Well my fellow Slope-a-Dopes, it appears Angela has the whole world in her hands (or should I say by the balls). What will she do next with those stubby Germanic mitts of hers? Let us carefully examine the recent photograph above for any clues. She is throwing her hands up in the air, with a look of abject frustration & exasperation, almost as if she is ready to give up, wash her hands of it all, and hand over the whole oppressive problem to someone else's capable hands. Perhaps even more telling, she clearly has been seriously biting her nails on those ravaged wrinkled hands. Nail-biting (onychophagia) is a common stress-relieving habit. Is she about to lose it? That face sure looks ready to explode. What pray tell will she do next? My gut tells me that she's about to throw in the hand towel?
With many of the European indexes approaching and in some cases surpassing last summer's lows, one can expect more heroics out of the embattled Eurozone any minute now. New ECB liquidity injections are probably a given. FED/ECB currency swap lines will be stepped-up again, and possibly be made permanent. The much maligned ESM facility may now be given the authority to inject capital directly into the banks, bypassing the Sovereigns all together. There could well be a new LTRO 3.0 announced. The formation of a centralized Eurozone banking union, with the establishment of a federalized bank deposit insurance agency is on the table. An actual EU wide fiscal federation is even in the works, leading to a new authority in the euro zone, which would harmonize national budgets and manage the European debts via the issuance of Eurobonds.
Many of these all important fiscal unity measures are now being openly championed by the major EU players such as; Hollande, Monti, Rajoy, Barroso, Van Rompuy, Juncker, and even the head of the ECB Draghi. They also have the firm support and backing of the USA & the UK. Obama & Timmay are desperately working the transatlantic cables. Only Merkel and a few of her northern allies stand in the way of signaling the all clear, and giving the go ahead on a new all encompassing EU fiscal federation. Without unanimous consent from all the member states, the Masstricht treaty can not be amended so as to implement such far reaching goals. It's not that Merkel is opposed to a more centralized fiscal EU, in fact, quite to the contrary she is all for it. However, she wants it rooted in the conservative school Austrian of economics, and definately not in liberal Keynesian economic theory. This epic stalemate lies between; on the one hand those nations that have reached critical unsustainable debt levels, and thus are more than willing to give up their fiscal sovereignty in order to obtain structurally sound & more favorable financing terms through the EU as a single fiscal entity, and on the other hand those nations with balanced budgets, whom understandably do not want to cede sovereignty, and are thus unwilling to participate in a fiscal union which would increase their financing costs. In simple terms, the prudent and responsible do not want to be penalized by the imprudent and irresponsible. Is it really that clear cut? Is all the blame to be placed solely on the debtor nations, and unilaterally shouldered by them, while the creditor nations continue to prosper from a broken disjointed EU monetary / banking system, which in large part is directly responsible for bringing about the great divide between the center and the periphery? Of course not! George Soros eloquently elaborates on this very point in a speech given yesterday, at the Festival of Economics in Torento Italy:
But the euro also had some other defects of which the architects were unaware and which are not fully understood even today. In retrospect it is now clear that the main source of trouble is that the member states of the euro have surrendered to the European Central Bank their rights to create fiat money. They did not realize what that entails – and neither did the European authorities. When the euro was introduced the regulators allowed banks to buy unlimited amounts of government bonds without setting aside any equity capital; and the central bank accepted all government bonds at its discount window on equal terms. Commercial banks found it advantageous to accumulate the bonds of the weaker euro members in order to earn a few extra basis points. That is what caused interest rates to converge which in turn caused competitiveness to diverge. Germany, struggling with the burdens of reunification, undertook structural reforms and became more competitive. Other countries enjoyed housing and consumption booms on the back of cheap credit, making them less competitive. Then came the crash of 2008 which created conditions that were far removed from those prescribed by the Maastricht Treaty. Many governments had to shift bank liabilities on to their own balance sheets and engage in massive deficit spending. These countries found themselves in the position of a third world country that had become heavily indebted in a currency that it did not control. Due to the divergence in economic performance Europe became divided between creditor and debtor countries. This is having far reaching political implications to which I will revert.
It took some time for the financial markets to discover that government bonds which had been considered riskless are subject to speculative attack and may actually default; but when they did, risk premiums rose dramatically. This rendered commercial banks whose balance sheets were loaded with those bonds potentially insolvent. And that constituted the two main components of the problem confronting us today: a sovereign debt crisis and a banking crisis which are closely interlinked.
The eurozone is now repeating what had often happened in the global financial system. There is a close parallel between the euro crisis and the international banking crisis that erupted in 1982. Then the international financial authorities did whatever was necessary to protect the banking system: they inflicted hardship on the periphery in order to protect the center. Now Germany and the other creditor countries are unknowingly playing the same role. The details differ but the idea is the same: the creditors are in effect shifting the burden of adjustment on to the debtor countries and avoiding their own responsibility for the imbalances. Interestingly, the terms “center” and “periphery” have crept into usage almost unnoticed. Just as in the 1980’s all the blame and burden is falling on the “periphery” and the responsibility of the “center” has never been properly acknowledged. Yet in the euro crisis the responsibility of the center is even greater than it was in 1982. The “center” is responsible for designing a flawed system, enacting flawed treaties, pursuing flawed policies and always doing too little too late. In the 1980’s Latin America suffered a lost decade; a similar fate now awaits Europe. That is the responsibility that Germany and the other creditor countries need to acknowledge. But there is now sign of this happening.
It takes two to Tango. The south has certainly over spent, but the north has clearly over lent. Take one good look at the average taxi I rode in while in Athens, and you will get the picture. The cozy cabs waiting for you at the airport are all either BMWs or Mercedes. The following quote from a well respected professor at the London School of Economics neatly sums up this untenable Eurozone duality dilemma:
The excess debt accumulation in the South is matched by an excess accumulation of claims in the North. The correct response would be to force the deficit countries to reduce and the surplus countries to increase spending. The European Commission’s strategy, however, forces all the adjustment on the deficit countries without imposing a symmetric and opposite adjustment on the surplus countries. As a result, the Eurozone is forced into a deflationary straitjacket.
Sure the north is more industrious than the south, that goes without saying, has always been the case, and probably always will. Must have something to do with the weather, and all that fun in the sun. However, that is not the principal reason the European nation states currently find themselves with intractable trade & current account imbalances. It is the flawed monetary structure / broken banking system of the EU itself that is at fault. Further compounded by the mismanagement of the crisis, which has brought Europe to its knees, at the precipice of the next financial crisis.
We all know now, and were actually warned from the outset, that you simply can not have a common currency monetary union without a corresponding fiscal union. The bold but ill-conceived EU experiment has obviously failed for all to see, and in so doing has put the entire global economic order at risk. The financial markets certainly have spoken. Global equities are crashing, the USD is soaring, Treasury & Bund yields are flatlining, the EURO is flailing, the EU periphery's yields are exploding, and their CDS spreads are blowing out….etc……
So now that the fuse has been lit, what comes next? We are clearly at a critical crossroads, the time to ponder is over, the road forward must now be taken. And in my view, one of two things will happen very quickly here.
A plausible scenario is basically financial Armageddon. Should the impasse between the solvent states and the insolvent states remain unresolved, and no structural fiscal union is introduced, the Eurozone in its present form simply unravels, and promptly breaks apart. Spain & Italy's soaring sovereign bond yields quickly freeze them out of the capital funding markets all together, taking down many of the EU's under capitalized banks with them. Multiple bank runs will be met by emergency nationalizations, and one by one the nation states will turn inward on themselves, as the situation spirals out of control. In this scenario, the european banking system simply collapses on itself. Clearly the international banking cabal that runs this entire theatre of the absurd, will not let that happen. They will force the unwilling political hold outs on to center stage. Merkel will be made to sing the chorus line, you can count on that, as the alternative is just not contemplated in the global banker's playscript.
In our world today, it is indisputably clear for all to see, that a globe made up of individual sovereign states governed by nationally elected statesmen has almost completely ceded way to a new paradigm. The international banking & corporate titans are now the real powers directing world affairs. To understand what comes next in our economic outlook, and how the market may react to it, it is essential to think about what these new centers of power are interested in.
The first order of business for our new masters, is to take full advantage of the sovereign debt crisis now imploding in Europe. Rahm Emanuel's mantra comes to mind "never let a major crisis go to waste". One could even go so far, as to make the case, that the current debt crisis now engulfing Europe was actually initiated by the financial oligarchs themselves, so as to further consolidate their grip on the independent nation states. After all, it was the financial & commercial elites of the world, that most fiercely advocated for, and imposed the EU & EURO on to the Sovereigns.
Saving Italy & Spain from financial collapse, and protecting all of Europe from descending into a great debt depression will no doubt be sighted as the reasons for their bold actions. But the real and much more sinister motivation, is to use this crisis, to further consolidate the powers of the EU & the international banking cabal over the Sovereigns, by creating a Pan European bond market. The final result, will be the near total evisceration of the national right of a country to direct its own monetary & fiscal affairs. Out with Sovereign democracy, in with Corporate kleptocracy. http://slopeofhope.com/2011/08/the-globalist-take-charge.html
In an insightful article from Eurointelligence, LSE professor Paul de Grauwe specifically lays out the precise steps the Globalist will take to finalize their evil EU plan:
The correct response to the crisis consists of three elements, all of which are key. First, the ECB should step in to stop panic and fear from undermining the stability of the Eurozone. It can do this by announcing that government bond rates of solvent but illiquid nations (Spain, Italy, Portugal, Ireland) will not be allowed to exceed a certain level (say, 300 basis points above the German government bond rate). The ECB is the only institution that can guarantee this, and that can stop the spread of existential fear that destroys the Eurozone. The EFSF and the future ESM have limited resources and cannot credibly commit to such an outcome.
Second, the European Commission should tell deficit and surplus countries alike to make the necessary adjustments. For the deficit countries this means austerity, albeit spread over a longer period. While the European Commission travels to the deficit countries and preaches austerity, it should also go to the surplus countries and urge them to stop trying to balance the budget when the Eurozone risks moving into a recession. The European Commission’s message should be that budget deficits in these countries are good for them and for the system.
Finally, a budgetary union is a key ingredient of a sustainable monetary union. Budgetary union, however, is a long-term prospect. There is little prospect for achieving it quickly. What can be done quickly, however, is the issue of common Eurobonds. This approach has the merit of signaling to the market that irreversible steps towards budgetary union are being taken today, thereby eliminating the existential fears that destabilize the Eurozone.
Team Global's Goalkeeper made the first game saving stick save last year with the formation and implementation of the ESM, EFSF, LTRO & FED/ECB currency swap blue lines. A massive liquidity wave of global QE icing was unleashed, and the refs handed out a few austerity penalties for too much cross checking. Now that the Zamboni has resurfaced the rough ice for the new season, and the centers are to face off once again, they will double down on the puck with much of the same hockey tape on their sticks. The game winning slapshot will be delivered by the bankster's defense-man during a Eurobond power play, and the commission will order the refs to refrain from calling further penalties on the periphery.
Don't get me wrong my fellow Dopes, I am under no illusion that any of these measures will prevent the nuclear debt bombs from detonating. Make no mistake, the western world's rapacious banking elites have unwittingly assembled weaponized financial instruments of mass destruction, and the fuses are now lit. Simply pointing out that the global banking pyro-technic kleptocrats still have a few more firework displays lined up on the barge, which will be set off between now and the 4th of July, before we see the grand finale this Fall…….
The banksters will kick the Euro trash can once again, and live yet another stinking day, but the noose around their necks keeps tightening. Rest assured, greed and hubris will soon take them down, same as it ever was………it's just a matter of time.
Evil Plan 65.0 let the final bounce begin……..EURO Pop to 1.28, Market snap back to 1338