Forget Greece, EUROPE is Finished

Let’s take an honest look at Europe.

Merkel and Sarkozy claim they’ve got everything under control. They’re lying. Anyone who uses common sense can tell this. The reason…

They’ve never considered the true price tag for the leveraged EFSF. I’m not talking about money, I’m talking about funding costs for France and Germany when they lose their AAA rated status as a result of backing up Greece.

First off, while France and Germany are the most solvent members of the EU, they’re not exactly models of fiscal austerity. Consider that both countries officially have Debt to GDP ratios of roughly 80% (Germany’s is 78% and France’s is 84%). And that data point doesn’t include off balance sheet risk or unfunded liabilities for either country.

Indeed, Germany, which is widely thought to be super solvent, is in fact sitting on a REAL Debt to GDP ratio north of 200% when you consider unfunded liabilities such as pension plans and so on.

Before you label me as crazy, consider that this statistic comes from Axel Weber… the head of Germany’s CENTRAL BANK (Bundesbank).

Folks, this is a CENTRAL BANKER, admitting his nation is in fact far more broke than people realize. And let us not forget…

Germany hasn’t RECAPITALIZED ITS BANKS YET!

Indeed, by the German Institute for Economic Research’s OWN admission, German banks need 147 billion Euros’ worth of new capital.

To put this number into perspective TOTAL EQUITY at the top three banks in Germany is less than 100 billion Euros.

Debt to GDP ratios north of 200%... banks needing 147 billion Euros in new capital… and somehow Germany is going to bailout Europe? Give me a break. German has its own fiscal disaster approaching.

Not to mention the following:

 

1)   Over half of Germans want out of the Euro

2)   75% of Germans are against increasing the bailout fund.

Of course, there is no limit to political idiocy, so it’s possible German politicians may go “all in” to prop up Greece. But I’m here to tell you that the short term upside to this move is minimal as it will result in Germany losing its AAA status and will only speed up its own funding crisis/ banking collapse.

In plain terms, Europe is finished. This isn’t even about Greece anymore. Even the most stable and “solvent” European nation (Germany) is facing its own funding Crisis. So the notion that Germany and France (which has an even worse REAL Debt to GDP than Germany) can somehow bailout Europe is ridiculous.

With that in mind, the time to prepare for what’s coming is NOW before this situation results in systemic failure in Europe.

Yes, systemic failure.

Greece is not the issue here. The issue is that Europe as a whole is broke, facing massive unfunded liabilities, and running out of viable creditors to band-aid its banking crisis. We are literally talking about a banking system collapse over there.

In plain terms, what’s coming to Europe (and then the US due to the interconnected nature of the financial system) is going to make 2008 look like a picnic.

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Good Investing!

Graham Summers

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