Eurozone: A Train Crash in Slow Motion

By Andrew Moffat. Euro-realists – and in the UK this means secessionists – have, since long before its inception, warned that a single Euro currency was always unworkable and would lead to civil insurrection and dictatorship.

A ‘one size fits all’ monetary imposition on 17 diverse states is wholly unfeasible, given the varying economic and cultural characteristics particular to those nations.

The current weakness in Eurozone bond markets reflects the fundamental fault lines, which have now passed to Germany – the anchor-chain of the currency system.  On Wednesday, a lack of confidence in Germany’s debt ensured that it was unable to find buyers for 50% of its €10bn 10 year bond offering at the interest rate offered.

If the markets are demanding higher coupons for German bonds, then this is because the markets are beginning to fear that Germany will become the guarantor behind the vast and unsustainable debts of the other Eurozone members and, in particular, the Mediterranean ‘bloc’.  In effect, that will result in Germany paying a higher coupon on its bonds to reflect the greater risk embodied within the 17 member states that comprise the Eurozone.

The current travails of the Eurozone explain why countries such as Greece, Italy, Portugal and Spain are being bullied by Brussels, almost as though they were insolvent companies.

In the case of Greece, EU officials from the European Central Bank (ECB) and the EU Commission are overseeing the fine details of Greece’s fiscal activities, including the minutiae behind tax and spending policies.

In Italy, a government of technocrats has been formed by Mario Monti Monti, a leading member of the Friends of Europe, the European Chairman of the Trilateral Commission – a globalist ‘think tank’ founded in 1973 by David Rockefeller –  a leading member of the exclusive Bilderberg Group and an ex international advisor to Goldman Sachs.  Monti is also founding member of the Spinelli Group, an organization to facilitate integration within the European Union.

Doubtless, he will work closely with the new President of the ECB, Mario Draghi, a fellow Italian and also an alumnus of Goldman Sachs International and a brother Bilderberger.

In a further sign of what may be about to follow, depositors are withdrawing deposits from banks in the Mediterranean ‘bloc’ nations.  Why should they risk devaluation to their savings in the event their governments withdraw from the Euro currency?  Were that to occur, Greek Euro deposits would become Greek Drachmas and the Drachma would collapse against the Euro.

Anyone with savings in any of the Mediterranean nations would be wise to divest them from local banks and seek out safer investments and deposits elsewhere.  Ultimately, should the Mediterranean nations be forced to depart the Eurozone and restore their currencies, it will later be possible for savers to repatriate their funds and take advantage of a stronger foreign currency, exchanged back into the weaker home currency.

A series of banking failures in the Mediterranean ‘bloc’, partly caused by the exodus of depositors’ funds, would in all likelihood spell the death knell for the Eurozone project.  Simply put, governments have insufficient funds to bail out their banking sectors and the restless bond markets would demand ruinous and unaffordable coupons.

The ECB does not have the firepower to tackle such conditions.

A hint of what might be in motion has been provided by the collapse of Franco-Belgian bank, Dexia.  Despite a rescue package of €90bn, market rumours suggest that more assistance will be required.  France, whose economy is already anaemic, cannot afford to pump further funding into its banking sector without jeopardising is triple A credit rating.  Should this rating fall, as appears to be increasingly likely under current conditions, France – hitherto regarded as a safe haven – will find itself having to offer a higher coupon on its bonds to attract investors.

One thing is for certain:  the EU Commission will always seek to take advantage of a crisis by demanding more political and economic union when, in reality, the reverse is required.

There may be two potential solutions:

1 The use of quantitative easing (QE) by the ECB, ie the creation of electronic money, to purchase government bonds of the Eurozone and therefore place downward pressure on yields.   A €500bn initial strike would calm markets in the immediate term.

QE is currently being employed by the Bank of England (owned by the government and, therefore, the taxpayer) to offset the implosion in bank balance sheets.

No one knows at what point the policy becomes inflationary.

2 The contraction of the Eurozone into an inner tier of stronger economies.

With austerity measures, including rising taxation and spending cuts – allied to rising energy costs – these solutions will provide temporary respite.

It is also yet to be explained, in an environment of fiscal contraction and high government debt, where the motor for growth will emerge.

Effect on the UK

How is the UK afflicted by the turmoil in Europe?

Clearly, in circumstances of eroding confidence, large, medium and small enterprises rarely invest when there is an absence of worthwhile prospects.  Exporters – to the extent the UK still possesses a manufacturing industry – are afflicted by the same erosion of confidence on the part of their customers.

The overall result, complemented by tax rises and spending cuts, is increasing unemployment.

The UK has at least maintained control – for the time being – of its monetary policy, withholding the ability to set its own interest rates according to the needs of its economy.  It has also retained it currency, whose devalued condition has provided some assistance to exporters.

To cut the burgeoning budget deficit, the UK Government coalition parties have reneged upon a number of manifesto commitments.  VAT has been raised to 20% and university tuition fees have been raised to £9000, per annum.  There have been savage cuts to the armed forces and, at a time of increasing criminality, police budgets have been axed.

Notably absent, however, have been any cuts to any of a myriad of politically-correct projects.  Amongst these include:

The multicultural budget: asylum, social security, health tourism, educational costs, criminality, and so on, all forming part of a process designed to globalise the indigenous population in their own ancestral homeland.

Climate Change – based upon bogus science, an absence of debate, falsified statistics, deindustrialisation, and at a vast cost to the consumer in terms of the requirement to purchase inefficient ‘green’ energy from supply companies.

The Afghan war – where the UK has no strategic interests, at a time of monstrous cuts to the Defence budget.

Membership of the EU – the UK is a net contributor and no account, for the purpose of this article, has been taken of the enormous cost of regulation and the imposition of EU Directives.

Overseas Aid – to pay countries such as India and Pakistan, both of which possess nuclear capacities and one of which has launched space satellites.  If individuals wish to contribute to Third World poverty, at a time when 40,000 elderly in the UK die of hypothermia each year, then this must be their prerogative.  It is no business, however, of British governments to levy taxes to pay for charity overseas.

IMF:  the increased funding by the UK of the International Monetary Fund, now at the forefront of bailing out the Eurozone.

The aggregate of these globalist projects amounts to approximately £80bn of taxpayers’ funding, annually – or £400bn during a five year term of government.

In fact, such are the savings that could be wrought were, unrealistically, each of these projects to be axed immediately and entirely – and in the absence of necessary rises of expenditure in other departments – that the entire national debt could be repaid within approximately 10 years, which would also remove the cost of debt-servicing.

In conjunction with the type of policies a patriotic government would embark upon, the UK would boom for a generation if even a fraction of these costs were removed.

In surveying the crises across Europe, including the UK, one is rather reminded of a certain political party at home, whose leaders have demonstrated the same type of mismanagement of their budget as the Greeks have of their own.   The result, for both, has been an unpayable mountain of debt and interest and the intrusion of the begging bowl.   Were the leaders of that party running the UK Treasury, one fears that the country would descend to the status of an African banana republic, which has become the fate of such nations as Rhodesia.