Via Mark J. Grant , author of Out of the Box,
“If I speak, I am condemned. If I stay silent, I am damned!”
As we all await the next, next, next meeting of the European Finance Ministers and our eyes are turned to Spain and what machinations are going to be brought to our attention, I wonder if actual decisions are going to actually be forthcoming. These people “applaud and hail and congratulate” each other on various non-accomplishments and they tap dance on the world’s stage as if each and every problem is not only solved but light years behind them while there are giant dificulties to their forefront that are largely ignored in the continuing attempt to obscure everyone’s field of vision. I remain skeptical however; I can see just fine thank you and it is not the poppy fields of Oz at which I stare.
The giant firewalls that were supposed to protect the Continent failed and failed based upon the premise that I verbalized at the time when Europe and the IMF were trumpeting them as the solution to the problem. They failed not because they were not big enough to keep the speculators at bay but because the speculators were never the central issue. The main issue was the financial health of Spain and Italy and the charade of economies that were bloated by social programs and ledgers that were debased by financial engineering such as the “dynamic provisioning” that was and is used in Spain. I think it can be said with a good measure of certainty that one of the primary reasons that Spain is resisting any bailout is because the Troika would audit their books as part of the process and find what has been hidden for so long. Spain may well be a larger version of Greece where funny money has been the order of the day for a decade and where the fiscal bed sheet that covered up the mess can no longer accommodate the size of the bloated sleeping platform. This is all made worse by a political construct that is particular to Spain where the regional governments have a debt that is roughly equivalent to 50% of the nation and where we find the horsepower region, Catalonia, considering seceding while other regions such as the Basque country are engaging in similar tactics. It must be said that the actual, not made-up, economics in Spain have gotten so bad that unemployment is off the charts and social unrest is on the rise. I think that, in the end, Spain will be forced to the wall and that Europe will do whatever they can to cover-up and obscure the actual size and breadth of the financial crisis in Spain and perhaps we will get a slightly changed version of Rajoy’s “This is a great victory for Europe” speech but it will be even more obnoxious and hollow the next time around.
The situation in Greece is also coming back into play as the Prime Minister said they must have more money by the end of November or they will default. The IMF is calling for the ECB and/or the nations of Europe to take a hit while these two bodies react, as expected, saying they want none of that. So what is it to be; more money for nothing again, more new debt to pay off old debt and a country that is so behind the eight ball that it has sunk into the pocket of poverty with no escape while everyone watched and then tried to fool the world by claiming and continuing to claim that it hasn’t happened. It may be one more gimmick and another round of the shell game but I do not think Ms. Merkel has enough votes to pass more aid for Greece while the Austrians and the Dutch have already made public pronouncements that they will not be funding. Crunch time may yet be forced upon the European Masters of the Universe as the politics at home will not bear anymore loss of their nation’s money. The quite real displeasure that would be felt in each country in Europe that would be attached to the EU taking a hit for the Greek debt may well force a situation where Greece remains in the European Union and receives some sort of debt-in-possession financing while Greece returns to the Drachma as it is more politically acceptable to lay the loss on Greece rather than accepting the consequences of some sort of debt forgiveness. Ms. Merkel may be in Athens playing nicey-nice but she may also be there to set the course and try to influence Greece to accept it. Of course the politicians that she is discussing things with now may not be the people in charge in the coming months as social unrest increases in Greece and anger swells to the surface and bubbles. Say what you like and hope for what you may but Spain and Greece are in real turmoil and unintended consequences bloom with each passing day.
“You are very amiable, no doubt, but you would be charming if you would only depart.”
I also turn my attention to France this morning. France is the next in-line after Spain and Italy. It is all well and good to tax the rich at 75% to support everyone else but there are real consequences to this kind of behavior. First you remove the motivation for success and for risk-taking which is the ability to have a better life. If hard work produces nothing except more taxes then no one wants to play in the sandbox. This level of taxes will also produce more tax-evasion and encourage people to leave the country for greener pastures so that the gross revenues will decrease and Mr. Hollande will have delivered a self-defeating program all in the name of “one for all and all for one” which may function when it is three guys with epees but this kind of dogma never works well in the real world. In fact I would say that the very construction of a European Union, where people can locate with relative ease, exacerbates the problem for France by the use of the very construct that has been invented and put in place. France may well be the next powder keg as the policies of Mr. Hollande implode a country that is already teetering with the European recession that is certainly swinging in wider and wider arcs.
Finally I comment on the ECB. The “unlimited and uncapped” is bound in chains of their own devising. They have pledged to act but only if the European Union acts first and in that very act of contrition they have rendered themselves ineffective. With a Europe that is now more divided than at any time in the past and divided down strict boundaries of those with the money as opposed to those nations without it; the possibility of decisive action by the politicians becomes ever so more remote. In practical terms it would take months and perhaps longer for a bailout of any nation to be crafted and accepted and there will come a time when the markets recognize the reality of the situation and not be focused on the pretty words meant to sop up the uninitiated. The self-imposed conditions of the ECB are just being realized in Europe as some countries are now voicing displeasure with what the ECB has done because the strait-jacket is becoming apparent and the good intentions are now being seen as radiating in a glass jar on the shelf and not meant for any real use as it is dubious that the countries in Europe will ever agree on the political cost of utilizing the precious jar so it will just sit there in stasis. The ploy may have worked for the moment but I suggest that the effect will soon wear away.
“Ah," said the jailer, "do not always brood over what is impossible, or you will be mad in a fortnight.”
-Alexandre Dumas [13], The Count of Monte Cristo [15]