Best of the Week
Most Popular
1.Is the Stocks Bull Market Over? Dow Trend Forecast into End January 2015 - Nadeem_Walayat
2.Gold and Silver Stocks Apocalypse Now, Bear Market Review - Rambus_Chartology
3.NHS Baldrick Plan to Spread Ebola Across UK - Sheffield, Newcastle, Liverpool, London Hospitals - Nadeem_Walayat
4.Ebola Terror Threat Suicide Bio-Weapons Threatens Multiple 9/11's, Global Plague - Nadeem_Walayat
5.Second-Richest Man Says Mortgages Now a "No Brainer" - Dr. Steve Sjuggerud
6.Gold And Silver Still No End In Sight - Michael_Noonan
7.NHS Baldrick Plan to Spread Ebola Across UK - Sheffield, Newcastle, Liverpool, London Hospitals - Nadeem_Walayat
8.The Gold Bug is Set to Bite Back - EWI
9.How Alibaba Could Capitalize on the EBay-PayPal Split - Frank_Holmes
10.The Consequences of the Economic Peace - John_Mauldin
Last 5 days
Gold And Silver Price - Respect The Trend But Prepare For A Reversal - 25th Oct 14
Ebola Has Nothing To Do With The Stock Market - 25th Oct 14
The Gallery of Crowd Behavior: Goodbye Stock Market All Time Highs - 25th Oct 14
Japanese Style Deflation Coming? Where? Fed Falling Behind the Curve? Which Way? - 25th Oct 14
Gold Price Rebounds but Gold Miners Struggle - 25th Oct 14
Stock Market Buy the Dip or Sell the Rally - 25th Oct 14
Get Ready for “Stupid Cheap” Stock Prices - 25th Oct 14
The Trend Every Nation on Earth Is Pouring Money Into - 25th Oct 14 - Keith Fitz-Gerald
Bitcoin Price Decline Stopped, Possibly Temporarily - 25th Oct 14
Bullish Silver Stealth Buying - 24th Oct 14
Blood in the Streets to Create the Gold Stocks Investor Opportunity of the Decade - 24th Oct 14
Swiss ‘Yes’ and ‘No’ Gold Initiative Campaigns Compete at Launches in Bern - 24th Oct 14
War And The Law Of Unintended Consequences - 24th Oct 14
Tesco Meltdown Debt Default Risk Could Trigger a Financial Crisis in Early 2015 - 24th Oct 14
Saudi Move to Cut Oil Prices Is Now Russia's Biggest Economic Threat - 24th Oct 14
US Stock Market Top Is Now In Sight - 24th Oct 14
New Profit Points in the Shifting Balance of Power, Welcome to Saudi America - 24th Oct 14
QE Failure & Folly Of Paper Mache, Treasury Bond Integrated Lifeline Patches - 24th Oct 14
U.S. Economy Faltering Momentum, Debt and Asset Bubbles - 23rd Oct 14
Annuities - Afraid Your Money Will Vanish before You Do? - 23rd Oct 14
What Debt Deleveraging? - 23rd Oct 14
How to Profit from Massive Spin-Offs with Just One Play - 23rd Oct 14
Evaluating Ebola as a Biological Weapon - 23rd Oct 14
Euro, USD, Gold and Stocks According to Chartology - 23rd Oct 14
Why You Should Always Be Invested in the Stock Market (Even Now) - 23rd Oct 14
Five U.S. Housing Market Warning Signs Point to Real Estate Market Downturn - 23rd Oct 14
The Better Short: Gold or Silver? - 23rd Oct 14
Focus on Graphite Companies with Green Energy and Technology Strategies - 22nd Oct 14
Crude Oil Price Hitting Bottom - 22nd Oct 14
Evidence of Another Even More Sweeping U.S. Housing Market Bust Already Starting to Appear - 22nd Oct 14
Gold Or Crushing Paper Debt Stocks Crash? - 22nd Oct 14
India Gold Demand Surges 450% and Bank of Russia Demand At 15 Year High - 22nd Oct 14
Bitcoin Stock Exchange Could Be "More Valuable than Alibaba" - 22nd Oct 14
Currency War - How to Profit from a Stronger U.S. Dollar - 22nd Oct 14
Banks Hold Treasuries and Make Loans- 22nd Oct 14
Gold and Silver Timing is Everything - 22nd Oct 14
Don't Get Ruined by These 10 Popular Investment Myths (Part VII) - 22nd Oct 14
Follow the Baby Boom to Biotech Stock Profits - 22nd Oct 14
Copper, Nickel and Zinc Won't Be Cheap for Long - 22nd Oct 14
How Will We Know That the Gold & Silver Price Bottom Is In? - 21st Oct 14
Is Gold as Dead as Florida Hurricanes? - 21st Oct 14
First Swiss Gold Poll Shows Pro-Gold Side In Lead At 45% - 21st Oct 14
The Similarities Between Germany and China - 21st Oct 14
The REAL Reason Why the Stock Market Turned Down - 21st Oct 14
Petrobras is a 'Scheme, Not a Stock' - 21st Oct 14
Stocks Bear Market Indicator Is Off the Mark - 20th Oct 14
Stock Market Ideal Turning Point is at Hand - 20th Oct 14
Investors Quit Complaining, The Environment is Perfect Right Now - 20th Oct 14
Ebola Armageddon Could Trigger a Rebirth in Gold and Silver Prices - 20th Oct 14
Gold vs Euro Risk Due To Possible Return of Italian Lira - Drachmas, Escudos, Pesetas and Punts? - 20th Oct 14
Stocks Rebounded Following Recent Sell-Off, But Will It Last? - 20th Oct 14
U.S. Responsible for West Africa Ebola Outbreak Says Liberian Scientist - 20th Oct 14
Stock Market Intermediate B Wave has Started - 20th Oct 14
Gold Stocks Analysis – FNV, CG, NCM, SBM - 19th Oct 14
Stock Market Primary IV Wave Counter Trend Rally - 19th Oct 14
Gold And Silver - Financial World: House Of Cards Built On Sand - 18th Oct 14
Anatomy of a Stock Market Sell-Off - 18th Oct 14
Why OPEC Has Declared an Oil War on Russia - 18th Oct 14
Gold and Silver Extreme Shorting Peaks - 18th Oct 14
Bitcoin Price Fall to $350? - 18th Oct 14
Tesco Supermarket Crisis Worse To Come as Customers Vanish! - 18th Oct 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Stocks Epic Bear Market

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.


© 2005-2014 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