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Euro
by
Alasdair Macleod
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 Mrs Merkel, particularly, is still pursuing the out-of-date Euroland ideal.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…
Europe’s Mexican Standoff
PREVIEW by Alasdair MacleodExecutive 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…
by
Adam Taggart
by
Adam Taggart
by
Adam Taggart
by
Adam Taggart
by
Alasdair Macleod
Executive Summary
- European banks have shifted their priority from supporting national governments to combating captial flight
- Hollande's policies are accelerating France's path to insolvency, thus advancing the date of the Eurozone collapse
- The euro can fall MUCH farther from here
- We are currently at a stalemate being forced by Germany, but it will soon end and downward momentum will quickly build
If you have not yet read Part I, available free to all readers, please click here to read it first.
In Part I, we examined the economic pressures likely to blow the Eurozone apart and concluded that there is increasing disquiet in Germany over the cost of supporting stricken economies and her increasing reluctance to write open-ended cheques. The first creditor country to leave will probably be Finland, or perhaps one of the other smaller members less committed to the Eurozone project. Let's now explore how this might come about, along with the consequences for the rest of the world.
Sovereign Debt Markets
It is obviously not possible to anticipate tomorrow’s events with any certainly, but we can lay down some pointers, the most obvious of which is changing yield levels in sovereign debt markets. Let's focus on Spain because she currently causes the most concern.
Before mid-November last year, Spain’s ten-year bond yield had run up to 6.58%, up from the 4% level that prevailed before her debt crisis became an issue (see chart below). At end-November, the yield fell in anticipation of the ECB’s first long-term refinancing operation (LTRO), because Eurozone banks used some of the money to arbitrage between Spanish bond yields and the considerably lower cost of funding from the ECB. This way of making money is encouraged by Basel 3 rules, which define short-term sovereign debt as being the highest quality, so no haircut is applied. This regulatory quirk has been conspiratorially used by the ECB, commercial banks, and governments themselves to ignore fundamental lending realities…
The Consequences of a Eurozone Breakup
PREVIEW by Alasdair MacleodExecutive Summary
- European banks have shifted their priority from supporting national governments to combating captial flight
- Hollande's policies are accelerating France's path to insolvency, thus advancing the date of the Eurozone collapse
- The euro can fall MUCH farther from here
- We are currently at a stalemate being forced by Germany, but it will soon end and downward momentum will quickly build
If you have not yet read Part I, available free to all readers, please click here to read it first.
In Part I, we examined the economic pressures likely to blow the Eurozone apart and concluded that there is increasing disquiet in Germany over the cost of supporting stricken economies and her increasing reluctance to write open-ended cheques. The first creditor country to leave will probably be Finland, or perhaps one of the other smaller members less committed to the Eurozone project. Let's now explore how this might come about, along with the consequences for the rest of the world.
Sovereign Debt Markets
It is obviously not possible to anticipate tomorrow’s events with any certainly, but we can lay down some pointers, the most obvious of which is changing yield levels in sovereign debt markets. Let's focus on Spain because she currently causes the most concern.
Before mid-November last year, Spain’s ten-year bond yield had run up to 6.58%, up from the 4% level that prevailed before her debt crisis became an issue (see chart below). At end-November, the yield fell in anticipation of the ECB’s first long-term refinancing operation (LTRO), because Eurozone banks used some of the money to arbitrage between Spanish bond yields and the considerably lower cost of funding from the ECB. This way of making money is encouraged by Basel 3 rules, which define short-term sovereign debt as being the highest quality, so no haircut is applied. This regulatory quirk has been conspiratorially used by the ECB, commercial banks, and governments themselves to ignore fundamental lending realities…
by
Adam Taggart
by
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