Either the ECB Prints and Germany Walks… or the EU Sees a Domino Debt Collapse Followed by Systemic Failure

By now, even the mainstream media is realizing what I’ve been saying for well over a year: that the EU in its current form is finished.


I initially believed that we would see Greece kicked out of the EU. However, at this point it looks much more likely that it will be GERMANY who leaves.


The reason is quite simple really. Germany WILL NOT tolerate debt monetization. They’ve seen how that situation plays out (Weimar) and will not allow it again, END OF STORY. If the ECB opts to print money, Germany is out.


So… the only other option for the EU to last is the leveraged EFSF. However, as we’ve seen, that option is a dead end as well:


No new Euro zone money for debt crisis at G20


The Euro zone won verbal support but no new money at a G20 summit on Friday for its tortured efforts to overcome a sovereign debt crisis, while Italy was effectively placed under IMF supervision.


Leaders of the world's major economies, meeting on the French Riviera, told Europe to sort out its own problems and deferred until next year any move to provide more crisis-fighting resources to the International Monetary Fund.


"There are hardly any countries here which said they were ready to go along with the EFSF (Euro zone rescue fund)," German Chancellor Angela Merkel told a news conference.




Remember, the EFSF failed to even stage a 3 billion Euro bond auction without buying some of the bonds itself. And with no one in the G20 wanting to fund the EFSF, the EFSF is in no way going to backstop Europe.


So there are now only two REAL outcomes:


1)   The ECB prints (and Germany walks) resulting in the Euro losing at the minimum 30-40% of its value

2)   Massive defaults and debt restructuring accompanied by systemic failure in Europe


These are the facts. I know that the mainstream financial media and other “experts” like to proclaim that Europe can somehow muddle through this, but they’re wrong. The EU kicked the can down the road for over a year in terms of debt restructuring for Greece. Now it’s facing a problem it CANNOT possibly bail out: Italy.


In other words, the can has finally hit up against the wall. The market is not willing to lend to Italy at present levels. Nor is the market willing to lend to the EFSF. The only two potential backstops for the EU are now Germany or the ECB. And Germany WILL NOT allow money printing/ debt monetization to take place.


Folks, I don’t know how else to say this, but if Europe experiences just a 2008 type event, it will be LUCKY. The entire European banking system is leveraged at 26 to 1. At these levels even a 4% drop in asset prices wipes out all equity.


Add to this the fact that with unfunded liabilities included, the average EU member states sports a REAL Debt to GDP ratio north of 300%, and you’ve got the makings of systemic failure. Indeed, even Germany, the supposed beacon of fiscal stability has a REAL Debt to GDP of 200% (this data point comes straight from Axel Weber’s mouth) and has yet to recapitalize its banks.


And Germany is THE most solvent major member of the EU.


I cannot say just how bad things will be when the stuff hits the fan in Europe. But the EU is going into a banking/ sovereign crisis with WORSE fundamentals than the US had when it went into its own 2008.


So if you have not already taken steps to prepare for systemic failure, you NEED to do so NOW. We're literally at most a few months, and very likely just a few weeks from Europe's banks imploding.


When this happens the entire system could go down. I’m talking about bank holidays, sovereign debt defaults, retirement accounts and pension funds wiped out, even food shortages in some areas.

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Good Investing!


Graham Summers


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