Best of the Week
Most Popular
1.SNP Offers Labour Deadly Death Embrace Alliance, Holding England to Ransom, Destroy UK From Within - Nadeem_Walayat
2.Gold And Silver – Most Widely Used Currency In Western World? Stupidity - Michael_Noonan
3.Election Forecast 2015 - Coalition Economic Recovery vs Labour Collapse - Nadeem_Walayat
4.Election Forecast 2015 - Debates Boost Labour Into Opinion Polls Seats Lead - Nadeem_Walayat
5.Why are Interest Rates So Low? Ben Bernanke, Confused as Ever, Starts His Own Blog to Prove It - Mike_Shedlock
6.Leaders Debate Election 2015 - Natalie Bennett Green Party Convincing Anti-Austerity More Debt Argument - Nadeem_Walayat
7.Labour Economic Collapse vs Coalition Recovery - UK Election Forecast 2015 - Video - Nadeem_Walayat
8.China’s Stock Market Mania; How High can Red-chips Fly? - Gary_Dorsch
9.Gold and Misery, Strange Bedfellows - 31st Mar 15 - Dan_Norcini
10.Ed Miliband Debate Election 2015 Analysis - Labour Spending, Debt and Economic Collapse - Nadeem_Walayat
Last 5 days
Impending Stock Market Top - Trend Forecast Summer 2015 - 26th Apr 15
Desperate Stock Market Bubble Thinking Takes Hold on Wall Street - 26th Apr 15
Stock Market Back into The Bear Suits - 26th Apr 15
One Stock Market Where You Haven't Missed the Bull Market Boom Yet - 26th Apr 15
Migrant Crisis - Europe Has Completely Lost It - 26th Apr 15
What Obama's First-Ever Energy Review Missed - 26th Apr 15
Sheffield Hallam Election Battle 2015, School Places Crisis, Can Nick Clegg Win? - 26th Apr 15
Stocks Bull Market Looks to Resume - 25th Apr 15
Gold And Silver - The U.S. Is A Corporation. Precious Metals Stand In The Way - 25th Apr 15
When the Nuclear Money Option Fails - 25th Apr 15
The War on Cash Special Report - 25th Apr 15
China Economic Slowdown Story - Why “Didi Dache” Is a Phrase You Need to Know - 25th Apr 15
The Trans-Pacific Partnership and the Death of the Republic - 25th Apr 15
Stock Splitting Caused the Stock Market Crash - 25th Apr 15
China Stock Market Parabolic Mania’s Global Risk - 24th Apr 15
What Will Happen to You When the U.S. Dollar Collapses? - 24th Apr 15
Why 2 of U.S. Dollar's Recent Bottoms Have 1 Thing In Common - 24th Apr 15
UK Economy Debt Timebomb Will Explode After Election - 24th Apr 15
Are Gold Stocks the Cheapest Ever? - 24th Apr 15
God, the Stock Market and Pascal's Wager - 24th Apr 15
Greedy Insurers Are in for a Nasty Surprise – Positioning You for Big Profits - 24th Apr 15
Four Things Missing From Obama’s First-Ever Energy Review - 24th Apr 15
How to Grow a Regenerative Medicine Industry - 23rd Apr 15
Stocks and Bonds Seven Year of Negative Returns; Fraudulent Promises - 23rd Apr 15
The Existential Danger To The Euro Is Elections - 23rd Apr 15
Stock Market No Clear Direction As Investors React To Quarterly Earnings Releases - 23rd Apr 15
Is China The Next United States? - 23rd Apr 15
U.S. Oil Glut: How High Can It Go? - 23rd Apr 15
Distorted Financial System Expect Deflation, Inflation And Hyperinflation - 23rd Apr 15
What McDonald’s Corporate Earnings Report Is Really Telling You - 23rd Apr 15
Gold Price Forecast to Become Priceless - 23rd Apr 15
FDIC Plots a Bank Heist Involving YOUR Accounts - 23rd Apr 15
$GOLD Price Year 2007 Again - 23rd Apr 15
Stocks Bubble - The Spread between Stock Prices and GDP is Blowing Out - 23rd Apr 15
Ukraine War - When Did We All Become Murderers? - 23rd Apr 15
Libya Crisis - EU Leaders Are Indicted for Nazi-Style Crimes against Humanity - 22nd Apr 15
Why Alternative Energy Isn’t Taking It on the Chin Despite Low Oil Prices - 22nd Apr 15
Bill Gross - German 10-Year Bunds Short of a Life Time - 22nd Apr 15
How to Profit from the Drop in the Oil Price - 22nd Apr 15
The U.S. Dollar's Move Is More Dangerous than You Think - 22nd Apr 15
Apple Watch Means Apple Will Become Worlds First $1 Trillion Stock - 22nd Apr 15
Half a Stocks Bubble Off Dead Center - 22nd Apr 15
They Said Go to College - Learning to become Debt Slaves - 22nd Apr 15
Best Cash ISA 2015/16, Instant and Fixed Savings Interest Rates, New Flexible Withdrawal / Deposit Rule - 22nd Apr 15
Unsound Banking: Why Most of the World's Banks Are Headed for Collapse - 21st Apr 15
Bitcoin Recent Low Price Volatility Might Be Deceptive - 21st Apr 15
Currency Wars Back As Russia Buys Gold - One Million Ounces in March Alone - 21st Apr 15
The Greece 'Grexit' Issue and the Problem of Free Trade - 21st Apr 15
Why Europe Lets People Drown - 21st Apr 15
Wealth Destruction for the 99.9 Percent - 21st Apr 15
SNP Publish England's Suicide Note as Pollsters Still Forecast Labour-SNP Election Disaster - 21st Apr 15
Characteristics of Extremely Over-Indebted Economies - 21st Apr 15
Trader Education Week -- a Free Event to Help You Learn to Spot Trading Opportunities - 21st Apr 15
Gold & Silver Alert: Silver Stocks’ Signal - 20th Apr 15
Now is the Time to Buy Resource Stocks, Especially Gold Equities - 20th Apr 15
DJ Transportation & Utility Averages Suggest Stocks Bull Market Is Over - 20th Apr 15
Crude Oil Price Bull Market Hope - 20th Apr 15
Stock Market Bears Get Slaughtered Despite Greece Counting Down to Grexit Financial Armageddon - 20th Apr 15
The Rise of the Paper Machines - 20th Apr 15
Gold and Silver Inflection Point - 20th Apr 15
SP500: A Butcher's Stock Market (Chop Chop Chop) - 20th Apr 15
Are Stock Market Bears Slowly Gaining Control? - 20th Apr 15
Sugar Commodity Price Bear Rally - 19th Apr 15
Avoid the Spread of the Stock Market "China Syndrome" - 19th Apr 15
Stock Market Going Nowhere Fast - 19th Apr 15
An Easy Way to Profit From the Two Biggest Trends in the Stock Market - 19th Apr 15
No Scripture Is Divine, Authentic and Beyond the Creation of the Human Brain - 19th Apr 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The War on Cash!

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.


© 2005-2015 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

Free Report - Financial Markets 2014