Raúl Ilargi Meijer: This Is The End Of The Euro

Authored by Raúl Ilargi Meijer via The Automatic Earth blog,

The Spanish government is about to fall after the Ciudadanos party decided to join PSOE (socialist) and Podemos in a non-confidence vote against PM Rajoy. Hmm, what would that mean for the Catalan politicians Rajoy is persecuting? The Spanish political crisis is inextricably linked to the Italian one, not even because they are so much alike, but because both combine to create huge financial uncertainty in the eurozone.

Sometimes it takes a little uproar to reveal the reality behind the curtain.

Both countries, Italy perhaps some more than Spain, would long since have seen collapse if not for the ECB. In essence, Mario Draghi is buying up trillions in sovereign bonds to disguise the fact that the present construction of the euro makes it inevitable that the poorer south of Europe will lose against the north.

Club Med needs a mechanism to devalue their currencies from time to time to keep up. Signing up for the euro meant they lost that mechanism, and the currency itself doesn’t provide an alternative. The euro has become a cage, a prison for the poorer brethren, but if you look a bit further, it’s also a prison for Germany, which will be forced to either bail out Italy or crush it the way Greece was crushed.

Italy and Spain are much larger economies than Greece is, and therefore much larger problems. Problems that are about to become infinitely more painful then they would have been had the countries been able to devalue their currencies.

If you want to define the main fault of the euro, it is that: it creates problems that would not have existed if the common currency itself didn’t. This was inevitable from the get-go. The fatal flaw was baked into the cake.

And if you think about it, today the need for a common currency has largely vanished anyway already. Anno 2018, people wouldn’t have to go to banks to exchange their deutschmarks or guilders or francs, they would either pay in plastic or get some local currency out of an ATM. All this could be done at automatically adjusting exchange rates without the use of all sorts of middlemen that existed when the euro was introduced.

Americans and British visiting Europe already use this exact same system. Governments can make strong deals that make it impossible for banks and credit card companies to charge more than, say, 1% or 0.5%, on exchange rate transactions. This would be good for all cross-border trade as well, it could be seamless.

Technology has eradicated the reason why the euro was introduced in the first place, and made it completely unnecessary. But the euro is here, and it is going to cause a lot more pain and mayhem. Any country that even thinks about leaving the system will be punished hard, even if that’s the by far more logical thing to do.

Europe is not ready to call for the end of the experiment. Because so much reputation and ego has been invested in it, and because the richer nations and their banks still benefit -hugely- from the problems the poorer face. The one country that got it right was Britain, when it decided to stay out of the eurozone.

But then they screwed up the next decision. And found themselves with the most incompetent ever group of ‘chosen few’ to handle the outcome. Still, anyone want to take out a bet on who’s going to be worse off when the euro whip comes down, Britain or for instance Italy or France? Not me. Close call is the best I can come up with.

The euro was devised and introduced, ostensibly, to solve problems. Problems with cross border trade between European nations, with exchange rates. But instead it has created a whole new set of problems that turn out to be much worse than the ones it was supposed to solve. That’s how and why M5S and the League got to form Italy’s government.

In Spain, if an election is called, and it looks that way, you will either get a left wing coalition or more of the Rajoy-style same. Left wing means problems with the EU, more of the same means domestic problems; the non-confidence vote comes on the heels of yet another corruption scandal for Rajoy’s party.

And let’s not forget that all economic numbers are being greatly embellished all over the continent. If you can claim with a straight face that the Greek economy is growing, anything goes. Same with Italy. It’s only been getting worse. And yeah, there’s a lot of corruption left in these countries, and yeah, Europe could have helped them solve that. Only, it hasn’t, that is not what Brussels focuses on.

Italy for now is the big Kahuna. The EU can’t save it if the new coalition is serious about its government program. But it also can’t NOT save it, because that would mean Italy leaving the euro. And perhaps the EU.

If Italian bonds are sufficiently downgraded by the markets, Mario Draghi’s ECB will no longer be permitted to purchase them.

And access to other support programs would depend on doing the very opposite of what the M5S/League program spells out, which is to stimulate the domestic economy. Is that a bad idea? Hell no, it’s just that the eurozone rules forbid it.

The euro has entirely outlived its purpose, and then some. But it exists, and it will be incredibly painful to unravel. The new game for the north will be to unload as much of that pain as possible on the south.

Europe would have been much better off of it had never had the euro. But it does. The politicians and bankers will make sure they’re fine. But the people won’t be.

The euro will disappear because the reasons for it not to exist are much more pressing than for it to do. At least that bit is simple. The unwind will not be.

Comments

Cognitive Dissonance swissthinker Sat, 05/26/2018 - 08:32 Permalink

Europe is not ready to call for the end of the experiment. Because so much reputation and ego has been invested in it, and because the richer nations and their banks still benefit -hugely- from the problems the poorer face.

 

There you go. It's all there in a nutshell. Greed and ego.

 

Europe would have been much better off of it had never had the euro. But it does. The politicians and bankers will make sure they’re fine. But the people won’t be.

 

And there is the inevitable result.

It's all over but the crying. And the rape. And pillage. Even the fat lady will be slaughtered in the end, preventing her from singing. But at that point it won't matter anyway.

 

In reply to by swissthinker

infotechsailor Cognitive Dissonance Sat, 05/26/2018 - 08:33 Permalink

Club Med needs a mechanism to devalue their currencies from time to time to keep up.Signing up for the euro meant they lost that mechanism, and the currency itself doesn’t provide an alternative.

Why do those countries need to devalue from time to time? Because they got into more debt than they can repay. So in that sense, ECB is correct to say those countries need to cut their spending and not inflate away debt. 

Like Peter Schiff says, the next crisis will be the big one, as central banks will not be able to raise rates fast enough to fight inflation and will not choose to save currency over saving their markets. 

In reply to by Cognitive Dissonance

Buckaroo Banzai Four Star Sat, 05/26/2018 - 11:00 Permalink

The Euro wasn't imposed in order to simplify international commerce--and certainly not to make it easier for travelers and tourists to spend money, as the jews who sold Europe the euro certainly don't give a fuck about actual human beings. No, the Euro was specifically designed as bait, to lure sovereign countries into giving up their sovereignty to a Jew-controlled communist superstate. Now it's a race to see if the eurozone collapses from the massive internal contradictions that the euro currency created before sovereignty can be smashed. The filthy Jew puppets who run Europe--led by "Mutti" Merkel-- began to grasp this fact several years ago, and opened the gates of Europe to muslim invaders in order to accelerate the destruction of sovereignty by humiliating, demoralizing, and marginalizing white Europeans, which has proven to be a sound strategy. Unfortunately for these treasonous European leaders, it appears that the financial collapse is accelerating as well. All white men of sound moral character look forward to the day when these treasonous pedophile bureaucrats are tried and executed for their crimes, the muslims and jews expelled, and order is restored.

In reply to by Four Star

Algo Rhythm Four Star Sat, 05/26/2018 - 11:03 Permalink

Which tells you the "eurozone" isn't about commerce, it is about control. The author tries to mislead the reader here...

"Technology has eradicated the reason why the euro was introduced in the first place, and made it completely unnecessary. But the euro is here, and it is going to cause a lot more pain and mayhem. Any country that even thinks about leaving the system will be punished hard, even if that’s the by far more logical thing to do."

 

The Euro wasn't created for ease of transaction, it was created to control the humans who happened to be born in those parts of the world.

Get ready US, they are nearly ready to pull the trigger here.

 

 

In reply to by Four Star

Al Tinfoil Stuck on Zero Sat, 05/26/2018 - 13:07 Permalink

Under the Euro Target2 system, the European Central Bank operates a financing system for exporters and importers - like a credit card company finances purchases.  Member countries that run trade surpluses get Target2 account surpluses, while countries that run trade deficits get Target2 account deficits. 

As of March, 2018, Germany's Target2 surplus stood at 923.5 Billion Euros.  Italy had a deficit of 442.5 Billion Euros, Spain a deficit of 381.4 Euros, Portugal a deficit of 82.9 Euros, Greece a deficit of 47.9 Euros, and so on:

http://sdw.ecb.europa.eu/reports.do?node=1000004859

How, when, and if the deficit nations will be able to pay their deficits, and how, when, and if Germany will be able to collect its surplus, are key questions.  If the Euro disappears, potentially so does the almost 1 Trillion Euros owed to Germany. 

In reply to by Stuck on Zero

rf80412 infotechsailor Sat, 05/26/2018 - 09:12 Permalink

Why do those countries need to devalue from time to time? Because they got into more debt than they can repay.

In an inflationary monetary regime, the marginal cost of maintaining a First World society - and doing so right next door to an economic superpower like Germany, who out-competes you on every metric - grows faster than GDP in mature economies with structurally little growth potential anyway.

Add a "culture" of tax evasion and an economy strongly weighted towards small backward businesses serving local needs, rather than global players like Volkswagen, Siemens, or ThyssenKrupp.

In reply to by infotechsailor

bshirley1968 infotechsailor Sat, 05/26/2018 - 12:40 Permalink

Wait. You mean Italy and Spain are not socialist countries like Venezuela? Or do you mean Venezuela would still be doing fine like Italy and Spain if Venezuela had an "ECB"?

Not taking sides on the issue. Just using the so called "capitalist" of Italy and Spain to back up my argument that socialism works.....until you central bank runs out of money.....or can't print it fast enough.

That day is coming to the US in the near future.

In reply to by infotechsailor

armageddon addahere infotechsailor Sat, 05/26/2018 - 13:26 Permalink

Because they are scamming the system running up debts they have no way of paying, and which they had no intention of paying.

If they were honest they would not have a problem. But they never think of that. They go on running into debt for years and don't worry a damn bit until the shit hammer comes down.

 

Even then they never think of paying back a dime. Just how to weasel out of the debt  and start in borrowing more.

In reply to by infotechsailor

JIMSJOE2 infotechsailor Sat, 05/26/2018 - 14:25 Permalink

Countries especially the PIGS were unable to weaken the euro as when needed to stimulate exports which collapsed causing the economy to greatly weaken. With a drop in tax revenue countries were forced to take on debt.

     The US at the Plaza Accord came up with the single currency and pressured Europe to adopt it faster than they should have. The US needed another reserve currency to be used in trade to weaken the dollar. This worked at initially then first you had the inability of countries to devalue. Then the euro was valued at $.80 to the $ and then rose to $1.60 which doubled their servicing cost of their debt. They were forced to raise taxes, cut gov salaries and jobs, social benefits, pensions, etc. With this capital no longer flowing into the real economy businesses suffered and laid off or closed causing the bank's NPLs to rise making the banks insolvent which they are today. Banks, many corporations and countries have been cut off from capital markets and solely depend on the ECB which will not last. Lastly They failed to come up with a federalized bond backed by all members with entities backing away from using it as much. The dollar has treasuries and entities can buy and sell these at a keystroke when needing dollars for trade or selling dollars for treasuries to receive interest. Europe has no such vehicle.

     According to Armstrong Economics computer models the collapse and the acceleration again of capital out of Europe starts at the end of 2018 and finally goes in 2020/21. This has been happening since 2011 when the models forecast it would start then and this is why the dollar and the Dow has kept moving higher and will continue. Where else are you going to park large amounts of capital?

In reply to by infotechsailor

Singelguy infotechsailor Sun, 05/27/2018 - 08:45 Permalink

Countries need to devalue from time to time because of their socialist policies. They constantly spend more than they take in tax revenue. Previously, they would either raise taxes or print more money. When the taxes were so high that they strangled the economy, they just printed even more. Under the euro, they no longer have the ability to print, so their only option is to tax or borrow. They have chosen to borrow but as interest rates begin to rise, the debt service will become unsustainable. 

In reply to by infotechsailor

HRClinton swissthinker Sat, 05/26/2018 - 13:57 Permalink

My fiats are "all good".  Use only CHF where I live.

My faith in Lord God Money has been rewarded with hard AU, and I'm moved blissfully by the Holy Spirit of Crypto. PTL, and pass the BTC.

Going to the Grottino 1313 for dinner, bitchez. Enjoy your hot dogs(K) on Memorial Day.

(K) = stealth Kosher microtax for 'RabbiScammersAreUs'.

In reply to by swissthinker

Arnold Sat, 05/26/2018 - 08:03 Permalink

I have full faith and confidence in the Euro.
My rebalance next week shall include a strong Euro position.

( If that doesn't push it over the edge, I'll give up my Gartman Secret decoder Ring.)

. . . _ _ _ . . . Sat, 05/26/2018 - 08:05 Permalink

OT

Activism + journalism = death sentence in the UK.

Tommy Robinson arrested, charged with causing a disturbance and incitement, convicted for contempt of court, sentenced to 13 months... all within a few hours.

He will most certainly be killed in prison.
The judge seems to have known this.

#freetommy
#freetommyrobinson

There is a petition at change.org.
https://www.change.org/p/theresa-may-mp-free-tommy-robinson

Ezra Levant: Tommy Robinson in prison (FULL STORY) (17:04)
https://www.youtube.com/watch?v=m6w7MJZX5YU

Stefan Molyneux: Tommy Robinson Arrested and Imprisoned, Media Silenced
https://www.youtube.com/watch?v=irhQtamQ6Mo (8:36)

Lauren Southern: Tommy Robinson Sent to Prison (12:12)
https://www.youtube.com/watch?v=tRt-iFANWKg

Tommy Robinson: I Won't Be Around For Much Longer (2:28) PRESCIENT
https://www.youtube.com/watch?v=qeAUS6HfX-k

There is a media publishing ban on this story in the UK.
Anyone re-tweeting, publishing, or publicly commenting from the UK could potentially be prosecuted.
Disseminate carefully.

Search: Section 35 Dispersal Notice.
Scary shit.

Background on Tommy Robinson: INCREDIBLE STORY - MUST WATCH!!
Tommy Robinson's BANNED speech: "The British Police State" (1:19:19)
https://www.youtube.com/watch?v=ao2VlpxGFe4

. . . _ _ _ . . . rwe2late Sat, 05/26/2018 - 13:45 Permalink

I  suspect that you would object...

"Huge H/T for putting this up."
"Off topic thread hijacking is quite permissible - especially at weekends when the ZH news cycle is (generally) behind the curve."
"Thank you as most on this side of The Pond are unaware."
"Thanks for bringing this to our attention."
"This Tommy Robinson story should be one of the biggest stories of the month."

Wrong again.

 

In reply to by rwe2late

waspwench rwe2late Sat, 05/26/2018 - 16:08 Permalink

Wake up!

Far too many Americans are far too parochial in their outlook.   There is a world out there.

If you think that the US is safe from this kind of thing then you are deluded.

There is a concerted attack on freedom in all western societies.

Be grateful that there are people who disseminate this kind of information and try to keep you informed.

In reply to by rwe2late

Rubicon727 7thGenMO Sat, 05/26/2018 - 18:34 Permalink

In the meantime, does this activist have attorneys??? Can't they persuade the judge to place him a safer jail - far from embittered Muslims?

Instead of his advocates yelling and screaming over his potential "death in jail" scenario, they should start a huge campaign to help pay for some high-powered attorneys. There ARE still maverick attorneys out there. Surely there must be!!

And there is not ONE politician, or authority of some form who can't stand up to this demonic mentality against Robinson????

In reply to by 7thGenMO

. . . _ _ _ . . . rwe2late Sat, 05/26/2018 - 09:16 Permalink

The only other option was to wait for an article on the topic. Too important, IMO.

I have been emailing ZH for years to institute an open thread for this very purpose.

I published this exact same info on my blog, but I didn't link to it, did I?

If you put more credence in the source than in the info, you are biased.

I'd rather get downvoted for OT than not share this.

This has a lot to do with Brexit, so it isn't that far OT.

I will be posting this in other articles so don't get your panties in a bunch, K? (I'll try not to overdo it.)

And speaking of "self-righteous arrogance", virtue signal much?

In reply to by rwe2late

CuttingEdge . . . _ _ _ . . . Sat, 05/26/2018 - 09:33 Permalink

Don't sweat it.

Off topic thread hijacking is quite permissible - especially at weekends when the ZH news cycle is (generally) behind the curve. And it's significance sinks or swims by the up and down ticks. Post something good and you are appreciated. Post something irrelevant and you are shown to be a twat.

 

Looking above shows this to be true...

In reply to by . . . _ _ _ . . .