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Market Oracle FREE Newsletter

UK General Election Forecast 2019

Germany Wins Eurozone War, UK Veto Puts Britain on the Fast Track to EU Exit

News_Letter / Eurozone Debt Crisis Apr 01, 2012 - 07:50 PM GMT

By: NewsLetter

News_Letter The Market Oracle Newsletter

December 10th, 2011 Issue #24 Vol. 5

The Market Oracle Newsletter
December 10th, 2011            Issue #24 Vol. 5

Commodities Currencies Economics Housing Market Interest Rates Education Personal Finance Stocks / Financials Real Gems

Germany Wins Eurozone War, UK Veto Puts Britain on the Fast Track to EU Exit

Stocks Stealth Bull Market 2011 Ebook Direct Download Link (PDF 2.8m/b)

Interest Rate Mega-Trend Ebook Direct Download Link (PDF 2.3m/b)

Inflation Mega-Trend Ebook Direct Download Link (PDF 3.2m/b)

Dear Reader

"Britain will never join the Euro".... Germany has effectively won the Eurozone war as one after another EU states bowed to German pressure to toe the ECB / Bundesbank line for greater monetary union and centralised fiscal management under the guise of saving the euro or effectively face monetary death through either ever higher market interest rates such as that suffered by bankrupt Greece's 2 year bonds trading at a yield of 33%, or ejection from the Euro-zone and resulting economic collapse and an hyperinflationary wipeout of all savings.

This left Britain to Veto the treaty changes that 26 out of 27 agreed to and thus performing a tactical retreat Dunkirk style as David Cameron failed in his attempts to protect the city of London against primarily from French and German onslaught that has long enviously sought to steal a greater share of London's prominence as the defacto centre of the European financial system through which approx 50% of all financial business is conducted.

Unable to compete in the market place the French and Germans have long sought to cripple Britains' ability to compete against the Euro-zone currency block by means of destroying the UK financial sector through a series policies including a transaction taxes that would overtime diminish the advantages of doing business in London that is outside of the euro-zone and this transfer business towards the economic centre of Germany and to a lesser degree France, which the twin headed hydra of Merkozy knew would eventually force Britain to join the Eurozone in response to the increasing leakage of financial business to the euro-zone.

David Cameron unfortunately miscalculated the degree to which Merkozy had deployed arm twisting tactics not only on on the hook euro-zone members but also the other 9 EU countries outside the Eurozone such as Poland that David Cameron had hoped would add to the UK's weight in negotiating opt outs for the UK's financial sector. Unfortunately none of these countries could recall when Britain had come to their aid in their hour of need and instead fell under the financial spell of the Merkozy under the promise of eventual ECB funding of their budget deficits, which left Britain and David Cameron totally isolated as the only country to vote against the proposed EU treaty changes, instead now the Euro-zone will go it alone with the effective Germanification of the Euro-zone.

What's Planned for the EU 26?

  • Give up control of national budgets
  • Sanctions for Budget Deficits Greater than 3% of GDP
  • Provide Euro 200 Billion for IMF to Loan to Euro-zone members to re-finance debt during Q1 2012.

Britain's veto has effectively delayed implementation of the amended Treaty for several months as lawyers try to construct a legal framework for the treaty that excludes Britain, however it effectively means that Germany by probably March 2012 will take economic control of all euro-zone members, with the possibility that the other 9 none eurozone countries will also join and thus totally excluding Britain from all decision making meetings.

Has the Debt Crisis Been Solved?

In terms of the euro-zone sovereign debt crisis, no solution has been agreed to or even indicated that addresses the key problems of economic stagnation and growing unserviceable debt mountains, all that has happened is that the can has been kicked at most a couple of months forward into early 2012 when countries such as Italy, Spain and France will have to collectively re-finance over a Euro 100 billion of maturing debt that WILL to some extent have to be monetized by the ECB because the market won't buy it at anywhere near sustainable interest rates. In this respect we have already seen the ECB (Thursday) start the ball rolling by offering unlimited amounts of cheap money to Euro-zone banks for upto 3 years in an attempt at alleviating the credit crunch that risks a collapse of the euro-zone banking system, which effectively amounts to monetization of euro-zone debt through the backdoor, i.e. swapping PIIGS debt ( as collateral) against funds borrowed from the ECB, so if the banks default then the ECB is stuck with PIIGS debt, so the ECB is effectively buying PIIGS debts in all but name.

What does this all mean ?

When the deal is finally done (it could still unravel), it will mean that Germany will boom (France hopes to somehow also benefit ) as they prosper from a captured export market, where Germany finances and massages the spending of other european states for their goods and services to a far greater extent to which we have witnessed the likes of China lending money to the United States to buy Chinese junk in exchange for greater Chinese economic power and diminishing US economic power. The euro-zone members under debt crisis pressures are signing themselves up to becoming economic slave states of a Greater Germany.

On the way out of the Summit, the Irish Prime Minister consoled a latently depressed and isolated Cameron that "you are still a member of the single market".

Unfortunately Britain is the clear loser here because there is no way that Britain can go against the whole E.U., which appears united against Britain therefore expect the E.U. member states to vote for a string of laws that will hurt Britain's biggest industry the financial sector, such as preventing euro-zone banks from doing business in London, which means Britain could now be on the fast track towards an exit from the European Union.

If Britain is on the way out then it needs to act fast to get the upper hand against a weak euro-zone, because at this point in time Britain has the advantage in that it can ACT quickly without having to have summits with 17 other member countries, especially as all the summit has done is to press the pause button on the crisis for perhaps no more than 2 months during which time the debt crisis continues to get BIGGER!

Britain needs to put itself ahead of the curve by sparking a domestic boom, even if it means devaluing the currency by as much as 20%, because as we have seen this week, Europe will NOT be there for Britain, the time to act is now! If Britain waits then it will be too late because as my earlier analysis illustrated (28 Nov 2011 - Eurozone Being Swallowed by Expanding Debt Black Holes, Mega Bond Market Profits and Default Booms ) that Britain has its own ticking debt time bomb that could send interest rates soaring to double or even triple current yields on 10 year bonds, by which time it will be too late and Britain will be forced by the IMF to swallow austerity on the scale being shoveled down PIIGS citizen throats.

My Reaction and Strategy

The euro summit gives me more time to get rid of cash for hard assets such as properties or low risk paper assets such as corporate bonds (as I am fully stocked up with likes of dividend stocks courtesy of the summer-autumn correction), as the outcome remains in that fiat currency is going lose value because the politicians only have one solution in mind which is to print money to buy votes, and therefore feed the inflation mega-trend (euro likely to fall at a faster pace than sterling because the markets aren't stupid), though now the risk of loss of nominal funds on deposit in the banks has been reduced to at least Mid January 2012 (hopefully), when we will again start to see building market pressure towards the flood of sovereign debt refinancing which is likely to result in higher sovereign debt yields and therefore the banking system again starting to freeze towards credit crisis extremes.

So if you have not already done so, you still need to protect your cash against the worst case scenario (step by step guide here How to Protect Your Bank Deposits, Savings From Euro-zone Collapse Financial Armageddon).

Off course you should be eyeing moving your funds out of the banks because after tax your destined to lose a good 3% per year of your deposited funds value anyway. In this respect you do have to take on a little risk, but given that the funds on deposit at the banks are at risk anyway you can protect against the inflation mega-trend for instance by buying corporate bonds, for example Tesco's very recent offering of 2019 RPI Index linked Corporate Bonds that Pays RPI +1% (also indexed), which if held to maturity protects you against inflation with very little risk, also if purchased in an ISA the interest is tax free, and being a corporate bond is traded on the secondary market (can be bought and sold at any time via your stock broker).

Really, sincerely, the banks are treating us all like suckers if we keep ones money on deposit in any UK bank that pays less than inflation (even before tax), that means 99% of all currently available UK deposit accounts, so do your research and up your tax free returns to between 5%-7% by taking a look at corporate bonds, especially as these days many corporations have better credit ratings than many sovereigns. Though as with dividend stocks, don't put all of your eggs into one basket, spread your exposure amongst a number of issues and maturities and take the corporations credit ratings into account.

Bull Markets Do What Bull Markets Do

To end on a bright note, a collapse of the euro-zone would have wiped out approx 15% of UK GDP, which is near triple that of the Great Recession of 2008-2009. So it is in the UK's interests for the euro-zone to survive and not collapse, in which respect the Euro-zone Summit has done what I expected it to do which is to buy time as I wrote just over a week ago - 01 Dec 2011 - Stock Market Panic Buying As Bear Market Goes Up in Smoke on Dollar Printing for Euros concluding in the following trend graph:

Despite the crisis news and widespread calls for an always imminent bear market to start, the stock market continues to trend towards a new bull market high by year end (DJIA). The bottom line remains that whilst the debt crisis can's continue to be kicked down the road then the bull market will do what bull markets do which is RISE!

So continue to enjoy the santa rally, I will endeavour to complete an in depth analysis by year end or early January 2012, which is pending analysis of the Inflation Mega-trend, UK economy, and the UK housing market, ensure you are subscribed to my always free newsletter to get this analysis in your email in box.

Your wealth protecting against bankrupting money printing sovereigns analyst.

Source and Comments:

By Nadeem Walayat

Copyright © 2005-2011 (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 25 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of three ebook's - The Inflation Mega-Trend; The Interest Rate Mega-Trend and The Stocks Stealth Bull Market Update 2011 that can be downloaded for Free.

Stocks Stealth Bull Market Ebook DownloadThe Interest Rate Mega-Trend Ebook DownloadThe Inflation Mega-Trend Ebook Download

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 600 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction.

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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