Europe 1-2-3

Submitted by Mark Grant, author of Out of the Box

Europe 1-2-3

“Paying attention to simple little things that most men neglect makes a few men rich.”


                           -Henry Ford

The Simplification of Europe

I am under no delusion nor are they my audience; nothing that I write will change much of anything for the public and so I am not passing out knowledge at the supermarket. There are a few of you however that pay attention not to who I am but to what I think. Europe has become so complicated and so riddled with the obtuse and the fractured that I thought I would take some time today to try to simplify the process. All of my life I have listened to economists, who always seem to want to make things more and not less complicated to make themselves sound more intelligent I have always supposed, and I have read research reports that offered forty pages of excuses mostly in an attempt to sell you something. To be perfectly honest; I have never found either of these tacts useful. I would guess that ninety-five percent of what I write is to warn you away from the pitfalls and very occasionally I think something is of interest and might be useful and I point it out. The point of my commentary is to try to keep you out of trouble which is an increasingly difficult task these days as the European Union is the most confusing government on Earth bar none.

Instruction begins today with an assessment of just what we face each day which is why it is all so bewildering until it is explained and then it is not. Many things in life are like magic tricks. They appear to be magic and everyone applauds until someone explains the trick to you and then it is just ho-hum. Today I am going to try to make all of the European magic ho-hum.

The EU is made up of seventeen nations that use the Euro as their currency and a total of twenty-seven nations in total with ten using their own currency. The ten nations in the outer ring have very little influence including Great Britain. Each day the seventeen nations individually pump out “stuff” from their own propaganda machines so we have seventeen spewers of “stuff.” Then we have the European Parliament which lives under the delusion that eventually they will run Europe and they have their own Ministry of Information, rather like something in Harry Potter, that also pitches out its own “stuff.” Then we have the European Union’s various commissions and departments which hands out their own “stuff.” Finally we have the European Central Bank who we are told is independent, which is about fifty percent accurate, who tosses out their own “stuff.” This is twenty-one then individual manufactures of information with each one representing their own interests. So they blow it out and the markets react and I would venture that about eighty percent of the time they react incorrectly and then the news flat lines and then reality sets in while a lot of money is lost betting on the wrong outcome because all of the information is taken at face value and not graded for importance. If anyone thinks that all of the propaganda has the same worth then they are making a disastrous mistake.

What is Important and What is Not

Germany holds the title for the most important propaganda machine. When they discuss what they will and will not pay for you may grade the accuracy as a ten and believe exactly what they are saying. If Germany says “No” or they say “Yes” then that is exactly what to bet on and period and end of the story. Nothing in Europe will get done, when it comes to the outlay of cash, without Germany agreeing to it and that, my friends, you can take to any bank you like. When Germany talks about future events and “support at the appropriate time” and that they welcome the ideas of so and so and whomever then you should read this as fluff and the polite rolling of German eyes and pay no attention to it whatsoever. When it is about money the German rank of importance is a ten and for the rest; just don’t pay attention.

Next when it comes to the troubled nations; Greece, Portugal, Ireland and Spain you may be very little to no attention to what they say about almost anything. Each of these countries has one aim and one goal and that is to get Germany to pay for their troubles and they will roll out any rumor, any scheme, any plan and any fantasy to try to accomplish this goal. They will say it with style and grace and panache but it is all just drivel and should be discarded in your mind.

The machine located at the European Parliament has all of the use of a paper boy on the street corner in Topeka, Kansas. He sells a few newspapers but the value of it is about the same. Brussels is the Hall of pomp and circumstance and lavish dinners where everyone gets congratulated for nothing by everyone else. It is the creation of Berlin in a rather good attempt to keep the Court away from what really matters and so not to be distracted by the throng and it is also useful for the Germans to have it in another country so they can claim the spreading of power which is very useful politically for them. What Brussels sends out then is about as useful as one of the pieces of fluff found by Winnie the Pooh in the forest

The ECB has two printing presses, one for money and the other for information and you should pay attention to both. This is certainly true as it relates to what it will do or won’t do as a matter of fiscal policy and for anything else; ignore it. Further, for anything of importance, whatever they do must be approved by Berlin and if it is not, as was demonstrated Friday, the eventual outcome may be overruled by Berlin. The ECB made a move to ease collateral requirements without permission of Germany and the reaction was swift. The ECB may allow looser collateral rules but the Bundesbank will not and given that they control the Traget2 financing the charade was ended. Now the markets did not understand this and rallied upon the news of easier financing but the markets, once again, did not get it right. The ECB made an unauthorized attempt to ease collateral and then the Bundesbank said “No” and that will be the end of that. There will be no announcement made and Germany will not embarrass the ECB but the decision was made and the easing for collateral will not be taking place and so the independent action of the ECB was dead at arrival. So much for the independence of the European Central Bank, a lofty notion, an inaccurate piece of data.

Finally there is the Bureau of Magic which resides at the European Union. You may live under the delusion that the EU and the European Parliament are the two oversight groups for Europe but this would be a colossal mistake. They are both firmly under the thumb of Berlin. They each present a useful distraction so that Europe does not think that Germany is running the show but then sleights of hand and distractions from the obvious is what politics is all about. You must anchor this firmly in your mind; there is Germany and then there is everyone else and all important matters of policy and all matters of funding are decided in Berlin and that is the exact way of it.


France is demanding growth, Italy is demanding growth, Spain is demanding growth; all very nice. All of Europe is in a recession except for Germany so certain calculations were made in Berlin. If the average profit margin for German industry is 10% and all of your main trading partners are in a recession then a 1% hand-out for growth is a useful enterprise and so was agreed to by Germany. The 1% cash outlay means an increase in purchasing power for the buyers of Germany’s good and services and so the net profit margin may only be 9% which is much better than a 3-5% decline in orders and so, voila, Germany agrees to the growth measures. Not any more complicated than that I contend and a good strategy for Germany but do not be misled in terms of their agenda; all for Germany, Hail the Reichstag.

In the Coming Days

There are two significant events that will be decided in the forthcoming days. Each will change the face of the European Union. The first is Greece; a little country with a total debt of $1.3 trillion and likely to default. The calculations in Athens are how to get more money out of Germany and the calculations in Berlin is whether a default is less costly, both politically and economically, than giving Greece more money. Debt forgiveness has never even been mentioned so I think we can rule out this possibility as it would have been floated by the German public for review and reaction. The Troika shows up Monday in Athens, they will find all targets missed, all promises unkempt and all hopes for salvation dashed upon the Greek floor along with the plates. The Greeks will beg and plead and threaten and the Germans will decide. In the end I think Greece will be allowed to stay in the EU to preserve the dream, that they will default, that they will return to the Drachma and that they will receive some kind of debtor in possession financing so that the country does not collapse. That is my best guess. Cheaper tourism and cheaper ships will help with their competiveness but it will be years before Greece is allowed back into the Eurozone as a voting member.

The second item on the docket is Spain. They need a total of around $350-400 billion dollars to straighten out their banking system and their regional debt. Money lent to the banks in some fashion, not currently allowable under the various policies but you never know, or money lent to the sovereign to be lent to the banks will be just the first tranche of funding. It will be followed by more money lent to the regions of Spain which may take another novel approach but no matter. Spain is about to be run out of Germany no matter how all of the trivialities play out and so the impositions of the Men in Black are about to be put in place. So long to the importance of Madrid and thanks for all of the entertainment. You have been caught and are about to be hung out to dry and enjoy the ice wine that Germany will provide for your congratulatory dinner. Rajoy was right, a “Great Victory for Europe;” serving ice wine in Madrid.

Frau Merkel: Prime Minister, how do you like ice wine?

Mr. Rajoy: I have never tasted it.

Frau Merkel: Oh but you will!