses there will be), then the ugly truth will escape but the North's large-scale vendor-financing scheme with the periphery will have to continue - even in the knoweldge that the debt will never get paid back.

The income and savings of Northern workers must be ploughed (directly or indirectly) into the rest-of-Europe or the entire structure becomes insolvent and the breaking of that social contract (that they will be looked after when they are old) will inevitably lead to revolt and nasty nationalist political forces being unleashed. The hope to avoid this is the 'wealth illusion' as the workers of the north can never be allowed to realize they have only 50% of their worth in reality. Ireland will be next on the loss-realization-monetization path but as we move from relatively small and containable sovereigns to the big-boys, the idea that Spain and Italy will roll over and accept a decade of austerity in exchange for a haircut is pure folly. These countries hold too much clout in the Eurozone and their threat of
exit is a material threat to the northern jobs and hence northern politicians. The only way the northern politicians will be able to save face when it comes to Spain and Italy is through massive monetary policy accommodation. Inflation will rebalance Europe; but let's hope that the process of restating northern wealth and wage rates does not lead to revolt in the northern streets. The politicians will need to carefully execute this trade.

As we noted a month ago...the sad interconnected vendor-financing, wealth illusion reality that is Europe...

The Ugly Truth - Northern Europeans Have Worked For Naught

While writing at Jefferies over the past few years, I have rarely put forward a bullish case for European investments - bonds or stocks. I recall in the summer of 2011, as sentiment soured quickly in Italy and Spain, I argued vehemently that the Europeans would not let a single country default until they had an effective backstop/firewall in place. Implicitly, that may have been short term bullish, but it was just a bet that chaos would not be unleashed without a proper mechanism to control the side effects in major northern European markets.

The LTROs were the firewalls, and as their success was realized, the case for a managed Greek default could clearly be made. We have now moved past a successful haircut process in Greece. And the poor saps who bought Greek debt anywhere from par down to 30 cents had their clocks cleaned. I don't know how many times I heard from talented money managers around the world that Greek bonds at 70 or 60 or 50 were a great investment. For them, Greece would never be let go - sovereign European debt had the Trichet stamp of "money good". Worthless!

Of course, in the end, it was just a matter finding the right firewall structure before the creditors were torched. And going forward, the rest of the loss realization process in Europe MUST commence - starting in Ireland and then onto Spain, Portugal and the big Kahuna, Italy. In some fashion, creditors to these nations will ultimately be stuffed - either through inflation or a haircut. These countries will never be able to pay off their debts in “real” euros. And as I will argue below, for the big boys, the losses will never be realized via a haircut, but only through monetization.

The most important factor to consider as we go through the remainder of this loss realization process is politics – we must always assume that losses will be taken in a way that protects the large northern banks, northern jobs and most importantly northern politicians. That is the number one rule! German and French leaders can never go back to their voters and tell them the truth. The northern working classes have jobs, pensions, insurance contracts, annuities and wealth that are all tied to the peripheral market's ability to pay back its debts. If the process of loss realization is not managed carefully, then the workers/voters will immediately see the ugly truth.

And what is this ugly truth? Simple - that in order for the mercantilists of the north to have these jobs, and to sell their wares, they have had to put large portions of their income into savings that was backed by the worthless debt of their target export markets. The north has executed a classic vendor finance structure, with no chance the financing will ever be paid back. The northern voters have basically been working for a fraction of their stated wage rate - their politicians have lied, but so far they have not been caught. The masses have jobs, and a social contract that says they will be well-looked after when they are old. That contract however is ultimately null and void.

In the event of a mass default, euro break-up or EMU unwind, this ugly truth will become immediately transparent. The entirety of the northern financial system will be insolvent - pension funds, annuities, insurance contracts, and most importantly, jobs will be destroyed. The workers/voters of the north will quickly realize that all their toiling and saving over the last few decades was for naught. There will be revolt in the streets and some very nasty nationalist political forces will be unleashed. This is by far the most frightening risk in the European debt crisis evolution process.

While there is always a chance that such a horrific outcome could come to pass, it is certainly NOT the most likely path forward. Northern politicians have no incentive to come clean with what they have done. They will instead use every means necessary to ensure that "wealth illusion" is preserved in northern Europe. The workers of the north can never understand that they really only have 50 percent or less of their real current wealth.

As stated above, the best way to predict the way forward in Europe as a whole is to look at the political process in the north. Greece was cut off and eventually let go because it suited the political goals of the north. Vilifying Greek largess was much easier than blaming corrupt northern lenders and defense contractors. Greek debt was the fuel that generated many northern jobs - but no northern voter wanted to hear that. They wanted to blame someone else for their financial sector woes. Importantly, the leaders of the north concocted a way for Greek debt to be extinguished without transparently destroying northern wealth or jobs. The EFSF, ESM and LTROs were all part of the obfuscation process. And the transparency of the transfer process in the EFSF and ESM never took hold, it was only the monetization process of the LTRO that finally did the trick. That is important! Monetization works well and sells well – transfers do not.

The next loss realization will take place in Irish sovereign debts that were originally racked up by Irish banks - remember the ones that require payments of 2 percent of GDP in perpetuity back to northern creditors. If the Irish play ball, and insure that their economic competitiveness is shredded via the fiscal compact in this coming referendum, then maybe they will get some payment relief. In other words if they agree to policies that ensure northern jobs are not threatened near term, then their debt service will be reduced. That trade off works for northern politicians – they keep the northern job market healthy and slowly take the losses associated with bad peripheral lending. Again, Irish debt haircuts can probably be contained like the Greek ones were – they are small enough in the grand scheme.

What the north cannot have is immediate losses in voter wealth followed by a surge in competitiveness from the south. If that happens en mass the northern politicians are dead - the jobs and hence the votes are lost. They need to keep Greece, Ireland and the remaining peripherals uncompetitive while they go through this loss realization process. That is the only way northern jobs are preserved. This is why we see a non-stop obsession with austerity in exchange for debt relief.

But as we move away from Greece and Ireland, the loss realization process becomes much more complex. In Greece, the north was able to control the political process - but others will recognize the benefits of a competitive devaluation. Maybe Ireland steps up, and wrestles control from the Euroarea leaders. Maybe the voters recognize that those debts at Irish banks were the fuel that created German jobs. Or maybe the Irish fall down like Greeks and let the Euroarea leaders hold their economy hostage for the next decade. It could go either way frankly. But the idea that Spain and Italy roll over and accept a decade of austerity in exchange for a haircut is pure folly. These countries hold too much clout in the Eurozone and their threat of exit is a material threat to the northern jobs and hence northern politicians. A Greek, Portuguese or Irish threat is simply not relevant.

The only way the northern politicians will be able to save face when it comes to Spain and Italy is through massive monetary policy accommodation. The ECB will yell and scream, but the loss realization process will have to go through the Euro, inflation and the traditional forces of financial repression. Italy will not exchange a haircut for a decade of austerity. They don't have to! In addition, an Italian or Spanish haircut will make the debt for jobs trade too obvious. It will hit the northern saver transparently and aggressively.

The north cannot allow their financial system and their voters' wealth to be transparently destroyed via Italian and Spanish haircuts. The process of default break-up and exit cannot escalate - it will be political suicide in the north. As we have argued many times, there is a reasonable chance Greece, Ireland or Portugal exit. In fact, political forces in north may benefit strongly if they leave. But the idea that Spain, or especially Italy, could leave is another matter entirely. Euro area inflation will almost certainly be used to solve Italy and Spain's competiveness and indebtedness problem. Of course the side effect will be wealth destruction and inflation in the north.

One way or another wealth will be transferred from the north to the south. And the most important point is that stated northern wealth is simply a mirage. They never really had it and they have been working for many decades for a wage rate that is a small fraction of the advertised level. The only way a northern worker was able to be paid such a high "stated" wage is that a big chunk of the paycheck went to feed a pension and savings structure which was recycled into worthless peripheral debt. Inflation will rebalance Europe; but let's hope that the process of restating northern wealth and wage rates does not lead to revolt in the northern streets. The politicians will need to carefully execute this trade.


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Tue, 04/03/2012 - 08:58 | 2312501 vmromk
vmromk's picture

I still say FUCK YOU Bernanke.

Tue, 04/03/2012 - 09:00 | 2312503 GetZeeGold
GetZeeGold's picture



Contrary to the ugly rumors...he is not a Northern European.


Tue, 04/03/2012 - 09:06 | 2312526 battle axe
battle axe's picture

ie: Germany get the hell out of there and ring fence your banks, because the hammer is coming down. 

Tue, 04/03/2012 - 09:30 | 2312586 ATM
ATM's picture

It's too late for them. What those banks "own" is empty promises or outright lies and everyone knows that.

what's interesting to me is that as I read through this I could substitute 'US' for "northern europe" in almost every instance and the thought process worked perfectly.


Tue, 04/03/2012 - 12:04 | 2313229 LowProfile
LowProfile's picture

Think you meant "US pensioners".

Not to mention "PBOC".

Tue, 04/03/2012 - 12:38 | 2313370 Nussi34
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"but let's hope that the process of restating northern wealth and wage rates does not lead to revolt in the northern streets. The politicians will need to carefully execute this trade."


Let´s hope there will be revolt and the bastards that led us there will be hung!

Tue, 04/03/2012 - 12:53 | 2313433 Madrid2020
Madrid2020's picture

As Rajoy in Spain is prone to say "Those balls in my hands are German!" Now cough,or better yet cough up!

Tue, 04/03/2012 - 09:16 | 2312549 vmromk
vmromk's picture

He is a swarthy SCUMBAG not fit to lick the shit off my shoes.

Tue, 04/03/2012 - 09:07 | 2312531 Nussi34
Nussi34's picture

I still say FUCK THE PIFGIBS and the crappy calculation unit called Euro. The Euro is not a currency, currencies do not need to be rescued and also have a value storage function, which the Euro does not!

Tue, 04/03/2012 - 10:25 | 2312826 Gordon Freeman
Gordon Freeman's picture

The "Northern Streets"???  What a load of horseshit!  What are they going to do? Throw their croissants?  No, they will roll over, and do exactly as they're told by their overlords, just like the masses here in the US.

Tue, 04/03/2012 - 11:01 | 2312984 Schmuck Raker
Schmuck Raker's picture

Yeah, the French burning croissants would be like Germans burning BMWs....oh, wait...

Tue, 04/03/2012 - 09:55 | 2312677 Tarheel
Tarheel's picture

Germany and other northern european countries should wise up soon and accept only gold payments instead of fiat money for the debt they buy from SPAIN, GREECE, etc. etc.

Tue, 04/03/2012 - 15:40 | 2314291 Archduke
Archduke's picture

hunh? wtf you on about?   eu-rope.


but hey, they have the super-mario brothers.  that should do the trick.


Tue, 04/03/2012 - 08:59 | 2312504 spentCartridge
spentCartridge's picture

Does the UK qualify for northern Europe?

Tue, 04/03/2012 - 09:02 | 2312514 LawsofPhysics
LawsofPhysics's picture

yes, some say that the world is still run out of London.

Tue, 04/03/2012 - 09:08 | 2312532 spentCartridge
spentCartridge's picture

Some say that London isn't the UK.

Tue, 04/03/2012 - 09:25 | 2312572 ZeroPower
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Minus the unfortunate chavs one gets to see here once in a while, the City is quite the place. 

Tue, 04/03/2012 - 10:56 | 2312959 dontgoforit
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Like D.C. isn't part of America.

Tue, 04/03/2012 - 12:55 | 2313446 Madrid2020
Madrid2020's picture

That would be Londonistan! Turbin anyone?

Tue, 04/03/2012 - 09:18 | 2312552 reload
reload's picture

Well, if it is, which I doubt - lets hope the current crop of UK politicians has NOTHING to do with it. They are beyond useless. Who do they take their orders from? looks like global corporate interests and Uncle Sam (CIA, White house, Joint Chiefs etc) to me. Most of the seriously old monied banking families who made their first score with slavery and opium are now too inbred and dissolute to matter. That said the Rothschilds are sharp as ever, with the younger ones (especialy Nathan) leading the family toward the control of Commodity production as well as printing presses. But I dont see anybody really being `in control` as we stagger from one fuck up to the next. Its just a game of `not on my watch` which will continue untill the masses get their heads out of the sand.  

Tue, 04/03/2012 - 10:03 | 2312730 Vince Clortho
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Do you really have a good enough perch to see the inner workings of the Rothschilds and the rest of the CB Elite families?

Tue, 04/03/2012 - 09:31 | 2312590 kaiten
kaiten's picture

Do they say it before or after they took their pills?

Tue, 04/03/2012 - 09:59 | 2312700 BidnessMan
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The Icelanders and Norwegians certainly are out. Not joining the EU is looking better every day.

Tue, 04/03/2012 - 11:48 | 2313183 Ghordius
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the article is about the eurozone, not the EU. different club. Iceland is, as far as I know, still applying for some bigger currency, either the CAD or the EUR.

Tue, 04/03/2012 - 12:55 | 2313455 Madrid2020
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Not really sure it qualifies as European.

Tue, 04/03/2012 - 09:01 | 2312509 q99x2
q99x2's picture

Hear that Germany. Time to make an SS run and round up your banksters.

Tue, 04/03/2012 - 09:02 | 2312511 LawsofPhysics
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What kind of military do the folks in the north have again?  I see a similar North/South rift developing in the U.S. as well.  Most of the U.S. military forces come from the south and california, could get interesting.

Tue, 04/03/2012 - 10:19 | 2312799 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

Law, I tend to see more of an East-West rift. The east coast has very little in common with everything located west of the Mississippi river.

Tue, 04/03/2012 - 10:41 | 2312881 LawsofPhysics
LawsofPhysics's picture

Maybe it is more of a rural versus city folk thing because I travel quite a bit and the "go-getters" in all the major cities are the same.  Moreover, all these cities (in california and new york alike) have their heads so far up the Fed's ass and have huge budget shortfalls they see no options but to believe the recovery is real.

But you may be more right than you know.  Many mid-western and western farmers are getting together (after being burnt by MF Global) and blowback is a bitch.  What's that New York?  You want to feed those people?  Pay up bitchez.  Same kind of shit that got WWI started.

Fri, 06/15/2012 - 08:12 | 2528730 twotraps
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Excellent point, everyone is broke.   I've been saying that politicians at all levels have more PR problem than anything......they KNOW there are no real consequences to their economic  actions, but it would be really bad if everyone found out that its a Giant Pretend Account that doesnt really matter.

Sat, 04/07/2012 - 23:51 | 2325530 wee-weed up
wee-weed up's picture

East-West rift? Ha! You've obviously never lived in the South.

Tue, 04/03/2012 - 11:46 | 2313109 Ghordius
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in europe? separate (small) armies - separate (small) navies

and of course many, many, many US Army, Air Force and Navy bases

Tue, 04/03/2012 - 09:02 | 2312513 Irish66
Irish66's picture

Good read

Tue, 04/03/2012 - 09:36 | 2312516 Mercury
Mercury's picture

The workers of the north can never understand that they really only have 50 percent or less of their real current wealth.

"He who defects first, defects best" is true at the individual level too...

Not that your average European is in a position to withdraw his/her pension up-front and convert it to hard assets but one must do what one can...

But I think that the larger game will get ugly to the extent that Northerners demand (and receive)  hard asset collateral in return for Southern "bailout" funds.  Is this not already the case with Greek sovereign gold?

What the north cannot have is immediate losses in voter wealth followed by a surge in competitiveness from the south.

If only the PIIGS could figure this out.  What better way to fire national pride and stick it to their EU bankster overlords (without bloodshed) than to defect from the Euro, devalue and rebuild their economies starting with the business magnet of cheap labor and favorable tax treatment?

The unavoidable austerity medicine will go down easier when it is accompanied by hard work beneath a strategic banner of “we will crush them in the end” instead of “we must pay for our sins”.


Tue, 04/03/2012 - 09:48 | 2312645 duo
duo's picture

The workers of the US can never understand that they really only have 50 percent or less of their real current wealth.


The wealth existed to provide a small stipend to the retired in the US, either through pensions or SS back in, say, 1960.  Inflation has already sapped that 50% and more.  The wealth was pissed away in Vietnam, Iraq, Afghanistan and the creation of the "Great Society".

Tue, 04/03/2012 - 10:03 | 2312729 Non Passaran
Non Passaran's picture

I don't think that the average European can withdraw their pension money.
You can just transfer it between different "approved" ponzi schemas.

Tue, 04/03/2012 - 11:51 | 2313189 Ghordius
Ghordius's picture

"The workers of the US can never understand that they really only have 50 percent or less of their real current wealth."

AND, following this logic:

"The workers of the US can never understand that they really only have 50 percent or less of their real current debt."

Can't have the one without the other, can you?

Tue, 04/03/2012 - 09:03 | 2312517 GMadScientist
GMadScientist's picture

"Inflation will rebalance..."


Tue, 04/03/2012 - 09:03 | 2312519 swissaustrian
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We in Switzerland are sitting in the middle of all this chaos and can observe how the awakening people of the Eurozone nations or immigrating to our country, because they're trying to escape. This is actually great for us - contrary to what the Swiss right wing xenophobics may say.

Most immigrants - especially those from Northern Europe - are well educatedand hard working people. The young people amoung them do the jobs that we Swiss don't want to do any longer. 

The downside is the domestic real estate market: Population growth, low taxes, ZIRP by the SNB and unhealthy mortgage agreements are heavily inflating prices. This is a massive bubble. 

Tue, 04/03/2012 - 09:46 | 2312640 Sandmann
Sandmann's picture

Wait until the Bundesfinanzpolizei start taking Swiss Bankers like Josef Ackermann hostage - Deutsche Steuerfahnder sind die Kreuzritter der Wohlfahrtsspielbank

Tue, 04/03/2012 - 12:06 | 2313145 Ghordius
Ghordius's picture

Amen - the way they are treating Switzerland again is disgraceful. The way the German SPD is talking about the deal they are cutting leaves me speechless. And they absolutely don't want to admit any criminal wrongdoing by those "Steuerfahnder" that were implicated in the data scandal.

It's a 60'000 leeches strong state inside the state, hellbent in making the German Taxes the 2nd most complicated and absurd collection of laws and decrees of the world... An army of red parasites.

Though in the case of Jo I'd say the Swiss should say "keep him"...

Tue, 04/03/2012 - 19:34 | 2314260 Archduke
Archduke's picture

the money laundering offshore tax haven secrecy jurisdiction swiss deserve it.

but really, all this is preparatory work to set up complete fiscal integration in

the eurozone.  it's inevitable.  get used to the program.

Tue, 04/03/2012 - 09:04 | 2312522 Freegolder
Freegolder's picture

'the ugly truth will escape but the North's large-scale vendor-financing scheme with the periphery will have to continue - even in the knoweldge that the debt will never get paid back.'


Nope, I think that's wrong.

You think in short timescales, try to think a little longer term. The Eurosystem is just biding its time.

Once the dollar has collapsed in a few years, and gold is valued at physical-only prices (c.£55,000 in today's terms) then the European debts will be settled in full, as indeed will many others around the world. Debtor countries will give up some of their gold stash to creditor countries.

It won't happen now of course, as gold's true value is hidden by layers of paper.

Tue, 04/03/2012 - 10:57 | 2312961 FeralSerf
FeralSerf's picture

£55,000 gold would be the realization of the truth that the pound and the euro aren't worth what most people think it is and ditto for other assets that are valued comparably.  Gold is not really worth more, the money, the pensions, the  debt and the other assets that are valued in that money are worth much less than currently advertised.

£55,000 might be a bit on high side at the present time though.  I think valuations lie more likely are around 75% lower, or in other words, about $7,000 gold.  There will be further decreases in valuations due to the destruction of available capital from military adventures and wealth transfer schemes though, which could get to £55,000 eventually.  It's a moving target.

Fri, 06/15/2012 - 08:16 | 2528738 twotraps
twotraps's picture

Great reminder, I mention that to people and they cannot get it.  I ask them to think about Italy years ago when it took 1200 Lira to get a fucking coffee.  Is coffee really expensive or does it just take more and more and even more worthless shit to pay for it??

Tue, 04/03/2012 - 11:41 | 2313160 Ghordius
Ghordius's picture

shhhhht.... freegolder, quiet! be a chap, bash the EUR a bit, too! otherwise more LTRO and other shenigans are needed! ;-)

Tue, 04/03/2012 - 09:07 | 2312528 q99x2
q99x2's picture

'The north has executed aclassic vendor finance structure, with no chance the financing will ever be paid back'


I'm taking my pell grant car shopping today.

Tue, 04/03/2012 - 09:07 | 2312529 CheapBastard
CheapBastard's picture

It's alot of work to shift that much money from people who actually work and produce to bankers vaults.....lots of talking, meetings, 7 course dinners in Brussels, hookers, sleepless ain't easy.

Tue, 04/03/2012 - 11:02 | 2312985 FeralSerf
FeralSerf's picture

Seven course dinners in Brussels are not that unpleasant especially with the right wine to wash them down.  I would volunteer for that.  The meetings and sleepless nights are another matter.

Tue, 04/03/2012 - 09:08 | 2312534 the 300000000th...
the 300000000th percent's picture

I say fuck you Bilderberg group

Tue, 04/03/2012 - 09:13 | 2312545 battle axe
battle axe's picture

Hey, don't be too hard on them, they have a great chef, and the cocktail parties are a hoot. 

Tue, 04/03/2012 - 10:40 | 2312878 theMAXILOPEZpsycho
theMAXILOPEZpsycho's picture

yeah can't wait till the next meeting, hope they do that toga party again with the underage hookers

Tue, 04/03/2012 - 11:44 | 2313169 Ghordius
Ghordius's picture

that's banksters and you forgot the cocaine - bilderbergers are stodgy, often too old for the toga party and mostly very, very scared at the moment - you just have to glimpse the list of the people they invite at the meetings, nowadays...

Tue, 04/03/2012 - 09:12 | 2312536 SheepDog-One
SheepDog-One's picture

So what does this article really conclude? I guess that none of it has worked, theyve robbed the peoples pensions and savings to hand riches to the bankster scums, and now 'monetzation is good' the politicians have to 'trade it very carefully' while 'inflation re-balances things'? 

I dont get it, I think they should round up all the banksters and politicians and kick the shit out of them. 

Tue, 04/03/2012 - 09:13 | 2312541 BLOTTO
BLOTTO's picture

Our society has been hijacked and inflitrated on all major fronts. 

It is slowly, drip by drip, getting worse and it wont stop until the agenda is met - total enslavement and control.

Nothing uglier than that.

Tue, 04/03/2012 - 09:12 | 2312542 VonSalza
VonSalza's picture

"This is the North"

Tue, 04/03/2012 - 09:12 | 2312543 PaperBear
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"the idea that Spain and Italy will roll over and accept a decade of austerity in exchange for a haircut is pure folly"

The recent rioting in Greece is hardly the rolling over of the Greek people, they are only gettig started at getting angry at being sold down the river.

These banks must simply be told to take the loss of the debt, it isn't secured debt is it ?

Tue, 04/03/2012 - 09:12 | 2312544 Olympia
Olympia's picture

Those who won all battles shall lose the war.

Bilderberg Group and the crimes against humanity.


This is how things work in all countries. Whatever used to belong to their people, today it belongs to the multinational companies of the Club. People were betrayed by their given leaderships and they lost everything. Capitals and markets were handed to the Club bosses. If you understand what is going on in Greece, you can understand what is going on in Britain, France, and Germany etc..



Tue, 04/03/2012 - 09:20 | 2312558 Hedgetard55
Hedgetard55's picture

"Inflation will rebalance Europe". Yea, like it rebalanced Zimbabwe and Weimar and Argentina.


Tue, 04/03/2012 - 09:22 | 2312564 Joe A
Joe A's picture

And perhaps that was the plan all along with the EU and the Euro: to make everybody equal. Equally poor and oppressed (except for the happy few of course).

Tue, 04/03/2012 - 10:50 | 2312926 dontgoforit
dontgoforit's picture

Sounds like Obama's plan, too.  Hmmmm.

Tue, 04/03/2012 - 09:24 | 2312566 cullino
cullino's picture

I think we have gone past the point of no return. Eventually all this debt in the euro system will eventually lead to the euro zone splitting up as the repaying of this commitments are unsustainable. Even Germanys commitments when all factored in are enormous and I don't believe the German taxpayer will accept this for much longer.

Tue, 04/03/2012 - 09:38 | 2312611 DutchDude
DutchDude's picture

As long as sheeple have (free) money and a house in the north; they don't give a sh*t. Only at the true endgame they will start hitting the streets; when it's all a done deal; all power taken away from national elected governments and protected in the ivory towers of ESM-style bastards.

Debt to the moon; when avarage debt/gdp ratio become too high, they'll raise the tresshold and all is fine; print, borrow, inflate some more; print some more; it will take some time; but the game will keep rolling...kinda... Middleclass destroyed slowly until there are only poor and elites left. Back to the darkage...

Tue, 04/03/2012 - 09:44 | 2312636 Sandmann
Sandmann's picture

Maybe in the Netherlands but other places find petrol hard to get and food prices it looks as if the answer to this new Transfer Union the Dinosaur Parties have created is that The Pirate Party now trades on 12% in German Opinion Polls threatening the Corporatist Parties with oblivion. Though personally I think the future of Europe is National Socialism, an updated version with probably fewer of the lunacies of the original version, but I cannot see any other option of these nations are to avoid total disintegration of the kind that preceded the Treaty of Westphalia in the Thirty Years War

Tue, 04/03/2012 - 09:52 | 2312662 DutchDude
DutchDude's picture

Could be... in the Netherlands, the Freedom Party has 20% of the votes already; VERY national orientated; anti-EU. BUT they are support the government who have to push trough 34bln in austarity this year. People blame the right-wing government and are likely to vote left in the next elections; not knowing jack sh*t about politics. Left-wing parties are pro-EU but against austarities; they believe the 3% rule should be bent for Holland; like that's gonna happen :')

But after that; no party can regain our wealth; and that's when it's gonna get nasty in here; when they HAVE to make budget cuts in a declining economy. When even the socialists can't protest the unemployed en uneducated. That's when the Freedom Party will step in big time...

Scary times... that's for sure; i don't own a house; don't own a car, don't have any children and i'm packed and ready to get the hell outta here when SHTF!

Tue, 04/03/2012 - 11:07 | 2313017 Olympia
Olympia's picture

Starting with Germany being the only country that had a really huge debt, all the other states followed and adopted Euro and therefore became indebted to the ECB. Then, Germany was trying to sell at any cost its product to everyone, so that it turned its own huge debt into an aggregation of the other countries’ debts. It tried to “afloat” by “sinking” all the others.

Actually, this means that there is no difference in Dollar and Euro is the same currency since it is “produced” by the same photocopying “machines” and it covers the needs of the same economy in the same area is the same currency, since it belongs to the same people. It just has a different name depending on which side of the Atlantic it is circulated is a mirage. 


Tue, 04/03/2012 - 11:31 | 2313121 GeneMarchbanks
GeneMarchbanks's picture

'Actually, this means that there is no difference in Dollar and Euro is the same currency since it is “produced” by the same photocopying “machines” and it covers the needs of the same economy in the same area is the same currency, since it belongs to the same people. It just has a different name depending on which side of the Atlantic it is circulated is a mirage.'

Certainly it's the biggest FX mirage. Forex will become obsolete soon enough.

Tue, 04/03/2012 - 11:59 | 2313214 Ghordius
Ghordius's picture

au contraire, my friend! Forex will, IMHO, surge to feverish levels if not contained by financial controls

the EUR is the little girlfriend of the USD, helping out with blood transfers (hence Ben must show that some "blood" flows back)

depending from how Mr. Dollar's sickness evolves she might or might not waste away... it's a currency war, they are strange

in fact, I often think that they often escalate to trade wars because politicians become tired of thinking through currency wars

Tue, 04/03/2012 - 12:14 | 2313269 GeneMarchbanks
GeneMarchbanks's picture

Let me be more clear, Forex trading might continue to boom while purchasing power diminishes no matter what.

Tue, 04/03/2012 - 15:36 | 2314274 Archduke
Archduke's picture

you can buy petrol with dollars.  fortunately europe has lots of energy sources to mitigate this.

freight transport is the bitch.  nothing can replace oil for that.



Wed, 04/04/2012 - 02:39 | 2315559 Ghordius
Ghordius's picture

I'm not that sure - a new love affair with trains is an option for europe, with it's quite dense electrified railroad network and mostly concentrated & high-density agglomerations

and heavy trucks can run on natgas - I am still quite astonished we don't have worldwide 20% of all trucks doing so...

Tue, 04/03/2012 - 09:47 | 2312644 Golden monkey
Golden monkey's picture

Tyler, please do a short review of the euro printing facilities.

Are there some forms of bunga bunga going on at night time on the premises?

Tue, 04/03/2012 - 09:52 | 2312657 Colonial Intent
Colonial Intent's picture

ECB reveals new plan to save Euro

"If member states leave the Economic and Monetary Union, what is the best way for the economic process to be managed to provide the soundest foundation for the future growth and prosperity of the current membership?"

Tue, 04/03/2012 - 10:00 | 2312705 RoadKill
RoadKill's picture

This post makes a great point - and one that an ex-boss of mine used to make about US vs Asia.  Over the last 10 years the US has outsourced all of its manufacturing of low value add widgets to Asia.  We have bought these mainly on credit (just compare US imports to China vs China purchases of UST).  We in turn have used our resources to invent the internet and most of the world's next great businessess.  And when it comes time to repay Asia.  Sorry buddy - its not my debt!



Tue, 04/03/2012 - 10:41 | 2312856 i-dog
i-dog's picture

Is this some kind of 'reverse psychology' ploy on the part of Zervos? What a load of piigs' swill!

Get out before you lose everything, Germany! Stop trying to teach the piigs to dance: You'll end up covered in mud and it just annoys the piigs!

Tue, 04/03/2012 - 10:44 | 2312892 sangell
sangell's picture

Edward Hugh makes an interesting case that the problem will be 'solved' via ELA. That Greek, Irish etc Central Banks will just print Euros to fund their banks with or without ECB approval. No one will leave the Euro because that would force recognition of losses including on the official sector.

Tue, 04/03/2012 - 10:46 | 2312904 dontgoforit
dontgoforit's picture

At the root of it is this: politicians are fearful for their lives.  If they do the right thing, there's always gonna be some looney-tunes freak with a perceived grievance who's gonna go hunting.  Consequently, the politicians will do what is most cowardly and expedient.  There you have it.

Tue, 04/03/2012 - 11:00 | 2312979 Olympia
Olympia's picture

Global Debt Crisis

The greatest private fraud of human history.
Who are the great fraudsters who are becoming the murderers of the human kind? How does the economy "illness" threaten Democracy and the freedom of people?
By knowing what happened in indebted Greece, where loan sharks created “bubbles” and the current inhuman debt, one can understand the inhuman plan in total ...understand where this plan started just to bring all states at the same end ...understand how this type of plans are established...


Tue, 04/03/2012 - 11:28 | 2313107 tom
tom's picture

An insightful piece, but it falls down on two crucial points.

To rebalance through inflation, there would have to be both wage and living-cost inflation in the north, but only living-cost inflation, and no wage inflation, in the south. Inflation doesn't work that way. Euro inflation does nothing whatsoever to rebalance imbalances within the Eurozone. The only way southern wages could be held down amid inflation is if local southern austerity was implemented simultaneously with Eurozone-wide monetization and inflation. But local southern austerity can just as well be implemented without or with little Eurozone-wide inflation, and that's much more politically palatable, in both north and south. And that's what's being tried, albeit too cautiously and slowly to work.

Austerity does not reduce competitiveness. On the contrary, the vendor finance scheme is exactly what is making the south uncompetitive. Stop the vendor finance, allow the market to set wages in the south, and allow asset prices to plummet in he south, and it will regain competitiveness, much faster than now seems possible. Perhaps the author's right that the north is afraid of that, but that's a reason to continue the vendor finance and avoid austerity, not a reason to impose austerity. The north is not imposing austerity. Markets are trying to impose austerity and the north is stepping in with lending aid via the EFSF and ECB to avoid that natural imposition of austerity.


Tue, 04/03/2012 - 11:55 | 2313204 Canucklehead
Canucklehead's picture

This article is a pile of crap, written by someone with the social skills that come from shirking hard work and laughing at the fool who tries to "do the right thing".

Clearly, the obivious endpoint to this article distills out the essence of the writer's thoughts... a new "Strong Man of Europe" needs to step to the fore and correct all the many wrongs brought about by irresponsible democratic acts.

It ain't going to happen.  All the hand wringing will result in the PIIGS being forced into societal change so they more closely resemble the successful part of Europe.

The path of the future is a multi-cultural global society that closely resembles the United States of America.  There, every opportunity (good or bad) is acted upon.  Societal change culls the herd.

Tue, 04/03/2012 - 12:11 | 2313260 NEOSERF
NEOSERF's picture

Occurs to me that with all the funny articles around the size of Apple and Exxon and how much bigger they are than this or that company, is that they actually are becoming supra-national lords with countries as their fiefdoms.  They keep their monies floating outside the grasp of any one country.  As more and more countries age and have more of their populations on the dole that cannot be paid for with taxes, the spending of the countries on ipads, prescription drugs, barker loungers etc., will move intranationally to the coffers of these companies.  Take Greece for example...plow northern europe taxpaer monies of $120b back into the banks and some of it leaks out for food and gasoline but with a country that can't pay its bills, the money is hoovered out to company savings accounts.  The collective savings of the country and all the bailout money sent in by richer countries taxpayers filters out to companies that provide basic services.  The Apples and Exxons will continue to expand until countries break the cycle of IOUS to banks, that buy their government debts ad infinitum until they go broke and the input feeds stop.  The difference is that Exxon in 1930 was completely within the US political sphere's power, not sure that is the case any more....

Tue, 04/03/2012 - 12:18 | 2313265 JOYFUL
JOYFUL's picture

You were doin great till

"The north cannot allow their financial system and their voters' wealth to be transparently destroyed via Italian and Spanish haircuts. The process of default break-up and exit cannot escalate - it will be political suicide in the north"

Really great. Everything about the wealth erosion of northerners and the political ploys to keep them in the dark was bang on. But from that quoted paragraph onwards, your acuity of vision went south...

and you can't steer a ship just by latitude alone. Many Europeans and an even higher percentage of Norte Mericanos believe that Europe operates in some kind of special exclusion zone where outside forces are only marginally influential. And those that don't tend to get that Washington still weighs heavily, but still manage to forget  the other cardinal direction. 

Money will not be flowing from north to south ol flows where it finds it's natural counterpoint...which in an energy intensive society such as Europe means eastwards... where the energy sources are. And as the money flows east so will the influence of the east move westwards in countercurrent. 

In undercutting the influence of Russia in the slavic zone through it's Balkan incursions, Zato tried to head off the inevitable penetration of Muscovy into the European high tide even reaching the outer marches of Ukrania and Georgia with it's manufactured  Color Revolutions.  But as Steely Dan sang on Pretzel Logic -

Those days are gone forever
Over a long time ago, oh yeah

As Russia tightens it's grip on the European energy circuits, the sad sacks in the Rothschilds owned capitals try an end run with Iranian production as the target...Turkey has succumbed to the pressure now, Tupras supposedly offsetting the 30% reduction of Iranian crude announced this week with Libyan oil....JOKE!  Saudi Arabia will be deluged soon in the oil rich east with Shia uprisings that cripple it's existing production, let alone the hypothetical UPPERWARDS! And Libya will fall into chaos like a house of cards...did they somehow think Iranians are just gonna lay down and die?!?! Europe will starve from of lack of fuel fore that occurs.  $10 gallon gasoline?...try $10 a litre!

NEXT GAMBIT? Ain't one.  It's over.

Watch, as Germany signs pact after pact with the Russians, and the Scandanavians follow.  France, like Napoleon on his hill, no longer matters much. The influence of the eastern, energy rich civilizations is about to pour into Europe like a tidal wave...the western media writes about skilled Greeks heading west to Spain, Argentina, etc., but the fact is their best people are already flowing east, to Moscow, Istanbul, and the other cosmopolitan centres of the rising East.  Italians, Spanish, Hungarians and even more so the Slavs will be following them soon, in search of jobs, security, and a life outside of the rapidly constricting 'freedoms'of the not so democratic Eurozone.

And their countries too will drift gradually into the orbit of the East, abandoned by the northern cousins to their fate once no longer able to purchase the high ticket items, which trade held the pact together long enough to get to this point. And that's the really UGLY TRUTH for called it dead on... mercantilism... those time are gone forever, over long time ago...oh yeah. 

Tue, 04/03/2012 - 13:35 | 2313632 bank guy in Brussels
bank guy in Brussels's picture

Great, thoughtful post, on a great ZeroHedge article

Indeed, the EU - Russia deal is the real smart play, and Germany gets major points for being in the vanguard here.

To hell with the USA and the Americans, ditch them now. The Brits can go with them too if they want to stay America's poodle. - Great to read your acronym 'Zato' - I take it to mean 'Zionist-Nato' - hadn't seen that before. Yes, dump the US, dump Nato, and that pariah state Israel too.

DeGaulle saw this a long time ago: The real deal for Continental Europe, would be an alliance stretching from France to Russia.

Russia, for its imperfections, is truly a European country with a yearning for Enlightenment values. Already, they have no death penalty, for example. Europe should embrace Russia wholeheartedly, right now. It will do much good for both Europe and Russia. - One should mention as well that Russia Today is already the most honest global news service in English.

Sat, 04/07/2012 - 17:17 | 2325038 OpenThePodBayDoorHAL
OpenThePodBayDoorHAL's picture

Amazing to see the Syria situation being kabuki'd for our benefit. OMG Hillary and her minions hand-wringing all about Bad Assad. When anyone can see this is a proxy US/Zato/Gulf Council/Sunni versus Russia/China/Iran/Shiite turf war. The US/Zato spent all their blood and treasure on Iraq, did nothing but score a win for Shiites, no oil was locked away. Then the Libya farce: OMG Gaddafi is the worst guy in the world we have to bomb him right away. How transparent was all that. Nevermind that he had loaned UniCredito billions that they didn't feel like paying back. Now descending back to their tribes and the West scrambling for the crumbs. Three things really matter these days: Energy, food, and water. Treasure and armies just circulate around pretty predictably jockying for control of those three IMO.

Tue, 04/03/2012 - 12:50 | 2313427 GeneMarchbanks
GeneMarchbanks's picture

'NEXT GAMBIT? Ain't one.  It's over.'

Too true. Nabucco would be a start but the policy will continue to be suicidal only until nations become totally ruined. Usually then chaos erupts and the entire thing becomes unglued. Wishing for sanity is tempting but the seriousness of the situation needs to set in first.

Tue, 04/03/2012 - 14:42 | 2313987 Martel
Martel's picture

Fcuk... riots, bloodshed and TEOTWAKI coming to a street near me!? Should I buy that illegal gun from a bitcoin marketplace?

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