Best of the Week
Most Popular
1.What Happened to the Stock Market Crash Experts Were Predicting - Sol_Palha
2.London Housing Market Property Bubble Vulnerable To Crash - GoldCore
3.The Plan to Control ALL Your Money is Now at Advanced Stage
4.Why Gold Is Set For An Epic Rally This Spring - James Burgess
5.MR ROBOT NHS Cyber Attack Hack - Why Israel, NSA, CIA and GCHQ are Culpable - Nadeem_Walayat
6.Emmanuel Macron and Banking Elite Win French Presidential Election 2017 - Nadeem_Walayat
7.Trend Lines Met, Technical's are Set - US Dollar is Ready to Rally (Elliott Wave Analysis) - Enda_Glynn
8.The Student Debt Servitude Sham - Gordon_T_Long
9.Czar Trump Fires Comey, Terminates Deep State FBI, CIA Director Next? - Nadeem_Walayat
10.UK Local Elections 2017 - Labour Blood Bath, UKIP Death, Tory June 8th Landslide - Nadeem_Walayat
Last 7 days
Manchester Bombing - ISIS Islamic Terrorist Attack Attempt to Influence BrExit Election - 23rd May 17
What an America First Trade Policy Could Mean for the US Dollar - 22nd May 17
Gold and Sillver Markets - Silver Price Sharp Selloff - 22nd May - 22nd May 17
Stock Market Volatile C-Wave - 22nd May 17
Stock Market Trend Forecast and Fear Trading - 22nd May 17
US Dollar Cycle : Deep Dive - 21st May 17
Bitcoin Breaks the $2,000 Mark as Cryptocurrencies Continue to Explode Higher - 21st May 17
Stocks, Commodities and Gold Multi-Market Status - 21st May 17
Stock Market Day Trading Strategies and Brief 20th May 2017 - 21st May 17
DOW Needs to Rally Big or Correction is Next - 20th May 17
EURUSD reaches DO or DIE moment! - 20th May 17
How to Get FREE Walkers Crisps Multi-packs! £5 to £28k Pay Packet Promo - 20th May 17
UK BrExit General Election 2017 - Will Opinion Pollsters Finally Get it Right? - 19th May 17
Gold Mining Junior Stocks GDXJ 2017 Fundamentals - 19th May 17
If China Can Fund Infrastructure With Its Own Credit, So Can We - 19th May 17
Evidence That Stocks are More Overvalued than Ever - 19th May 17
Obamacare May Become Zombiecare In 2018 - 19th May 17
The End of Reflation? Implications for Gold - 19th May 17
Gold and Silver Trading Alert: New Important Technical Development - 19th May 17
Subversion And Constructive Synthesis Of Capitalism And Socialism - 18th May 17
Silver: Train Leaving Station Soon! - 18th May 17
Credit and Volatility Signal That Financial Conditions Are Very Overheated - 18th May 17
Another Stock Market "Minsky Moment" or Will the Markets Calm Down? - 18th May 17
WannaCry Ransomware Virus Is a Globalist False Flag Attack On Bitcoin - 18th May 17
Euro, Stocks, Gold Momentum Extremes All Round! - 18th May 17
US Stock Market Slumps on Establishment / CIA Trump Impeachment Coup Plan - 18th May 17
Tory Landslide, Labour Bloodbath - Will Opinion Pollsters Finally Get a UK Election Right? - 17th May 17
The stock market sectors which are breaking out in 2017 - 17th May 17
A ‘Must-See’ Chart for Gold and Silver Aficionados  - 17th May 17
Will the SPX Stock Market Final Surge Fail to Appear? - 16th May 17
Claim your FREE copy of Jim Rickards’ explosive book - 16th May 17
GOP Establishment Elite Plots Trump Removal - 16th May 17
Walkers Crisps Pay Packet Cheats, Shoplifters and Staff Conning Customers - 16th May 17
Gold and Sillver Markets - Silver Price Sharp Selloff - 15th May 17
Gold Stocks Poised to Soar Sharply Higher! - 15th May 17
This One Undiscovered Pot Stock Could Help Investors Cash In On The “Green Gold Rush” - 15th May 17
WIll Trump Tax Cuts Debt Binge Save Stock Market From Double Top Bear Plunge? - 15th May 17
Trump Rally or Geopolitical Meltdown: Currency Management for Dollar Risk - 15th May 17
A Shallow Stock Market Correction? - 15th May 17

Market Oracle FREE Newsletter

Trading Commodity Markets

EU Game Changer: Economic Austerity Hits The Core

Economics / Economic Austerity Nov 10, 2012 - 10:47 AM GMT

By: Raul_I_Meijer

Economics

Best Financial Markets Analysis ArticleHere's what may be a useful angle to explain to people what is happening in Europe right now, and what's yet to come. It's not about Greece, which shoved another "Deal" through its besieged parliament this week, a deal that itself is also still under siege. It's not about Spain either, which managed to borrow a few billon more, enough to stay alive till Christmas, but sees its bond yields enter the land of ugly (yawn) again.


We all know the stories of the eurozone periphery by now, we've read a thousand chapters. And the core likes it that way, since this keeps us from looking its way. The situation allows for Germany, France and Holland to sit pretty and pretend they're doing fine. They're not.

Some ugly numbers have come out of Germany lately. We’ll get back to that later. More interesting is the report that German Finance Minister Schaeuble has asked a "wise men" committee to draw up a picture of what's really happening with France economically, a picture that should serve as a counterweight to the portrait French President Hollande paints, and which Germany no longer has confidence in.

However, the more poignant sign of what's to come in Europe emanates from Holland.

Earlier this year, a right-leaning minority coalition government threw in the towel. On September 12, new elections ended with two large parties: the right-wing liberals and the left-wing labor party. Which then decided to form a coalition together. And did so at record speed. The two party leaders couldn't stop talking about how great their counterparties were performing in the very secretive negotiations for their coalition agreement.

Then last week the agreement was published. Confusion ensued. Everyone tried to figure out what the numbers behind the agreement were, but nobody could. When the new coalition government was installed on Monday, all anyone had was questions.

First, there was a plan to make health care premiums income dependent. The richer pay more, the poorer less, fair enough to an extent. But when it came out that the richer would see their premiums quadruple, the right wing was up in arms against its own guy. A week later, the whole plan has been shelved.

Second, there were questions about what would be the overall financial consequences of the coalition agreement. Apparently, the initial reaction of the new government was that that could not be known until it had been operating for a while, like a few years or so. Nice, when you get to think about it. A TV network asked for the numbers underlying the plans, but was told to take a hike. It went to court to get them, but the judge ruled there's a minimum term of one month for this.

Anyway, a too rapidly built plan in which too much was left to chance. In other words: just another building block that fits in perfectly with all the others the house of Europe consist of. The kind that, if it doesn’t work out, is just as easily replaced with the next one (how many times has Germany said: no more money for Greece?!). It's reminiscent of a line mostly attributed to Groucho: "These are my principles. If you don't like them, I have others."

But that's still not the point I wanted to make, it's just the introduction. Something else came to light during the first few messed up days of that coalition government. Of course the coalition partners didn't volunteer the information, but - respectable - third parties that did do the math with what little they had to go on came up with some surprising findings. Which give a us a good idea of where Holland is headed. And if Holland is, so is the rest of the European core.

The third party numbers that were initially reported spoke of 10-20-30% declines (I saw one 60% quote) in purchasing power for large parts of the Dutch population over the next 4 years due to the new coalition agreement. Not only would this be austerity on steroids, it's also so far away from anybody's world view in Holland that it hardly even registers. Which is probably a large part of the reason it's so easy for the coalition partners to say it's not true at all. In their response, however, they gave up a lot of the ever so happy people picture. And that could prove fatal.

The government in an impromptu official reply to third party numbers said that "only" one in six Dutch(wo)men will lose "only" 5-10% in purchasing power. Bad enough, you would think. But they of course inevitably underplay the numbers; they're like the EU claiming GDP will rise in 2013, habitual liars who can't help themselves. Good news sells, whether it's true or not.

In view of the everlasting propensity for good news and neverending drive towards sunny predictions that fuel politics as we know it across the board, we can already state with absolute certainty that the situation will work out to be much worse than a government, any government, would predict. There's not a bookmaker on the planet who would accept odds against that principle.

Instead of the one in six losing 5-10% of purchasing power, what we'll see develop is that at least one in three will lose at least 10-20%. By then you have a sharply shrinking GDP and not even a thought of paying for anyone else's debt. And maybe we should thank the Dutch government for admitting what they have; none of their peers have to date. Sure, the Greek and Spanish governments have, but only after the troika - the outside world - ran a big sharp dagger across their throats. What Holland showed us is different in more than one way: There was no outside pressure, no daggers, and they weren't really paying attention, since they were too pre-occupied with the mental boost of new found power.

Still, in doing what they did, they gave away the future of the European core, and the European periphery with it, a future in which the core bailing out the rest will be a forgotten past that no-one can quite imagine anymore. Once again, we return to "the center cannot hold". Only this time it's out in the open. Consider yourself forewarned and act accordingly. Why don't you.

By Raul Ilargi Meijer
Website: http://theautomaticearth.com (provides unique analysis of economics, finance, politics and social dynamics in the context of Complexity Theory)

© 2012 Copyright Raul I Meijer - All Rights Reserved 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 losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2016 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

Catching a Falling Financial Knife