http://theeconomiccollapseblog.com
For
a long time, most analysts have believed that if someone was going to leave the
euro, it would be a weak nation such as Greece
or Portugal.
But the truth is that financially troubled nations such as Greece and Portugal don't want to leave the
euro. The leaders of those nations understand that if they leave the euro
their economies will totally collapse and nobody will be there to bail them
out. And at this point there really is not a formal mechanism which would
enable other members of the eurozone to kick
financially troubled nations such as Greece
or Portugal
out of the euro. But there is one possibility that is becoming
increasingly likely that could actually cause the break up of the euro. Germany could
leave the euro. Yes, it might actually happen. Germany is
faced with a very difficult problem right now. It is looking at a future
where it will be essentially forced to bail out most of the rest of the nations
in the eurozone for many years to come, and those
bailouts will be extremely expensive. Meanwhile, the mood in much of the
rest of Europe is becoming decidedly
anti-German. In Greece,
Angela Merkel and the German government are being openly portrayed as
Nazis. Financially troubled nations such as Greece
want German bailout money, but they are getting sick and tired of the
requirements that Germany
is imposing upon them in order to get that money. Increasingly, other
nations in Europe are simply ignoring what Germany
is asking them to do or are openly defying Germany. In the end, Germany will need to decide whether it is worth
it to continue to pour billions upon billions of euros
into countries that don't appreciate it and that are not doing what Germany has
asked them to do.
German Chancellor Angela Merkel’s
Christian Democratic Union party recently approved a resolution that
would allow a country to leave the euro without leaving the European Union.
Many thought that the resolution was
aimed at countries like Greece
or Portugal,
but the truth is that this resolution may be setting the stage for a German
exit from the euro.
The following is an excerpt from that
resolution....
"Should
a member [of the euro zone] be unable or unwilling to permanently obey the
rules connected to the common currency he will be able to voluntarily–according
to the rules of the Lisbon Treaty for leaving the European Union–leave the euro zone without leaving the European
Union. He would receive the same status as those member
states that do not have the euro."
So was that paragraph written for Greece?
Or was it written for Germany?
That is a very interesting question.
What is clear is that the status quo
cannot last much longer.
Voters in Germany
are definitely not in the mood to give any more bailout money to other nations
in Europe, but if Germany
is going to continue to stay in the eurozone many
more bailouts will be required in the coming years.
Meanwhile, Germany is rapidly losing control
over the rest of the eurozone....
*Greece has implemented some of the
austerity measures that have been required of it, but many others have not been
implemented. In a few weeks there will be a national election, and
parties that are opposed to the austerity measures are surging in the polls. It is likely that
the new government will be much less friendly toward Germany.
*The Spanish government is already
defying the budgetary requirements that the EU is trying to impose upon it.
Spain is definitely going to miss the debt targets mandated by the EU, and the Spanish government has absolutely no plans of
making more reductions to government spending.
*The upcoming election in France could be
absolutely crucial. Nicolas Sarkozy is not
doing well in the polls and the new French government could totally wreck the
recent fiscal agreement that the members of the eurozone
recently agreed to.
The following is how Graham Summers
recently summarized the current situation in France....
We
should also take Schäuble’s statements in the context
of Angela Merkel’s recent backing of Nicolas Sarkozy’s
re-election campaign in France against hardened socialist François Hollande, who wants to engage in a rampant socialist
mission to lower France’s retirement age, cut tax breaks to the wealthy, and
break the recent new EU fiscal requirements Germany convinced 17 members of the
EU to agree to.
Obviously Germany has been trying very hard
to keep the eurozone together. But the German
government also believes that if it is going to be bailing everyone out that it
should also be able to set the rules.
So what happens if the rest of Europe
tells Germany
to stick their rules where the sun doesn't shine?
Well, Germany
would be forced to make a very difficult decision, and Germany appears
to making plans for that eventuality.
For example, Germany
recently reinstated its Special Financial Market Stabilization Funds.
This money would be used to bail out German banks in the event of a break up of
the euro. The following is from a recent article by Graham Summers....
In
short, Germany
has given the SoFFIN:
- €400 billion to be used as
guarantees for German banks.
- €80 billion to be used for the
recapitalization of German banks
- Legislation that would permit
German banks to dump their euro-zone government bonds if needed.
That
is correct. Any German bank, if it so chooses, will
have the option to dump its EU sovereign bonds into the SoFFIN
during a Crisis.
In
simple terms, Germany
has put a €480 billion firewall around its banks. It can literally pull out of
the Euro any time it wants to.
If the rest of Europe continues to
defy Germany,
then at some point Germany may decide to simply pick up the ball and go home.
Germany is the strongest economy in the eurozone by far, and if Germany were to pull out the euro
would absolutely collapse. Whatever currency Germany decided to issue would be
extremely valuable. Such an event would actually have some tremendous
side benefits for Germany.
Right now, the German national debt
is denominated in euros.
If Germany left the euro, the value
of euros would plummet and would likely keep
declining as the rest of the eurozone fell apart financially
and Germany would be able to pay back its debt in rapidly appreciating
"marks" or whatever other currency it decided to issue.
All other debts in Germany would
also be denominated in euros and would also be repaid
with a much stronger currency.
Are you starting to get the picture?
Yes, Germany
would likely have to bail out German banks if it left the euro, but leaving the
euro could also prove to be a tremendous windfall for Germany.
If Germany chooses to say in the euro,
it is going to be faced with extremely expensive bailouts of other countries
for as far as the eye can see.
How expensive?
The following is from a New York Times article....
Bernard
Connolly, a persistent critic of Europe, estimates it would cost Germany, as
the main surplus-generating country in the euro area, about 7 percent of its
annual gross domestic product over several years to transfer sufficient funds
to bail out Europe’s debt-burdened countries, including France.
That
amount, he has argued, would far surpass the huge reparations bill foisted upon
Germany by the victorious
powers after World War I, the final payment of which Germany made in 2010.
If Germany leaves the euro, that does not mean that the dream of a single currency
is dead. Germany
could just let the rest of the eurozone collapse and
then invite them to join the new German currency eventually after all the
carnage is over.
At that point, Germany would have all the leverage and Germany would
be able to dictate all the rules.
What is clear is that the status quo
in Europe is becoming extremely unacceptable in Germany. The Germans do not
intend to give endless bailouts to other nations that do not appreciate them
and that do not intend to follow the rules.
At some point Germany may actually
decide to walk, and there are lots of whispers that Germany has been steadily preparing
for that day.
For example, there are persistent
rumors that Germany
has ordered printing plates for the printing of
new German marks. Philippa Malmgren,
a former economic adviser to President George W. Bush, says that she believes
that this is already happening....
"I
think they have already got the printing machines going and are bringing out
the old deutschmarks they have left over from when the euro was
introduced."
Increasingly, it really is looking as
if Germany
is actually preparing to leave the euro.
If Germany
did leave the euro, the consequences for the rest of Europe
would be catastrophic.
The euro would rapidly drop to
all-time lows.
The global financial system would be
thrown in chaos.
Countries such as Greece would
lose their major source of bailout money and would be forced to default.
The recession in Europe
would likely deepen into a devastating economic depression.
So there would be a lot of downside.
But Germany
would fare much better than most of the rest of Europe, and in the end Germany would
be left holding most of the cards.
Keep a close eye on the upcoming
European elections and the evolving political situation in Europe.
If things don't go well for Germany, at some point Germany may
just get fed up and walk away from the euro.
Stranger things have happened.
