Anybody still has doubts about the EU? Dijsselboems statements, speaking the truth for one time supposedly has created doubts. Certainly not very diplomatic and loosing in the scapegoat game, he could not cause more damage, because since 2008 time has been bought by insolvency avoidance. This ‘EU’ slowly approaches its end. Dijsselboems dry words only just calmly facts . In reality Cyprus should have been already since eight months in insolvency. That has been avoided by the EZB with the ELA system to held Cyprus in an artificial coma worth a “D” like Default . Only presumably the influence of Goldman-Sachs to the rating agency prevented that, because like in Greece otherwise the shadowy CDs market would break down, Goldman-Sachs as one of the key players would go down in a chain reaction. Either the figures of the piled up mountain of the decayed State loans of the EZB will become due 2014 and 2015, or they could be moved fast enough to the banking union. In both cases the Cyprus overnight “tax” (robbery) will be norm. It sure was a test case for the German “finance” minister, who would with an blink of an eye to same or mor harm to German bank customer.
We have a systemic error in the common EU currency. The countries were disparate before and now couldn’t devaluate anymore. Everybody knew that. Since the Euro huge imbalances build up in a fixed exchange-rate regime. As before during the 10 years Euro currencies these southern countries by having given up their currency didn’t play by the needed rules. Instead the money which moved in the periphery countries was consumed. The money came from the financial sector. The same sector which is now saying. They should have kept public finances in good shape. They shouldn’t have permitted housing booms. They shouldn’t have had a financial sector making bad investments. But they did all these things. The drug dealer explains the addict they shouldn’t have taken the drug. So now what these countries have to do is get their public finances in good shape, to quit. But they don’t have their own central banks to pump up the money supply and offset austerity and nor can they depreciate currencies. The reason you’re seeing these crises recurring is they’re trying again and again a recipe that can’t work. And so the economies just keep weakening. The only way out is a joint suicide, debt union and inflation – essentially financial repression and plundering the German wealth. That is the ECBs strategy under a remote-controlled G&S allumni.
But not even this could offset the pain in Italy. Italy has been in recession for seven or eight quarters. Italy, which is much bigger than Cyprus, over the last month. They had an election in which they basically have a political stalemate. Sixty percent of the electorate said they don’t want this austerity anymore. So why does it keep happening? Because they’re constrained, they’re forced into a policy path leading them on dire streets. In Spain, unemployment is around 26 percent. This has messed up public finances, but it also causes a political reaction.
It is not a painful, grinding adjustment, the imbalances will never been worked out and the euro zone will never be on stronger footing. What follows that weaker economies will lead to worse political situations will lead to more crises taking down all countries in the abyss – politically, financially or both. Financial repression will turn in political repression. Laws have been broken, trust in banking is already a casuality. Money transfers will be regulated to avoid bank runs.
Things are getting worse. Overall euro-zone unemployment now keeps grinding up, it’s at 9 or 10 percent now. Youth unemployment is in the 20s. Or look at Spain. Spain isn’t a Mickey Mouse economy like Greece or Cyprus. Spain has 26 percent unemployment and youth unemployment is 60 percent. This is a social explosion waiting to happen.
And what is the policy recommendation? They need to do more austerity. They need to stay the course. Alternatively, more debt, joint debt, bail out of the last piggy bank as system relevant.
Greece has been in recession for five years, and they still need to tighten their budget. The Cypriot case is their financial sector got out of control. It was 8.5 times the economy. Luxemburg is even more. When the Greek bonds got restructured, they suddenly had a big hole in their balance sheet. The German politicians, because they have an election coming in September, want to conceal bailing out banks in Cyprus with some fake show of strenghth, because that surly would bring German Grillos in the parliament. That makes this a complicated mess.
To sum it up a systemic underlying problem and the mechanism will pull the whole thing apart. Bad politics created the Euro zone, created bad economies which are creating more unstable politics, and more unstable politics is leading to more crises.
What you’re seeing already is the politics coming unstuck in a lot of places in Europe. Greece is the worst example. The extreme left and right has 45 percent of the vote now. The longer that process goes on, the more you’d expect the center to disintegrate. I don’t understand how you can extend this for many more years. Fiscal austerity in 2013, 2014, and 2015 as proposed is from the table. I don’t see how, how we could keep significant fiscal austerity at a time when banks are cutting credit, and Germany is slowing down, and, in Spain, the housing bubble is bursting, I don’t see how this recession ends. And if you don’t have hope – the politicians who keep selling the pipe dream that this will hurt a bit but in six months time we’ll see the light are just inviting a political mess.
In Italy Beppe Grillo got more votes than the two parties. The AfD might change the all party union against citizens in Germany. Grillo is an anti-establishment kind of figure. That’s a measure of how mad Italians are with austerity. I’m just assuming that if the economy doesn’t improve and then gets worse, you can’t expect the politics to get better. When politics gets bad it feeds into economics. Who in their right mind is investing in Italy right now? That begins to drive the economics further into the hole, which strengthens the position of those against the establishment. That will happen in Germany too, if people realize they asked for empathy for richer countries, effectively robbed and insulted at the same time.
The longer we save banks and countries, the more likely a political problem arises that we can’t solve. The fact that we’ve got dysfunction in at least five countries – something is going to happen. There’s an election in Germany where they would have made a big deal out of bailing out a tax haven. So what looks like a foolish decision from the economic system might have been a smart politically to fool the Germans voters. But with five of these countries teetering on the brink, I’m quite sure more these crises will keep happening and sooner or later become a ful blown crash.