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Tag Archives: eurozone

  • Insider
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    Europe: Welcome to the Domino Effect

    Expect EU economies to topple with accelerating rapidity fro
    by Alasdair Macleod

    Monday, March 4, 2013, 7:52 PM

    3

    Executive Summary

    • France:  Bet on a bankruptcy of the French government
    • Italy:  Will not be able to fund its debt obligations without external help
    • Spain:  The best outcome at this point is years of grinding financial repression 
    • UK:  At growing risk of a big upward spike in price inflation, leading to a currency crisis

    If you have not yet read Part I, available free to all readers, please click here to read it first.

    Individual States

    France

    Perhaps the cameo event that best describes French attitudes was the recent correspondence between Maurice Taylor Jnr, head of Titan International, the tire manufacturer, and Arnaud Montebourg, France's Minister for Industrial Renewal. While it was good theatre, the serious points were that on average a French worker at an industrial plant works for three hours a day, and that the Minister resorted to threats that any Titan products imported into France would be “inspected by the relevant authorities with extra zeal.” That is the way things are done in France: Upset the Minister or a government functionary and none of your product gets to market, as Mr Taylor will shortly find out.

    France has an official unemployment rate of about 10.5%, which would be somewhat higher if it were not for three-hour days in many of the factories. Taxes on employers are among the highest in Europe, and employment legislation is so onerous that employing an extra hand is the last option for all private sector employers.

    Large companies, such as Peugeot-Citroen, generally tolerate poor labour productivity and sub-standard quality products partly because the unions are strong, and partly because senior managers look to government to “help” by providing subsidies and by other means. Consequently, private-sector manufacturing is not competitive, and sales in the troubled Eurozone are collapsing. Peugeot’s share price says it all.

    Decades of government protection have left France’s industrial sector in the weakest position of the larger Eurozone economies. Smaller businesses, outside the major cities, are heavily reliant on agricultural produce and hospitality, much of which is undeclared, untaxed, and untaxable. Furthermore, France’s farmers have long been beneficiaries of the EU’s agricultural subsidies, and have never had to be efficient.

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    Europe is Drowning Under Too Much Government

    Its banks are being increasingly propped up by the U.S.
    by Alasdair Macleod

    Monday, March 4, 2013, 7:52 PM

    28

    The Christmas and New Year's break, when Europe shuts down and stops thinking, is now well and truly over, and we are reawakening to the same old problems: Greece, Spain, Cyprus, Portugal, Italy, France…all with their hands out for money from Germany, Holland, Finland, and Austria.

    The holiday from the banking crisis, which was the result of the determination of the ECB to put a lid on it, is also over, with yields on the supplicant countries’ debt rising again.

    However, joining the bad news list is the United Kingdom. Ominously, the pound is sliding in the foreign exchange markets, providing a very tricky background for Chancellor Osborne’s budget on March 20th. I shall examine the UK’s position later, but first let’s update ourselves on developments in the Eurozone.

    The reality is that all the problems of the Eurozone are still with us, despite the fall in bond yields and their modest subsequent recovery. There is now the likelihood that we are about to enter the final phase of the end of the Eurozone experiment, with far wider consequences. So we need to pick up the story where we left off.

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  • Blog
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    Europe Is Now Sinking Fast

    The good are being dragged down by the bad
    by Alasdair Macleod

    Tuesday, November 20, 2012, 7:09 AM

    12

    With the Eurozone having being displaced from the financial headlines by the American presidential election, you might have briefly thought that its problems had gone away. They haven’t.

    It’s just that the public is expected to absorb one major story at a time. And now that the presidential election is done and dusted, Europe is rapidly returning to the headlines. This is not desired by the powers-that-be, who desperately need us to believe things will get better with a little patience.

    Behind the scenes, in order to prevent a systemic crisis, the authorities (through the European Central Bank) have been hard at work keeping a lid on interest rates for Spain and Italy, which act as everyone’s market bellweather. Their strategy focuses on the hope that high bond yields are just a lack of 'animal spirits' – and if only they can be reignited!

    Time is working against all countries in the Eurozone because the good are being dragged down by the bad…

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  • Insider
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    Europe’s Mexican Standoff

    All's fine until someone blinks
    by Alasdair Macleod

    Tuesday, November 20, 2012, 7:08 AM

    21

    Executive Summary

    • Germany is unlikely to break solidarity with the rest of the Eurozone while Merkel remains in charge. But she may not last as long as she'd like.
    • France's economy is deteriorating at an alarming rate.
    • Most of France's "stability" to date is due to inflows of money fleeing Spain and Italy. That will stop soon – and then what?
    • The UK is suffering from many of the same ills as the U.S. However, its banks are too dependent on Eurozone debt for it to take drastic counter-measures, and so it is handcuffed to the future of the Continent.
    • All is well as long as no one defaults or no one leaves the Eurozone. With each player's position deteriorating, how long can the status quo last?

    If you have not yet read Europe Is Now Sinking Fast, available free to all readers, please click here to read it first.

    In previous articles, I have given Peak Prosperity's enrolled members the lowdown on the weak Eurozone governments and looked at the crisis from Germany’s point of view. With respect to Germany, all that can be added is that her political elite is still frozen in inaction and show no signs of snapping out of it. Mrs Merkel, particularly, is still pursuing the out-of-date Euroland ideal. It is as if she has decided that she has no alternative. Come what may, it will have to succeed in the end, and she is not going to be the one who calls “uncle.”

    I don’t know how these things work in Germany, but in the UK there comes a point where “the men in grey suits” metaphorically tap the leader on the shoulder and politely instruct him or her to resign. It happened to Mrs Thatcher, and unless she has a change of heart, it could happen to Mrs Merkel before next November’s German elections. And when that happens, the withdrawal of Germany from the euro can be expected to begin.

    In this article we will update the deteriorating situation in two other key players on Europe's chessboard: France and the United Kingdom. And we'll reveal why the current system is like a Mexican standoff: Everything is stable until someone makes a move. Then all hell breaks loose…

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  • Insider
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    The Implications of a German Exit from the Eurozone

    What changes to expect
    by Alasdair Macleod

    Tuesday, September 25, 2012, 4:45 AM

    7

    Executive Summary

    • Why the U.S. and the IMF won't act soon enough to avoid a German exit
    • Why Finland will bolt from the Eurozone the moment Germany does (and how many others may soon follow?)
    • What a German exit (and a new mark) would really mean
    • When will Germany likely announce its departure from the Eurozone?

    If you have not yet read Part I, available free to all readers, please click here to read it first.

    In Part I, we covered the background to what now appears to be inevitable: Germany has to leave the Eurozone. She, along with the Netherlands and Finland, simply cannot afford to bail out the rest of the Eurozone, so she is standing in the way of a resolution to the crisis. It is therefore only a matter of time before the political classes have to face this reality.

    Time is running out, and the longer Germany delays, the worse her position will be. The yields on Spanish and Italian debt will inevitably head towards and through the 7% "point-of-no-return" threshold and beyond, and Germany will get all the blame. Germany will be seen as a thorn in the side of the ECB, restricting its scope for monetary action and obstructing a solution, partly because of the Bundesbank’s stubborn conservatism and partly because Germany’s Constitutional Court frowns on monetising government debt. She will be unfairly condemned by everyone.

    Let’s look at some back-of-the-envelope figures…

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  • Blog
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    Why Germany Is Going to Exit the Eurozone

    Simply put, it has no choice
    by Alasdair Macleod

    Tuesday, September 25, 2012, 4:24 AM

    6

    It's becoming clear that there is only one sensible solution ahead of us as the Eurozone’s problems evolve: Germany and the other countries suited to a strong currency should leave. If they do, the European Central Bank (ECB) will be free to pursue the easy money policies recommended by Keynesians and monetarists alike. It's increasingly clear that Germany has no option but to behave like any creditor seeking to protect its interests – and do its best to defuse the growing resentment against her from the Eurozone’s debtors.

    However, leaving the Eurozone is a political and legal, even seismic wrench, reversing decades of historical progression towards political and economic union.

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  • Blog
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    The Growing Pressures Likely to Blow the Eurozone Apart

    Look for Finland to exit first
    by Alasdair Macleod

    Wednesday, July 18, 2012, 5:18 AM

    2

    There was yet another European Union summit at the end of June, which (like all the others) was little more than bluff. Read the official communiqué and you will discover that there were some fine words and intentions, but not a lot actually happened. However, there are some differences when compared with past meetings that need explaining:

    1. The European Council is being asked to consider permitting the European Central Bank to have a regulatory role alongside national central banks “as a matter of urgency by the end of 2012.” When this new super-regulator is eventually established, perhaps the ECB might be able to recapitalize banks directly. This was needed three years ago; the Eurozone will be lucky not to have a new banking crisis in the next few months, let alone by the year-end.
    2. A bail-out for Spain’s banks is agreed in principle, but it is to be funded by the European Financial Stability Facility (EFSF) until the European Stability Mechanism (ESM) is up and running. The EFSF has no money and relies on drawing down funds from all member states including Greece, Spain, Italy, Ireland, and Portugal, and the chances of the ESM being ratified by the individual Eurozone parliaments is very slim. We are told that Spain’s banks need about €100bn, but how much they really need is not known.
    3. The ESM will not rank as a prior creditor to the disadvantage of bond holders. This is a positive step, but makes it more difficult for national parliaments to authorize the ESM.

    The big news in this is the implication the ECB will, in time, be able to stand behind the Eurozone banks because it will accept responsibility for them. This is probably why the markets rallied on the announcement, but it turned out to be another dead cat lacking the elastic potential energy necessary to bounce.

    e another dead cat lacking the elastic potential energy necessary to bounce.

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  • Blog

    The Europe Crisis from a European Perspective

    by Alasdair Macleod

    Tuesday, May 1, 2012, 12:35 PM

    0

    [This week, we introduce a new contributing editor to ChrisMartenson.com, Alasdair Macleod. He will mostly be contributing commentary focused on the situation in Europe, where he’s located. The credit crisis underway there is not Europe’s problem alone; it has the potential to send crippling financial shockwaves to the US and elsewhere around the world. Please join us in extending a warm CM.com welcome to Alasdair. — Adam] 

    The purpose of this report is to give readers the essential background to the economic problems in Europe and to bring you up-to-date in what has become a fast-moving situation. At the time of writing, there has been a lull in the news flow, but that does not mean the problems are under control. Far from it.

    Flawed from the Start

    When we talk about Europe today in an economic context, we really mean the Eurozone, whose seventeen members are the core of Europe and share a common currency, the euro. The euro first came into existence thirteen years ago, on January 1, 1999, replacing national currencies for eleven states; Greece joined two years later. In theory, the idea of a common currency for European nations with common borders is logical, and it was Canadian economist Robert Mundell’s work on optimum currency areas that provided much of the theoretical cover.

    However, the concept was flawed from the start.

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  • Blog

    Daily Digest 12/24 – Debt Crisis Threatens American Cities, Banks Best Basel, Gas Demand Decline

    by DailyDigest

    Friday, December 24, 2010, 4:00 PM

    0
    • $2tn Debt Crisis Threatens To Bring Down 100 US Cities
    • Pensions Push Taxes Higher
    • Pimco Says ‘Untenable’ Policies Will Lead To Eurozone Break-Up
    • US Takes Greek Path
    • Is JP Morgan Shifting Its Silver And Gold Shorts To Non-US Domiciled, And Thus Unregulatable, Banks?
    • Banks Best Basel as Regulators Dilute or Delay Capital Rules
    • Gold Prices And Output To Go Higher In 2011, PwC
    • U.S. Demand For Gas At Start Of Long-Term Decline

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