The bailout of the Irish banks have lead me to review the ‘stress testing’ done by the ECB earlier in the year. We were told that they had a clean bill of health, which in retrospect was untrue. If the Irish banks were diseased, it suggests to me that questions must be raised about all of the other European banks that were given a clean bill of health at that time. The ‘stress testing’ results were I suspect the usual generation of confidence by the powers that be, to prevent meltdown at that time.
However, I have developed serious concerns since last week when Frau Merkle announced that in future, bondholders will have to take some of the pain.
Call me paranoid, but I am getting the impression that Germany is setting up the peripheral economies with binding bailout loans, which will have to be repaid. The contagion is spreading to Portugal, Belgium, Spain and Italy. Bailouts will be organised for at least the first two of these, probably along the same lines as Ireland.
When it becomes apparent that the German Banks are at risk (which I have no doubt that they are), and when the crises engulfs German politics, then the Germans will partially default as warned by Frau Merkle. It will probably result in the demise of the euro. It looks like that Switzerland will be the only safe haven for cash in Europe.
Interestingly, I heard some talking head on the radio this morning, saying that the Irish bailout sent a strong message to speculators that the euro was going to survive any attacks that were going to be made on it. It reminded me of Nigel Lawson defending the pound in the ERM, before it crashed.
I presume all the avid Max Keiser fans have already seen this? Anyway, I only just came across it, so I’ll post it again. Fascinating perspective and insight into one possible end game! (“the fourth reich”…)
The splitting of the European Empire so, just like the fall of the Roman Empire once it divided into the Byzantine East and weaker Roman West. Only that led to the dark ages where Western Europe declined and stagnated for 1000 years, scary.
Well then, looking towards much more recent times, nineteenth century civilisation collapsed from an export lead, globalised open trading paradigm into a period of protectionism and strong nationalism, and all the rest that we know of from our history books… Briefly overviewing what was involved in that collapse, you had a. the failure of the balance of power system operating at the time b. the implosion of the international gold standard c. the going awry of the self-regulating market ideology d. the receding of the liberal state ideology… It’s not like we are not seeing quite similar dynamics in the current times.
1000 years of stagnation? - I don’t accept that.
Don’t forget that Dev’s utopian vision of comely maidens dancing at the crossroads was nothing but a thinly disguised version of the golden years of merrie Englande, the 1400-1500s, as roughly depicted by the Flemish painter Brueghel.
In those days, a man only needed to work 12 weeks a year, chiefly in the harvest, to provide for all his family’s needs for the entire year, leaving plenty of time for wenching, archery practice and downing vast amounts of sweet meade.
They may have been golden years here in Ireland too, but with our population back then estimated at less than 100,000 for the whole island, with 95% based in the Clare area fishing and farming, it is difficult to say for sure. But what we can say with some confidence is that excessive farming and population of that area led to a vast destruction of its top soil, resulting in the Burren, a major tourist attraction nowadays.
This top soil destruction led to mass migration from the area, proving that today’s catastrophe is always tomorrow’s opportunity.
Whether you count from the establishment of Constanople (330 AD), the sack of Rome (410 AD) or the collapse of the western empire (476 AD), that is 1000 years if there was stagnation in the intervening period. I agree with you though. The Dark Ages are an invention/reinvention of the European Renaissance and Enlightenment.
I’ve thought that the euro could not continue in its current form for several reasons, mostly political. Any economic entity that is begat for purely political reasons never prospers for economic reasons and eventually fails for political reasons.
Here is the history of the last time a major European power tried to set up a currency union for purely political reasons. To counter the “Anglo-Saxon” gold standard.
The Latin Monetary Union may have lasted a few decades but it careered from one economic and / or economic crisis to another every few years during its existence until it was finally sunk as an effective monetary union by the currency manipulations of one of the smaller members. The Papal State.
What is instructive about the history of the LMU is how the French (the founders) manipulated the differential exchange rate after 1873 to pauperize the other members in order to allow the French to pay off quickly their crippling war reparations from the Franco-Prussian War. What the Germans and French are doing at the moment is pretty much the same. They both need a weak exchange rate for purely domestic reasons (both completely dependent on exports for any hope of growth) but the policies that enable this weakening are utterly devastating the weaker eurozone countries.
There are real political limits to how much pain the weaker countries can take and once that limit is reached there is no going back. Hence all the talk of default the last few weeks in Ireland. This would have been unthinkable only a few months ago. By the middle of next year when the real pain starts to bite there is no knowing just how far the radicalization of the passive middle in the weaker countries will go. The EU / ECB is desperately trying to avoid its Creditanstalt moment but in going about it in this way they may end up producing all the social disruption of 1930-32 but without any of the badly needed restructuring of the core country banks.
The idea solution is to go back to “The Snake” but that is not going to happen in the short term. A dual currency solution seems the only practical solution (although very far from perfect) due to the political exigencies of the structure of the EU.
Meanwhile the insider money in France, Germany etc agrees with out regarding Switzerland. Hundreds of billions of euros have been flowing into CH over the last year. So much that the Swiss central bank had to give up a few months ago trying to control its exchange rate. If the wealthy class of France, Germany etc. does not have faith in the euro why should the taxpayers of europe have to continue paying the exorbitant price of what is little more than the pet project of the EU apparatchiks.