Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
How to Protect Your Site from Bots & Spam? - 20th Aug 19
Fed Too Late To Prevent A US Housing Market Crash? - 20th Aug 19
Gold and the Cracks in the U.S., Japan and Germany’s Economic Data - 20th Aug 19
The Gold Rush of 2019 - 20th Aug 19
How to Play Interest Rates in US Real Estate - 20th Aug 19
Stocks Likely to Breakout Instead of Gold - 20th Aug 19
Top 6 Tips to Attract Followers On SoundCloud - 20th Aug 19
WAYS TO SECURE YOUR FINANCIAL FUTURE - 20th Aug 19
Holiday Nightmares - Your Caravan is Missing! - 20th Aug 19
UK House Building and House Prices Trend Forecast - 20th Aug 19
The Next Stock Market Breakdown And The Setup - 20th Aug 19
5 Ways to Save by Using a Mortgage Broker - 20th Aug 19
Is This Time Different? Predictive Power of the Yield Curve and Gold - 19th Aug 19
New Dawn for the iGaming Industry in the United States - 19th Aug 19
Gold Set to Correct but Internals Remain Bullish - 19th Aug 19
Stock Market Correction Continues - 19th Aug 19
The Number One Gold Stock Of 2019 - 19th Aug 19
The State of the Financial Union - 18th Aug 19
The Nuts and Bolts: Yield Inversion Says Recession is Coming But it May take 24 months - 18th Aug 19
Markets August 19 Turn Date is Tomorrow – Are You Ready? - 18th Aug 19
JOHNSON AND JOHNSON - JNJ for Life Extension Pharma Stocks Investing - 17th Aug 19
Negative Bond Market Yields Tell A Story Of Shifting Economic Stock Market Leadership - 17th Aug 19
Is Stock Market About to Crash? Three Charts That Suggest It’s Possible - 17th Aug 19
It’s Time For Colombia To Dump The Peso - 17th Aug 19
Gold & Silver Stand Strong amid Stock Volatility & Falling Rates - 16th Aug 19
Gold Mining Stocks Q2’19 Fundamentals - 16th Aug 19
Silver, Transports, and Dow Jones Index At Targets – What Direct Next? - 16th Aug 19
When the US Bond Market Bubble Blows Up! - 16th Aug 19
Dark days are closing in on Apple - 16th Aug 19
Precious Metals Gone Wild! Reaching Initial Targets – Now What’s Next - 16th Aug 19
US Government Is Beholden To The Fed; And Vice-Versa - 15th Aug 19
GBP vs USD Forex Pair Swings Into Focus Amid Brexit Chaos - 15th Aug 19
US Negative Interest Rates Go Mainstream - With Some Glaring Omissions - 15th Aug 19
GOLD BULL RUN TREND ANALYSIS - 15th Aug 19
US Stock Market Could Fall 12% to 25% - 15th Aug 19
A Level Exam Results School Live Reaction Shock 2019! - 15th Aug 19
It's Time to Get Serious about Silver - 15th Aug 19
The EagleFX Beginners Guide – Financial Markets - 15th Aug 19
Central Banks Move To Keep The Global Markets Party Rolling – Part III - 14th Aug 19
You Have to Buy Bonds Even When Interest Rates Are Low - 14th Aug 19
Gold Near Term Risk is Increasing - 14th Aug 19
Installment Loans vs Personal Bank Loans - 14th Aug 19
ROCHE - RHHBY Life Extension Pharma Stocks Investing - 14th Aug 19
Gold Bulls Must Love the Hong Kong Protests - 14th Aug 19
Gold, Markets and Invasive Species - 14th Aug 19
Cannabis Stocks With Millennial Appeal - 14th Aug 19
August 19 (Crazy Ivan) Stock Market Event Only A Few Days Away - 13th Aug 19
This is the real move in gold and silver… it’s going to be multiyear - 13th Aug 19
Global Central Banks Kick Can Down The Road Again - 13th Aug 19
US Dollar Finally the Achillles Heel - 13th Aug 19
Financial Success Formula Failure - 13th Aug 19
How to Test Your Car Alternator with a Multimeter - 13th Aug 19
London Under Attack! Victoria Embankment Gardens Statues and Monuments - 13th Aug 19
More Stock Market Weakness Ahead - 12th Aug 19
Global Central Banks Move To Keep The Party Rolling Onward - 12th Aug 19
All Eyes On Copper - 12th Aug 19
History of Yield Curve Inversions and Gold - 12th Aug 19
Precious Metals Soar on Falling Yields, Currency Turmoil - 12th Aug 19
Why GraphQL? The Benefits Explained - 12th Aug 19

Market Oracle FREE Newsletter

The No 1 Gold Stock for 2019

European Politicians Fiddling While the Euro Burns

Politics / Euro Oct 07, 2011 - 02:58 AM GMT

By: John_Browne

Politics

Last week, eurozone finance ministers postponed, yet again, the most difficult decisions on the Greek debt crisis. The assembled powers could have forced an orderly Greek default or they could have taken steps to push Greece out of the union. Instead, they simply bought time until the next major rollover of Greek debt - which comes due in November. I don't expect much to come from the brief respite.


Much of the prevarication can be attributed to political disagreement in Germany, where some see the current crisis not only as a means to further European unification, but also as an opportunity to extend German influence throughout the continent.

Other Germans, particularly those in the south, see the crisis as a means to roll back the flawed structure of the eurozone. The resulting indecision is allowing adverse sentiment to set a time-bomb under the euro.

In truth, recovery has no chance of taking hold without a clear idea of what Europe may look like politically in a few years. Today, there is a desperate need for a momentous decision by Germany.

Rest assured these are problems that can't be swept under the rug. Greece now has a debt-to-GDP ratio of 173 percent. Simply put, it is hopelessly bankrupt. The 'troika' of the EU, ESM, and IMF are demanding that Greece accept more austerity in return for more funding. But, already, austerity is reducing Greek GDP and tax revenues while creating civil unrest and a greater demand for social security payments.

The austerity medicine in Greece is also creating similar problems for Italy and Spain, whose economies are much, much larger. Spain has twice the outstanding debt of Greece, Ireland, and Portugal combined. Italy has five times that amount. The sums needed to rescue Spain or Italy would stretch even Germany to the limit of solvency.

Already, the euro is falling fast even against the deeply flawed US dollar. As I see it, there are three possible conclusions to the crisis:

  1. The euro splits into two parts: one for the cash-generating northern countries and one for the Mediterranean countries, possibly including France. This two-tiered system would take into account the differences in economic reality for the two regions and would provide much more financial flexibility.
  2. Some of the Club Med countries are forced to leave the euro, re-issue their own currencies, and attempt to generate earnings to repay debt.
  3. The euro ceases to exist. As the world's second currency, this would result in a short-term stampede into other fiat currencies such as the yen, Swiss franc, Norwegian krone, Australian and Canadian dollars, even sterling, but predominately into the US dollar.

Any one of these outcomes is preferable to the unsustainable status quo. But an orderly Greek default combined with an exit from the euro would be the best strategy to move forward. Unfortunately, this option is unpalatable to internationalist politicians, who want to maintain the pan-European government, and the banking system, which is choking on bad sovereign debt. Still, talk is growing.

If a default does come, the big question is how much creditors could lose through debt haircuts. Recently it has become clear that the 21 percent haircuts for private holders of Greek debt, which had been agreed on in July, may have to be deepened to 40 or even 50 percent. However, calculations will need to me made as to how much losses can be accepted by the banks before their insolvency threatens the solvency of their own nations. Very few observers know for sure how much bad debt lurks on the balance sheets of the big European banks. This question alone threatens further and more dramatic contagion.

Eurozone governments, in particular Germany, France, and Belgium, have long 'persuaded' their banks to load up on PIIGS sovereign debt. Now, unsurprisingly, a PIIGS default threatens German, French, and Belgian banks. France has some of the largest banks, all carrying unknown amounts of these toxic assets. BNP, Credit Agricol, and Societé Géneral alone have combined assets (of all sorts) of some $7 trillion. This staggering sum is equal to about half the US Treasury's massive debt. However, the French economy is less than one fifth the size of the US economy. If losses related to bad sovereign debt were to push any of these banks into default, the ramifications could be dire for France.

The world's immediate economic future rests with a prompt decision by Germany to abandon its dreams of empire and cut off funding for the PIIGS. Such a move would protect Germans from unlimited bailout requests, save the people of the PIIGS from unnecessarily harsh austerity measures, and provide a needed reprieve for the euro and international fiat currencies. For an even more in depth look at the prospects of international currencies, download Peter Schiff and Axel Merk's Five Favorite Currencies for the Next Five Years.

Subscribe to Euro Pacific's Weekly Digest: Receive all commentaries by Peter Schiff, Michael Pento, and John Browne delivered to your inbox every Monday.

By John Browne
Euro Pacific Capital
http://www.europac.net/

More importantly make sure to protect your wealth and preserve your purchasing power before it's too late. Discover the best way to buy gold at www.goldyoucanfold.com , download my free research report on the powerful case for investing in foreign equities available at www.researchreportone.com , and subscribe to my free, on-line investment newsletter at http://www.europac.net/newsletter/newsletter.asp

John Browne is the Senior Market Strategist for Euro Pacific Capital, Inc.  Mr. Brown is a distinguished former member of Britain's Parliament who served on the Treasury Select Committee, as Chairman of the Conservative Small Business Committee, and as a close associate of then-Prime Minister Margaret Thatcher. Among his many notable assignments, John served as a principal advisor to Mrs. Thatcher's government on issues related to the Soviet Union, and was the first to convince Thatcher of the growing stature of then Agriculture Minister Mikhail Gorbachev. As a partial result of Brown's advocacy, Thatcher famously pronounced that Gorbachev was a man the West "could do business with."  A graduate of the Royal Military Academy Sandhurst, Britain's version of West Point and retired British army major, John served as a pilot, parachutist, and communications specialist in the elite Grenadiers of the Royal Guard.

John_Browne Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules