Europe: the Break-Up is About to Begin

The EU’s days of “kick the can down the road” are rapidly coming to an end.

 

While most commentators talk about the EU and its bailout fund as though these are independent entities, the reality is that the EU bailout story was always about whether Germany could foot the bill for the more bankrupt EU members.

 

For 18 months, German politicians were able to walk the line of supporting the EU without pissing off the German populace too much. However, starting in the last few months this balancing act has come to an end. Angela Merkel’s party has been getting destroyed in the elections.

 

We’re now starting to see German officials pulling back from the notion of more bailouts for Greece. When it comes to political suicide vs. ideology, politicians look out for themselves. And German politicians are realizing that with nearly 60% of their country wanting out of the Euro, continuing to throw money at the EU’s less solvent members means a guaranteed exit from public office.

 

In other words, the EU, in its current form, is at the beginning of the end. Consider the implications of Germany saying “no” to more bailouts.

 

A “no” from Germany means the largest, most solvent country in the EU is no longer willing to back up less solvent members. This in turns means the beginning of the end for the “bailouts will fix everything” mantra that has dominated the world since 2007-2008. It also means that any future EU member that comes looking for handouts is no longer guaranteed assistance.

 

In other words, the great EU experiment will be coming to an end.

Whether the EU will break into separate alliances or if they’ll simply do away with the whole thing altogether remains to be seen. But the cracks that have been forming in Spain, Portugal, Italy, Ireland and Greece will eventually manifest into a full break in the EU in some form.

 

And stocks are completely unaware of this. As I’ve noted hundreds of times before, stocks are the last to “get it.”

 

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Good Investing!

 

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