"Some of us have been talking it over, and here’s what we think the end game looks like:
1. Greek euro exit, very possibly next month.
2. Huge withdrawals from Spanish and Italian banks, as depositors try to move their money to Germany.
3a. Maybe, just possibly, de facto controls, with banks forbidden to transfer deposits out of country and limits on cash withdrawals.
3b. Alternatively, or maybe in tandem, huge draws on ECB credit to keep the banks from collapsing.
4a. Germany has a choice. Accept huge indirect public claims on Italy and Spain, plus a drastic revision of strategy — basically, to give Spain in particular any hope you need both guarantees on its debt to hold borrowing costs down and a higher eurozone inflation target to make relative price adjustment possible; or:
4b. End of the euro.
And we’re talking about months, not years, for this to play out."
Krugman's post is short and to the point. If he's correct, we ought to take note of Gordon Campbell's exhortion:
Be very, very afraid.
2. Huge withdrawals from Spanish and Italian banks, as depositors try to move their money to Germany.
3a. Maybe, just possibly, de facto controls, with banks forbidden to transfer deposits out of country and limits on cash withdrawals.
3b. Alternatively, or maybe in tandem, huge draws on ECB credit to keep the banks from collapsing.
4a. Germany has a choice. Accept huge indirect public claims on Italy and Spain, plus a drastic revision of strategy — basically, to give Spain in particular any hope you need both guarantees on its debt to hold borrowing costs down and a higher eurozone inflation target to make relative price adjustment possible; or:
4b. End of the euro.
And we’re talking about months, not years, for this to play out."
Krugman's post is short and to the point. If he's correct, we ought to take note of Gordon Campbell's exhortion:
Be very, very afraid.
9 comments:
and we are not far behind.
What Germany doesn't seem to have figured out is that these are their customers who are going broke. The Germans destroyed the already inefficient economies of the south of Europe and loaned them the money to buy German goods, The germans also had a lot to do with driving up land values all throughout southern Europe by buying properties in all of the nicer places than Germany. Germany has further to fall than the rest because it has a more complex economy that is more dependent on global trade than the less efficient economies. They forget that money is only a promise - it has no substance and no inherent value beyond the paper it is printed on. It quite probably will all just go POOF! at some point. It has done it before and the same logic continues to apply.
What DarkHorse doesn't seem to understand is that it is Germany that has propped up Europe for decades, the only people to blame for the problems in Greece and Spain are the Greeks and the Spanish.
The unsustainable nature of global economics is becoming impossible to ignore, despite best efforts from some to minimise these serious issues.
The scary thing is this, Germany actually has a good reason to begin annexing certain states.
I doubt this would happen at present, but we all need to understand how quickly such a situation can develop either in Europe or somewhere else.
As economies collapse and resources become harder to acquire, military force unfortunately begins to become an option or even necessity in the minds of some.
Best analysis seen on what can happen to the Euro was seen from commentatators on RT (Russian Television) on Sky.
They predict that the Euro will survive (The majority of the Greek population want it to stay according to the Greek economist interviewed) but that the stumbling block represented by each European States' Reserve Bank will need to be removed.
Crazy situation exists where the latest Greek borrowing is going not to stimulate their economy but from one European state owned reserve bank to anothers simply to repay an earlier loan plus interest.
This money go round is the problem and by consolidating ALL the lenders into one organisation, the need to rob Paul to pay Peter will be gone.
This will enable large savings in interest payments to middleman bankers.
End game thus will be a centralised European Bank and no independent euro nation reserve bank.
How anyone expected a Euro to survive long term without central banking control in the first place is the anomoly.
Amazing some of the better economic analysis comes from Russian Television.
French News Television (also on Sky) is worth a look as well to get indepth analysis.
Much better then the American news channels and way, way, way better than anything in NZL.
Have you seen the proposals the NZ reserve bank has for a banking run in NZ, Robert?
http://rbnz.govt.nz/finstab/banking/4335146.pdf
Its haircut time!
Hi Shunda agree with much of what you say but it is not possible to run a structural trade imbalance such as the ones China and Germany run without the consequences we now see. China has held its currency artificially low and Germany went into the Euro with a similar relative advantage to the other members. If all nations had fully floating currencies these structural distortions would not persist.
China is presently making the sort of militaristic noises you describe in the South China Sea.
It may well be closer to home than you may be comfortable thinking about.
Perhaps this explains why JK is so keen to sell the Crafar farms to China. Better to sell ourselves into slavery than to be invaded with the same result.
Very interesting DarkHorse.
I think we would all be fools to think we are somehow immune from the problems that have afflicted humanity throughout history.
Personally, I think we are extremely close to some major trouble. There are things happening now that people with even a very basic knowledge of world history should be very concerned about.
Much of the 'civility' between western or developed nations is based on cheap abundant resources and relative widespread prosperity. In parts of the world were this currently doesn't exist there is war and strife of every kind.
We may be about to begin the slide into such a situation.
What I find incredible is that the cause of this is so remarkably simple: just taking more than we put back in.
But the investment people have in not seeing this is astonishing. The problem is hiding in plain site, yet there is simply a collective motivation not to see it!!.
"OBR is intended to act as a resolution tool that puts the cost of bank failure primarily on
the bank’s shareholders and creditors rather than the taxpayers, minimises moral hazard
and provides continuity of core banking services."
Sounds sensible, Shane. There'll be tremendous fight-back.
I have been recently talking to a person in the know over in Eurpoe and which his thinking mirrors many others in Europe at present as well as thinkers like Gwynne Dyer.
The answer to the economic problems in Europe especially those in difficulty is
a) Withdraw from the Euro and sovereign countries make there own money. Why it appears only a minority in Europe have been advantaged by the common currency.
b) Default the EU debt as he said the EU money lent was only created as a book entry by financial traders of similar like to J P Morgan-chase ( who it was said on TVNZ yesterday made 86 BILLION last year ) ie no investment money was used.
As Dyer said life could not get anymore hardier for the Greeks than it is at present !
Of interest Argentina defaulted of a debt like this some years ago ....they had pain for awhile now they are growing by 8 percent per year as they are not saddled by a crippling debt to pay.
In short folks the answer to the European economic problems is a change in the economic system. My preference is to a Keynesian economy where everyone had enough to live no very poor but no very rich also!!
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