The results of the elections in France and Greece have made it abundantly clear that there is a tremendous backlash against the austerity approach that Germany has been pushing. All over Europe, prominent politicians and incumbent political parties are being voted out. In fact, Nicolas Sarkozy has become the 11th leader of a European nation to be defeated in an election since 2008. We have seen governments fall in the Netherlands, the UK, Spain, Ireland, Italy, Portugal and Greece. Whenever they get a chance, the citizens of Europe are using the ballot box to send a message that they do not like what is going on. It turns out that austerity is extremely unpopular. But if newly elected politicians all over Europe begin rejecting austerity, this puts Germany in a very difficult position. Should Germany be expected to indefinitely bail out all of the members of the eurozone that choose to live way beyond their means? If Germany pulled out of the euro tomorrow, the euro would absolutely collapse, bond yields for the rest of the eurozone would skyrocket to unprecedented heights, and without German bailout money troubled nations such as Greece would be headed directly for default. The rest of the eurozone is absolutely and completely dependent on Germany at this point. But as we have seen, much of the rest of the eurozone is sick and tired of taking orders from Germany and is rejecting austerity. A lot of politicians in Europe apparently believe that they should be able to run up gigantic amounts of debt indefinitely and that the Germans should be expected to always be there to bail them out whenever they need it. Will the Germans be willing to tolerate such a situation, or will they simply pick up their ball and go home at some point?
Over the past several years, German Chancellor Angela Merkel and French President Nicolas Sarkozy have made a formidable team. They worked together to push the eurozone on to the path of austerity, but now Sarkozy is out.
This article has been generously contributed by Brandon Smith of Alt Market.
For the past four years I have been covering the progression of the global economic crisis with an emphasis on the debilitating effects it has had on the American financial system. Only once before have I ever issued an economic alert, and this was at the onset of the very first credit downgrade in U.S. history by S&P. I do not take the word “alert” lightly. Since 2008 we have seen a cycle of events that have severely weakened our country’s foundation, but each event has then been followed by a lull, sometimes 4 to 6 months at a stretch, which seems to disarm the public, drawing them back into apathy and complacency. The calm moments before each passing storm give Americans a false sense of hope that our capsized fiscal vessel will somehow right itself if we just hold on a little longer…
I don’t have to tell most people within the Liberty Movement that this is not going to happen. Unfortunately, there are many out there who do not share our awareness of the situation. Debt implosions and currency devaluation NEVER simply “fade away”; they are always followed by extreme social and political strife that tends to sully the doorsteps of almost every individual and family. The notion that we can coast through such a tempest unscathed is an insane idea, filled with a dangerous potential for sour regrets.
The Euro-zone in its current form is in its final chapter. Anyone who argues otherwise is not paying attention.
Consider the Greek situation. Greece’s debt problems first made mainstream media headline news at the beginning of 2009. The IMF/ EU/ ECB/ and Federal Reserve have been working on this situation for two years now. And they’ve yet to solve anything: after two bailouts, significant debt write-downs, and numerous austerity measures, Greece remains bankrupt.
Now, if the Powers That Be cannot solve Greece’s problems… what makes anyone think that they can address larger, more dangerous issues such as Spain or Italy, etc?
Consider that the world’s central banks staged a coordinated intervention…and Italy’s 10 year is back yielding more than 7% less than two months later.
Again, a coordinated intervention by the world’s central banks bought less than few months’ time for Italy…
Prime Minister George Papandreou began steps to form a coalition government after narrowly winning a vote of confidence.
Athens, Greece (CNN) – Greece’s prime minister and the head of the country’s main opposition party spoke on the phone Monday, but leaders offered few details and it was unclear whether they had agreed on a possible new prime minister for the nation.
The conversation came a day after President Karolos Papoulias announced that Prime Minister George Papandreou will step down amid the country’s financial crisis — so long as a controversial 130 billion euro bailout deal is approved.
On Sunday, Papandreou met with Antonis Samaras — the leader of the New Democracy party, Greece’s leading opposition party — and agreed to form a new government.
The two were scheduled to discuss who will serve in the new government as well as who will be the next prime minister in a meeting Monday, according to a statement from the president Sunday.
The move could close one chapter in Greece’s tumultuous political and economic saga, as Papandreou had become a lightning rod for critics for his leadership of the south European nation as it tackles a prolonged financial plight.
It also could pave the way for passage of an agreement that Papandreou negotiated October 26 with European leaders. That deal would wipe out 100 billion euros in Greek debt, half of what it owes. It also includes a promise of 30 billion euros to help the public sector pare its debts, making the whole package worth a total of 130 billion euros (nearly $180 billion).
A spokesman for the opposition New Democratic Party said Papandreou and Samaras had spoken on the phone, and the new premier’s name would be announced Monday. The spokesman did not provide additional information.
New national elections will be held sometime after the bailout is implemented, officials said.
After late-night discussions involving representatives from both main parties Sunday, Finance Minister Evangelos Venizelos said on his website that February 19 appeared the most likely date for those elections to take place.
~if one is looking for *signs* there probably isn’t one more *in your face* than having a bear come ambling in one’s yard!!!!~jude~
By Maria Petrakis, Natalie Weeks and Marcus Bensasson - Nov 1, 2011 8:47 AM MT
Image via Wikipedia
Greek Prime Minister George Papandreou’s grip on power weakened before a confidence vote later this week as his decision to call a referendum on a new bailout package provoked a lawmaker rebellion.
Milena Apostolaki said she will defect from Papandreou’s socialist Pasok party. With Kerdos newspaper reporting that Eva Kaili will also abandon Pasok, Papandreou would only control 151 seats in the 300-seat chamber. Six members of the party called on the premier to resign in a joint letter, Athens News Agency said today. Greek ministers meet at 6 p.m. local time.
Stocks fell, the euro tumbled and Italian bonds plunged on concern that the referendum, which blindsided Greek lawmakers as well as European policy makers, will push Greece into default if the bailout is rejected. Austerity steps imposed by creditors have sparked a wave of social unrest in the past 18 months, undermining support for the government. Papandreou won his last major vote on austerity measures by 154 votes to 144 on Oct. 20.
“If it continues with Papandreou and the referendum, we will end up with a default and the default will push us into the drachma,” former Greek Finance Minister Stefanos Manos said in an interview with Dublin-based broadcaster RTE today. The referendum call puts in jeopardy the payment of the next installment of bailout funds by the International Monetary Fund and the European Union, he said.
~Don’t let this deceive you, as the markets will be happy~jude
EUROPEAN leaders secured a deal to reduce Greece’s debt after labouring deep into today to find agreement on what they had billed as a blockbuster package aimed at stemming the continent’s debt crisis.
French President Nicolas Sarkozy said after the marathon negotiating session the leaders had reached agreement with private banks on a “voluntary” 50 per cent reduction of Greece’s debt in the hands of private investors.
He also said they had agreed to expand the firepower of the European Financial Stability Facility, the eurozone’s bailout vehicle, four-or-five-fold — suggesting it could provide guarantees for €800 billion to €1.3 trillion of bonds issued by countries like Spain and Italy.
The leaders agreed on a plan that would boost the capital buffers of the stragglers among the continent’s 70 biggest banks by €106bn — though they didn’t say where the money would come from.
As the leaders went into the meeting, deep divisions had remained between eurozone governments and private banks over how much to cut the government debt of Greece, the country at the heart of the crisis. Without a final deal on Greece — in particular on how deep the losses holders of Greek government bonds are expected to suffer — it would have been impossible to say how big the expanded firepower of the bailout fund could be.
~the problem with this and the EBC banks is that while Britton can still print more money, Spain and Italy who were actually in very good shape till *the bank runs* and nobody buying bonds, should have kept their own monetary systems…Unfortunately now that they chose to be tied to the Euro they cannot fix this problem themselves~sighhh~jude Thu Sep 15, 2011 12:26am EDT
(Reuters) – Billionaire investor George Soros has warned Europe’s debt crisis risks triggering another Great Depression unless euro zoneleaders adopt a series of radical policy measures, including the creation of a common treasury.
Soros, in an article for the New York Review of Books and Reuters.com, says policymakers must prepare for the possibility that Greece, Portugal and perhaps Ireland will have to default and leave the euro zone. (link.reuters.com/qap73s)
“It appears the authorities have reached the end of the road with their policy of ‘kicking the can down the road’,” he says.
“Even if a catastrophe can be avoided, one thing is certain: the pressure to reduce deficits will push the euro zone into prolonged recession. This will have incalculable political consequences.”
A growing number of policymakers, as well as market economists, are convinced it is a matter of time before Greece, which keeps falling behind on its fiscal targets after two EU/IMF bailouts, will have to default.
Italy and Spain have come under pressure from bond markets over their large public and bank debts and weak growth, a cause for particular concern as both economies are too large to be saved by the European rescue fund that has been used in bailouts for Greece, Portugal and Ireland.
As well as preparing for a default and euro zone exit by those three “peripheral nations,” Soros recommends four bold policy measures:
- Bank deposits have to be protected to prevent bank runs in weaker states;
- Some banks in the defaulting countries have to be kept functioning to keep their economies afloat;
- The European banking system would be recapitalized and put under European-, as distinct from national-, supervision;
- Government bonds of other deficit countries would have to be protected.
“All this would cost money,” writes the 81-year-old hedge fund manager and philanthropist. “There is no alternative but to give birth to the missing ingredient: a European treasury with the power to tax and therefore to borrow.”
Soros acknowledges that such a move would require a new European Union treaty and urges European leaders to begin work straight away because of the time it would take to conclude.
“Once the principle of setting up a European Treasury is agreed upon, the European Council could authorize the ECB to step into the breach, indemnifying the ECB in advance against risks to its solvency,” he says.
“That is the only way to forestall a possible financial meltdown and another Great Depression.”
He also recognizes it would be deeply controversial, especially in Germany, where there is strong opposition to underwriting the debts of what are seen as profligate southern European nations.
“The German public still thinks that it has a choice about whether to support the euro or to abandon it. That is a mistake,” he writes.
“The euro exists and the assets and liabilities of the financial system are so intermingled on the basis of a common currencythat a breakdown of the euro would cause a meltdown beyond the capacity of the authorities to contain.
“The longer it takes for the German public to realize this, the heavier the price they and the rest of the world will have to pay.”
Below is a a chart of Italian bank equity performance. Countrywide bank run next?
Whether the reason for the sell off is due to a typoed GOFO 12M SocGen print or there is a fundamental reason, remains to be seen, but US equities are not taking the risk. US stocks have wiped out all of yesterday’s last minute gains.
For many investors in silver and gold, they invest as a hedge against inflation and also against government default. Most investors find it hard to believe that we will actually see a major government default on their debt. Is this outside of the realm of possibility? Unfortunately the answer is no.
The article below by Andrew Lilico of the London Telegraph lays out a very thorough outlook of what might occur when Greece defaults. Notice I did not say if but when. There are multiple leaders within Europe and different respected economists who have shown that Greece simply cannot pay its bills and is left with only one option: default.
By LIVE SILVER PRICES
As a disclaimer, I do not agree with everything written here, but I think his general points are well developed. Let’s see what a default would look like.
“It is when, not if. Financial markets merely aren’t sure whether it’ll be tomorrow, a month’s time, a year’s time, or two years’ time (it won’t be longer than that). Given that the ECB has played the “final card” it employed to force a bailout upon the Irish – threatening to bankrupt the country’s banking sector – presumably we will now see either another Greek bailout or default within days.
What happens when Greece defaults. Here are a few things:
- Every bank in Greece will instantly go insolvent.
- The Greek government will nationalize every bank in Greece.
- The Greek government will forbid withdrawals from Greek banks.
- To prevent Greek depositors from rioting on the streets, Argentina-2002-style (when the Argentinian president had to flee by helicopter from the roof of the presidential palace to
evade a mob of such depositors), the Greek government will declare a curfew, perhaps even general martial law.
- Greece will redenominate all its debts into “New Drachmas” or whatever it calls the new currency (this is a classic ploy of countries defaulting)
- The New Drachma will devalue by some 30-70 per cent (probably around 50 per cent, though perhaps more), effectively defaulting 0n 50 per cent or more of all Greek euro-denominated debts.
- The Irish will, within a few days, walk away from the debts of its banking system.
- The Portuguese government will wait to see whether there is chaos in Greece before deciding whether to default in turn.
- A number of French and German banks will make sufficient losses that they no longer meet regulatory capital adequacy requirements.
- The European Central Bank will become insolvent, given its very high exposure to Greek government debt, and to Greek banking sector and Irish banking sector debt.
- The French and German governments will meet to decide whether (a) to recapitalise the ECB, or (b) to allow the ECB to print money to restore its solvency. (Because the ECB has relatively little foreign currency-denominated exposure, it could in principle print its way out, but this is forbidden by its founding charter. On the other hand, the EU Treaty explicitly, and in terms, forbids the form of bailouts used for Greece, Portugal and Ireland, but a little thing like their being blatantly illegal hasn’t prevented that from happening, so it’s not intrinsically obvious that its being illegal for the ECB to print its way out will prove much of a hurdle.)
- They will recapitalise, and recapitalise their own banks, but declare an end to all bailouts.
- There will be carnage in the market for Spanish banking sector bonds, as bondholders anticipate imposed debt-equity swaps.
- This assumption will prove justified, as the Spaniards choose to over-ride the structure of current bond contracts in the Spanish banking sector, recapitalising a number of banks via
- Bondholders will take the Spanish Banking Sector to the European Court of Human Rights (and probably other courts, also), claiming violations of property rights. These cases won’t
be heard for years. By the time they are finally heard, no one will care.
Attention will turn to the British banks. Then we shall see…”
The one option that is not laid out is European governments continuing to extend bailouts to Greece and the economic time bomb is kicked further down the road. So how would silver and gold be impacted? As I have mentioned before, I think there are two options. First, we could see the historic result.
Mainly, investors could flood into the dollar causing appreciation of the dollar and a fall in commodity prices. On the other hand, investors could see precious metals as a safe haven, which would cause the price on both silver and gold to go up.
Quite frankly, when we see Europe dive into this economic crisis, we will see a global economic crisis, which could make 2008 look like a piece of cake. This means that there will be very few places investors can safely put their money. All the equity markets will be hit severely and there will be such a fear of government debt after the situation in Europe that leaves very few options for investors.
The question is will investors challenge the normal course of action or set a new course during these hard economic times?