Grand European Rescue Already Starting to Come Unglued?

This site has had plenty of company in expressing doubts about the latest episode in the continuing “save the banks, devil take the hindmost” Eurodrama. The same issues came up over and over: too small size of rescue fund, heavy reliance on smoke and gimmickry to get it even to that size, insufficient relief to the Greek economy (the haircuts will apply to only a portion of the bonds), no assurance that enough banks will go along with the “voluntary” rescue, and way way too many details left to be sorted out.

But it is a particularly bad sign to see disagreement within the officialdom about the just-annnounced deal. The Telegraph (hat tip reader Jim Haygood) reports that the Bundesbank, which has considerable influence on the ECB, is trash talking a critical part of the pact:

Hours after an all-night summit of euro governments ended, flaws began to emerge in a package that was billed as a “grand and comprehensive” solution to the European debt crisis.

The concerns were led by Germany’s powerful central bank, which expressed fears that a plan to leverage a €440 billion eurozone rescue fund to amass a “fire power” of €1 trillion, or £880 billion, resembled the risky finance methods that triggered the crisis in 2008.

EU leaders are expected to sanction the establishment of a so-called special purpose investment vehicle, or SPIV, to be set up in the coming weeks. It is aimed at attracting investment from countries such as China and Brazil.

Jens Weidmann, the president of the Bundesbank and a member of the European Central Bank, sounded the alarm over the plan to “leverage” the fund by a factor of four to five times without putting any new money into the pot.

We’ve pointed out the only way this scheme might work is if it attracts enough new money, which as the Telegraph indicates, is presumed to be the BRICS (I gather the sovereign wealth funds are too smart for this sort of thing, and even if they went along, their aggregate contribution would not be big enough). The Financial Times reports that China is being courted, but wants “assurances”:

China could be willing to contribute between $50bn and $100bn to the EFSF or a new fund set up under its auspices in collaboration with the IMF, according to one person familiar with the thinking of the Chinese leadership.

“If conditions are right then something a bit above $100bn is not inconceivable,” this person said….

One condition China might ask for is that its contribution be at least partly denominated in renminbi, which would protect its investment against currency fluctuations. China would buy euro-denominated bonds but repayments would compensate for any changes in the value of the renminbi, which has appreciated nearly 20 per cent against the euro in the past three years…

Beijing’s main concern is how any contribution to a European bailout will be viewed domestically by an increasingly informed and critical populace.

“Any mis-steps in helping Europe could cause problems with domestic public opinion – the Chinese people will watch very carefully what their own government does,” Prof Yu said. “European leaders also must have a clear plan of what to do and they must show China they have the political will as well as the support of their own people; if we see protests and chaos all the time, then China won’t have confidence in Europe’s political ability.”

If the Chinese think the Europeans can provide meaningful foreign exchange guarantees, they are smoking something very strong. The austerity programs being put in place will put Europe on a deflationary path. The only way to deleverage the private and government sectors at the same time and not see GDP contraction is to run a large trade surplus. And that means the Eurozone as a whole, not Germany within Europe. To do that, the currency needs to be much lower. The Financial Times’ Wolfgang Munchau has argued the euro will need to fall to between .6 and .8 to the dollar, roughly a 50% depreciation from current levels.

This guarantee is a classic wrong way risk. China is asking Europe to make promises it won’t be able to honor if its policies result in a cheaper currency or other bad results for China. And in general, China’s expectations are unreasonable. Its currency is undervalued. Even ex the undervaluation, the normal state of affairs for a maturing economy is to see its value rise. Any foreign currency investment can be expected to show large foreign exchange losses. And just because you shift your risk on the other party does not mean they can perform. As the example of AIG and the monolines showed, underpriced insurance has this nasty way of blowing up.

Japan was the dumb money in its bubble era. But at least they had an excuse: they yen was super high so everything looked cheap. At least the foreign exchange part of the equation worked in their favor, but they had insufficient knowledge of foreign investments to make good picks. The Chinese may be shrewder about their targets, but they seem woefully in denial on the magnitude and inevitability of foreign exchange risk on some of their plays. So they may rescue the Europeans and continue to resent funding their trade partners, just at the Germans do.

He warned that the scheme could be hit by market turbulence with taxpayers left holding the bill for risky investments in Italian and Spanish bonds.

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  1. larry

    The only serious disagreement I have is with the notion that the EU banks were being “asked” to participate. I realize that you used scare quotes to indicate skepticism, but this still disguises the fact that the banks were made an offer they could hardly refuse. In short, they were threatened. I’m not suggesting that they shouldn’t have been. I would go further and indict some of the bank CEOs for fraud. But that issue is virtually never discussed. Fintan O’Toole and Nicholas Shaxson make out good cases, but the maainstream media remain mute on the subject.

    1. Yves Smith Post author

      I don’t buy your view. The heads of European states were negotiating (and I stress negotiating) with the head of the Institute for International Finance, a lobbying group. He has no formal authority to deal. This was NOT a negotiation, say, with the heads of the 25 biggest holders of Greekn debt in the room (which is how the LTCM bailout and the efforts to rescue Lehman were done). There were absolutely zero commitments made from anyone on the payroll of a particular bank.

      The authorities have been touting that they stared the banks down. That’s PR. If this really was a threat, we’d see the 60% haircuts the officialdom wanted. There would be no reason to make any concessions if they really had the upper hand.

      Only 75% of the banks accepted the 21% haircut. The exact structure of how the exchange works has not even been announced. When that happens, we’ll see how many go along. There is every reason to think the banks will retrade the deal then.

      1. wbgonne

        Why does everyone agree that these are “voluntary” haircuts? Why don’t the payees on the insurance derivatives demand to be paid right now?

        1. Slim

          I’ll tell you why… ever looked at the ISDA membership (people who decide what is an credit event)? You be shocked, SHOCKED to see that the board is composed of… BANKERS! Big international investment bankers to be precise. It’s amazing right? So, you sell insurance to someone. The product which they insured goes bang. They try to collect and surprise, the person who sold them the insurance is also the one who decides if they should pay out or not.

          Everybody knows that the dice are loaded
          Everybody rolls with their fingers crossed
          Everybody knows that the war is over
          Everybody knows the good guys lost
          Everybody knows the fight was fixed
          The poor stay poor, the rich get rich
          That’s how it goes
          Everybody knows

          1. rafael bolero

            Can someone tell me the name of the woman who invented CDS? Max Keiser has mentioned her, but I can’t remember. Otherwise, this looks like a good starting hit list.

          2. Cog

            CDS date back to the Bucket Rules of 1907, which were repealed in the CFMA of ~2000. Don’t know the specific language, but something to the effect that market bets on the underlying prices of commodities, which do not settle in same commodities, were illegal. With CDS, we have a detached derivative that is effectively a directional bet, much like those made before 1907.

            ..all part of the plan to deregulate us back to the 19th century.

    2. Mikey M

      There are loads of different bondholders, many can decline the offer and declare a credit event, and demand or sue for payment on their CDS protection, especially if they also hold bonds.

      You think this is a done deal? No way. I predict many bondholders will call the bluff of this preposterous deal. Probably not the big banks as they dont have much choice but private funds can do what they like.

    3. Mikey M

      sorry but just to add. The ISDA made their statement re not a credit event based on the assumption everyone accepts it gracefully.

      Personally i see loads of lawsuits from all this selective maniupation of the markets by the EU and even the ISDA, which is now beyond a joke. In theory, the ISDA have committed a huge fraud on sovereign CDS holders.

  2. charles 2

    The Bundesbank is clearly assigned the “Bad Cop” role in this play. It also likely that it will be the entity working out the practical details of the “nuclear” option of Germany getting out of the Euro one way or another.

    It doesn’t mean that the political class wants to go that path, but it is a panic button it wants to have the ability to push, preferably by saying, “the Bundesbank/Constitutional Court complex made me do it” to deflect responsailities from the consequences.

  3. drfrank

    So what happened yesterday? Merkel told the banks holding the Greek paper to take a voluntary haircut to avoid triggering the credit default swaps and so get out of the way of what they are able to swing by way of bailout funding. Sarkozy carried the ball to China. Exchange rate protection is likely just the beginning of what China in will extract in terms of trade for providing the leverage and as yet nothing has been heard about what the Russians will want, to say nothing about Brazil and India when they wake up to it. Would it be reasonable to ask if the profits on Greek CDS after yesterdays “defeasement” action are sufficient to offset losses on the Greek haircut? One thing, at any rate, is very, very clear: is was not the USA or the Fed to whom they turned for cash. Twenty years from now, all those empty highrises in Beijing will be full of financial services firms and folk will look back and mark the day as the moment when . . .

    1. Jim Haygood

      ‘[Exchange rate protection for China] is a classic wrong way risk. China is asking Europe to make promises it won’t be able to honor if its policies result in a cheaper currency or other bad results for China.’

      Even if Europe were able to repay China’s EFSF investment in appreciated renminbi, the effective interest rate (after amortizing the foreign exchange losses) would be quite high.

      The implication of (say) a mid single-digit effective interest rate is that the EFSF is being treated as an intermediate-grade borrower at best, nowhere near a triple-A one.

      And of course China, which runs a dirty float, would be in the driver’s seat to effectively tax Europe at any rate China wants by letting the yuan appreciate (while earning plaudits from the U.S.), if Europe fails to do China’s political bidding in international fora.

      Europeans, having descended from the expedient tradition of Machiavelli, will realize this. But refusing China’s onerous terms probably means no funding from the BRICs. Judging from Europe’s checkered history, their inclination will be to negotiate a secret codicil with the Chinese to save face — a concept deeply ingrained in both cultures!

    2. psychohistorian

      I don’t want to belabor the obvious but they went to China, not to the Gawds of Reserve Currency land.

      Something is happening but you don’t know what it is, do you, Mr Jones.

  4. Bakasone

    Be assured, the banks will make money from this, not lose money. How about buying Greek bonds at 35% and dumping them at the European Bad Bank for 50%? Doesn’t sound that bad. If anybodz threatens others in this game it’s the banksters.

  5. Dan G

    If insurance in the form od CDS is not being honored, then it only stands to reason that the bond auctions like this latest one (from Zero Hedge) “Italian 10 Year Bond Auction Prices At Record, Over 6%” will see rising yields, As mentioned in yesterdays piece on NC by Pinkerton et al.

  6. Jim Haygood

    Bloomberg’s Liam Vaughn and Gavin Finch tease out yet another eurozone structural fissure, which may undermine the bank debt guarantee plan announced yesterday:

    Europe’s banks need to refinance about 800 billion euros of bonds over the coming year, according to [RBS]. European banks were unable to sell senior unsecured bonds for more than two months this summer, the longest period on record without an offering.

    In 2008, the U.S. Federal Deposit Insurance Corp. gave a guarantee on bank bonds, allowing financial institutions to access markets with the backing of the government. For European policy makers to replicate the success of that program any warranty would have to be given at the EU level because the deteriorating public finances of southern states means they would struggle to back their banks, analysts said.

    OOPS — but Germany already has ruled out such cross-guarantees. And now so has the EIB:

    A co-ordinated approach at the EU level is needed to support banks’ access to the funding markets, the European Banking Authority said in a statement.

    “The EBA has been asked to work with the EU Commission, the ECB and European Investment Bank to urgently explore options for achieving this objective,” said the group, which oversees the work of regulators in Europe.

    [But] the European Investment Bank, which is funded by member states including those outside the single currency, today ruled out providing “any kind” of financial support to the bank debt plan, according to an e-mail.

    In particular, the UK has been quite vocal about not having its capital shares in either the EIB or the IMF used for multilateral support such as bank guarantees. And the UK probably represents opinion elsewhere in northern Europe, both inside and outside the euro zone.

    According to Bloomberg, ‘More than 85 percent of U.S. banks participated in the [guarantee] program, including JPMorgan Chase & Co. About 66 banks had issued $231 billion of FDIC-guaranteed debt as of Aug. 31.’

    That’s a big chunk of change. And an 800 billion euro figure is mentioned above — WAY too large for EFSF to take on, since its [vaporware] leveraged capital is needed for sovereign guarantees.


  7. Mikey M

    Another odd thing about these sudden objections by the German central bank, is you’d think they would have been directly involved in planning the “deal”.

    Did Merkel go AWOL, against the advice of her own central bank? She is a bit of a nut, talking about war breaking out, scary really.

  8. Jim Haygood

    Europe’s bond market renders its first verdict on the summit: “You got nothin’“:

    Prime Minister Silvio Berlusconi held the first test of investor enthusiasm for Europe’s debt since its leaders agreed on a plan to end the sovereign crisis, as Italy sold bonds at euro-era record borrowing costs.

    The Treasury in Rome sold 7.93 billion euros ($11.2 billion), less than the maximum 8.5 billion-euro target, of four different bonds today. The yield on Italy’s benchmark 10-year bond was up 11 basis points at 5.98 percent after the auction.

    Largely lost in the summit drama is that U.S. 30-year yields have now moved decisively above their 3.2% level just before the last Fed meeting, where Operation Twist was announced … ostensibly to bring down long yields. Today they stand almost 25 basis points higher.

    This is precisely what happened in the spring of 2010, the last time Benny Bubbles tried this goofball stunt. But failure never stops central planners from doubling down on their Martingale bets.

    Evidence strongly suggests that official price-support purchases of sovereign bonds are at best a second-order effect, offering a few basis points of yield reduction when all else is equal.

    But when the market demands more yield to offset credit risk, or future inflation risk (driven by the very act of expanding central bank balance sheets), its monster waves sweep away even the staunchest marginal buyers.

    With nearly two trillion euros of Italian debt outstanding, I’d say there isn’t enough money on the planet to drive Italy’s yields from a ruinous 6 percent back to a tolerable 3 percent. Fuhgeddaboudit!, as they say on Mulberry Street.

    But this won’t stop Europe’s version of Japan’s ‘price keeping operations’ from fecklessly shaking its fist at the incoming interest rate tide, demanding that it recede so that Italians can once again picnic on the beach … Roman Holiday, La Dolce Vita, and all that. ‘Fortune is a woman,’ Machiavelli warned …

    1. Typing Monkey

      I’d say there isn’t enough money on the planet to drive Italy’s yields from a ruinous 6 percent back to a tolerable 3 percent

      I’d just like to point out that 6%, historically speaking, has been far from “ruinous”. In fact, I’d venture a guess that every country that is unable to afford to pay 6% is going to default.

      1. Jim Haygood

        As you say, historically 6% hasn’t been that high. But several things have changed:

        1. Nominal GDP growth has slowed drastically over several decades, from high single digits to low single digits. According to Alan Brown at Schroder, ‘Italy’s nominal GDP growth rate has been and is expected to be relatively low at 3% to 3.5% a year.’

        When nominal GDP is growing slower than the 10-year borrowing rate, a nation is effectively earning a negative spread on its investment.

        2. Italy’s 6% borrowing rate is almost 4 percentage points higher than Germany’s. Italy’s financing disadvantage only accentuates the structural competitiveness gap between northern and Mediterranean Europe.

        3. Highly indebted, demographically shrinking countries such as Italy and Japan can tread water for years, as long as nominal borrowing yields stay in low single digits. But as borrowing rates rise to mid single digits and beyond, interest paid as a percent of GDP begins to expand exponentially. The mathematics are quite daunting, and lead to eventual ruin.

        1. Typing Monkey

          Well, I guess the question I would ask is why bother trying to tread water (actually, that’s a misnomer–all they are doing is finding more time to dig themselves a deeper hole) and continue to allocate resources poorly? It’s not like Italy (or any of Europe) is going to get out of this mess

          I remember a satired Marlboro Lights ad that read something like, “Kill yourself more slowly”. This more or less sums up my views as to what Europe is doing with its unsustainable policies.

          The spread on Germany is interesting–Germany has a debt to GDP of between 80-90% (I don’t remember the number offhand). America’s debt to gdp is higher than that (the actual number depending upon whether you want to consider things like Social Security, which isn’t really a debt, and FNM, FRE, etc). Japan’s debt to gdp is over 200%. All of these countries have overly leveraged financial sectors and demographic problems. And yet these are what the markets consider to be safe havens?

  9. Typing Monkey

    Beijing’s main concern is how any contribution to a European bailout will be viewed domestically by an increasingly informed and critical populace.

    Funny–Beijing cares more about public opinion than Washington.

  10. Valissa

    STRATFOR has a report today on the financial history of Greece over the past 200 years. I have excerpted generously since the article is behind a subscription firewall.

    Greece’s Continuing Cycle of Debt and Default

    The ongoing financial crisis in Greece is a familiar situation for Athens. Greece has been in debt since its war for independence from the Ottoman Empire in the 1820s, which means international creditors and foreign sponsors have played a role in Greek finances, politics and economic development since then. Even though Greece has failed to achieve the expected gains from the reforms its Western creditors have demanded it make in order to pay back its loans, foreign powers have always had a strategic need for Greece and have thus refinanced or forgiven its debts despite numerous defaults. …

    During the fight against the Ottomans, Greece accumulated a large external debt — a debt on which it defaulted in 1826, greatly restricting the new country’s ability to access international credit. The United Kingdom, France and Russia agreed to loan the new country 600 million francs. As a condition of the loan, the three countries maintained diplomatic representatives in Athens who were heavily involved in the creation and oversight of the Greek government. The Great Powers wanted to see immediate returns on their loans after the new country began taking shape. … This created a cycle of debt wherein the state’s attempts to pay off its international debt resulted in an increasingly indebted population.

    Greece’s economic growth stalled altogether in the 1870s. The country’s limited success at servicing its external debt continued to prohibit it from accessing international credit markets and threatened to spark an income crisis for the state. However, Greece’s strategic importance again prompted Western intervention to stave off a financial crisis for another couple of decades. …

    Then, in 1893, Greece defaulted. Athens had too little political authority at home or abroad to negotiate on its debt and thus had to surrender its economic development and fiscal authority to an International Financial Control Committee run by representatives of foreign bondholders — the United Kingdom, France, Germany, Italy, Russia and Austria-Hungary — which imposed strict fiscal discipline. This committee administered Greece’s monetary and fiscal policy for the first decades of the 20th century. Under this supervision, Athens made progress in rationalizing its budget, reforming its banking system and making other changes.

    However, despite this progress, little structural economic growth occurred over this period; the institutors of the reforms were more concerned with recouping payment on their loans than with developing Greece’s economy. Very little money was used to invest in the development of badly needed infrastructure, such as roads, that would connect the cereal-producing regions of continental Greece with the domestic markets of the populous coastal cities. …

    The combined effects of the First and Second Balkan Wars, World War I, the Greco-Turkish War and the Great Depression were too much for the Greek economy. Additionally, the International Financial Control Committee’s authority weakened greatly after the outbreak of World War I, as representatives from both Allied and Central Powers were tasked with administrating the committee. Greece defaulted again in 1932. By the end of World War II, Greece, along with its European sponsors, was in economic ruins. In March 1947, the United Kingdom had to end the financial assistance it had provided Greece in varying degrees since the 1820s. …

    Greece’s current problems — a large external debt, high defense expenditures, a political system entrenched by its ability to provide its supporters with continual patronage, a capital-poor and import-dependent economy, an ineffective tax collection system, exclusion from international credit markets and the forfeiture of its fiscal sovereignty to external creditors — are problems Greece has faced throughout its modern existence. It has been in major powers’ strategic interest to ensure Greece’s stability since its independence from the Ottoman Empire, but it seems that nearly 200 years of international interest in developing the Greek economy has not done much to change Greece’s circumstances.

    1. Diego Méndez

      This analysis conveys two important messages:

      1. Greece is different, it is an exception and its lessons don’t apply elsewhere.

      2. It all is the Greeks’ fault. Not even generous foreigners could reform the country.

      Both messages serve well the purposes of the global elites. Both are wrong. Both will be soon discredited.

      1. Valissa

        Actually I have read a number of STRATFOR articles about Greece and I do not get the impression that they “blame” Greece for their situation. In fact this article, IMO, seems to chastise the “foreign powers” for focussing on investment returns (for “using” Greece) rather than helping Greece to make it’s economy competitive.

        Are you familiar with the principles of geopolitical analysis? According to geopolitical theory it is Greece’s geography that is the main problem. Geopolitics does not “blame” the peoples of a country, it blames geography and international historical trends (and sometimes the elites of a country).

  11. Eric

    ”The austerity programs being put in place will put Europe on a deflationary path. The only way to deleverage the private and government sectors at the same time and not see GDP contraction is to run a large trade surplus. And that means the Eurozone as a whole, not Germany within Europe. To do that, the currency needs to be much lower”

    I don’t understand this. Most trade is within Europe, so a lower euro does not make any difference for internal eurozone trade. Furthermore, the eurozone does not have an external trade deficit, so why should the euro decrease in value? The fact that the eurozone does not have a trade deficit is actually the reason why the euro is so strong. What needs to happen is not a change in euro value, but internal imbalances within the eurozone need to be adjusted. This can be done in various ways. The Anglosaxon view seems to be you can simply outgrow your debts, but I think that for some eurozone countries a mixture of debt relief, costs reduction and reforms is probably more realistic. Latvia is an example.
    BTW: if you think that running a large trade surplus is the way forward for the USA, by lowering the dollar value, I would be interested to hear from you what you think the dollar/euro exchange rate should be in your opinion.

    1. Yves Smith Post author

      The Eurozone as a whole needs to run a trade surplus if it want ON THE WHOLE to have both private sector savings and government deleveraging. The Germans want less borrowing by the periphery, both private and public debt. That means private and public delevaraging of Europe as a whole. The only way not to do into a deflationary spiral in those circumstance is to run a trade surplus.

      And even then it might not be big enough to work. Japan has only been deleveraging its private sector, it has run a big surplus, and it is still on the verge of deflation. But it did have the mother of all bubbles. It was proportionately much bigger than the bubble that preceded our bust, relative to the size of the economy.

    1. Eric

      market economy status means they would get more access to the EU market, without tariffs, dumping their cheap products.

      1. xct

        … and thus the external trade surplus of EU will soon become a trade deficit? The chinese want to transform EU into another US, indebted to their trinkets.

  12. TC

    “If the Chinese think the Europeans can provide meaningful foreign exchange guarantees, they are smoking something very strong.”

    Maybe the Chinese could export the stuff and everyone’s problem would be solved?

    What’s that? They already are?

    Ahhhh! That’s why the western world tolerates fascists in positions of great authority!

    You know, our problem simply might be that, European oligarchs and their junior partners here in the USA, are but stoners trying to appear intellectual while acting powerful (whose performance these days qualifies for an Oscar nomination in the “Best Fantasy” genre`).

    It occurs to me, too, that maybe the Chinese have laced the stuff with lithium and this is why the west tolerates its “unfair” exchange rate.

    Now just you never mind Master Currency Debaser over at the Fed and his string pullers pissing on the Statue of Liberty, and whose alphabet soup of casino games continues imploding!

    What’s that? You forgot about this factor?

    Stoner. ;)

  13. Hugh

    You can set your watch by how soon these Eurodeals unravel. As I keep saying, Europe has a host of problems. It’s not just Greece. Indeed Greece is far from being the major one.

    But as Yves suggests there are a few indications that will let us know if and when European leaders are really serious about doing anything. There will be hard cash on the table, lots of it, and immediate use of it. None of these promises, schemes, or discussions leading to … No unless the Bundesbank, ECB, France, Slovakia, whatever says no. The truth is Europe’s leaders have never been serious about fixing this crisis. They are only interested in protecting the rich who own them. They have been conducting these charades for more than a year and a half. If they were going to fix their problems, they could have been well on their way to doing so by now. They haven’t and given the extensive record to date it is unlikely they ever will.

    1. Phil Creton III

      At least acknowledge that banks are taking a 50% haircut on bad Greek debt – how is that “protecting the rich who own them”? This is the rich getting kicked in the nuts.

      Did you know about the haircut portion of this deal?

      Come on! What you trying to sell here?

      Phil Creton III

      1. Hugh

        You really don’t get the basics of the simplest of cons. It’s all about misdirection and making people think something is happening when it’s not.

        Participation is voluntary and only involves some bonds. Nothing about this is a done deal. Even if we were to take this at face value, bondholders should be losing 75%-80% on their Greek bonds. Instead the current deal is for a 50% haircut. I trust you see the difference.

        Bogus as the deal is it is being used to prevent the triggering of CDS. This acts to protect investors and bondholders in companies that wrote those CDS.

        Finally, keeping Greece on minimal life support for as long as possible protects banks and their bondholders from their exposures in the rest of the periphery.

        So all in all when we look at who primarily benefits from these deals or would benefit from them, it’s clear it’s not ordinary Europeans. The benefits go to the banks and through them to their bondholders, also known as the rich.

  14. Fiver

    The point is coming at which the cost of attempting to keep the Eurozone clearly outweighs the cost of a breakup. Ditching the weakest members, then negotiating realistic bilateral debt restructurings, would be by far the best move. It is in fact the only way for European sovereigns to maintain their democracies and any semblance of independence both from even more unaccountable central EU/EZ authority and, more important still, independence from ongoing US policy madness across the spectrum.

  15. felix

    How ironic. History repeats itself, only with different actors and in different contexts. I predict that Western Europe will go down and it will take NATO with it and that the only winner over there will be Germany, which will win this economic WWI after having lost military WWII. The reason is simple: NATO is fighting the same predatory war for natural resources Hitler carried in Eastern Europe to try to compensate for the disadvantage Germany had in oil, food, industrial resources, financial power and, most of all, exporting capacity, respect to the Allied powers. NATO, Europe, are now in the same situation but in a global scale with respect to the emerging powers, specially China, and they are engaged in that same kind of predatory wars in Africa and Asia to compensate for their disadvantage. What they have being doing in Iraq, Afghanistan and Libya—i.e. steal their oil and enslave their populations–is a carbon copy of what Hitler tried to do in the East, and which brought him to Stalingrad and to his own demise. Economic power, industrial capacity, educated and skilled populations are now a growing privilege of countries which can afford such things and not for decaying or defunct empires, no matter how many Third World countries they invade. This is not the XV Century but 2011 and what makes nowadays a country rich is mostly its capacity to export, of which Western Europeans have little. When was the last time you bought something from the U.K, besides bags of tea or Kate & William wedding pictures? Or from France, except for baguettes and mime costumes? Or from Belgium, apart from Tin Tin cartoons? And so on. Wait and see, within a decade Germany will own Europe, without any need for Stukas or Panzers, and the BRICS will onw the rest of the world.

    1. psychohistorian

      While I agree with most of your scenario you left out the most important perspective.

      The global inherited rich don’t seem to exist in your story line but they are there behind the scenes before during and after this unfolds as you see it.

      I hope you are wrong about the the ongoing invisibility of the upper layer controlling our world’s future….they need to be neutralized, prosecuted and imprisoned.

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