The President of France has come up with a very creative way of solving the European debt crisis. On Sunday, a piece authored by French President Francois Hollande suggested that the ultimate solution to the problems currently plaguing Europe would be for every member of the eurozone to transfer all of their sovereignty to a newly created federal government. In other words, it would essentially be a “United States of Europe”. This federal government would have a prime minister, a parliament, a federal budget and a federal treasury. Presumably, the current national governments in Europe would continue to function much like state governments in the U.S. do. In the end, there may be some benefits to such a union – particularly for the weaker members of the eurozone. But at what cost would those benefits come?
When I first learned that French President Francois Hollande had proposed that the members of the eurozone should create their own version of a federal government, I was quite stunned. But I shouldn’t have been surprised. For the global elite, the answer to just about any problem is more centralization. The following comes from a Bloomberg article that was posted on Sunday…
French President Francois Hollande said that the 19 countries using the euro need their own government complete with a budget and parliament to cooperate better and overcome the Greek crisis.
“Circumstances are leading us to accelerate,” Hollande said in an opinion piece published by the Journal du Dimanche on Sunday. “What threatens us is not too much Europe, but a lack of it.”
So precisely what would “more Europe” look like?
Hollande envisions a central government that has both a parliament and a federal budget…
“I have proposed taking up Jacques Delors’ idea about euro government, with the addition of a specific budget and a parliament to ensure democratic control,” Hollande said.
His remarks touched on what analysts have seen as a major flaw in the euro.
Under the 1992 Treaty of Maastricht, countries which share a common currency must obey rules on borrowing and deficit spending.
But the Greek crisis saw one of the 19 eurozone members notch up successive worsening deficits and amass a mountain of debt. The problems were only addressed by bailouts from the European institutions and the International Monetary Fund (IMF).
Critics say the problem stems from a lack of centralised control over national fiscal policies, which today are jealously guarded areas of sovereignty.
In addition, this eurozone government would have its own prime minister. In essence, he would be the European version of the president of the United States. The following comes from the Independent…
There would be a eurozone government with its own prime minister, the officials said. This government would have its own budget – separate from the EU budget – to aid and invest in more fragile countries, It would try to harmonise corporation and pay-roll taxes to ensure fair competition in the eurozone.
Of course Hollande is not the only one calling for more centralization. Last month, European Central Bank President Mario Draghi, European Commission President Jean-Claude Juncker and Eurogroup President Jeroen Dijsselbloem proposed a plan that would create a shared European treasury…
Draghi called for the creation of a shared treasury within 10 years in a joint proposal with politicians including European Commission President Jean-Claude Juncker and Eurogroup President Jeroen Dijsselbloem last month.
I don’t anticipate that we will see any of these things implemented immediately.
However, what is important is the fact that this is where the European elite plan to take Europe. And when the next great European financial crisis erupts, these proposals will be offered as the “solutions” necessary to end the crisis.
During times of emergency, the elite are often able to push things through that they would never be able to accomplish under normal circumstances. At the moment, it would be extremely difficult to get everyone to agree to a full-blown “United States of Europe”. But if things were to start spinning wildly out of control and people were suddenly desperately clamoring for solutions, the environment would be quite different.
What that time arrives, the key will be to get Germany and France to agree on what a “United States of Europe” should look like. If Germany and France can agree, it is inevitable that most of the other members of the eurozone would ultimately fall in line.
One potential hurdle for the creation of this new government would be the euro. The current treaty agreements concerning the euro are quite complicated and quite restrictive. If Germany and France decided that they did want to create a “United States of Europe”, they might have to create an entirely new currency in order to accomplish that.
I know that sounds kind of crazy right now, but at one time the concept of “the euro” sounded really crazy too.
For the moment, the debt crisis in Europe just continues to get even worse. Greece, Portugal, Ireland, Italy, Spain, Belgium and France are all drowning in debt. Whether or not we see a “Grexit” in the short-term, I fully expect that European bond yields will continue to rise and European stocks will take quite a tumble in the months ahead.
I believe that we are right on the verge of a very significant European financial crisis. In particular, keep on eye on the big banks. Just like in the United States, the “too big to fail” banks in Europe are massively overleveraged and are tremendously exposed to derivatives.
In fact, the bank with the most exposure to derivatives on the entire planet is Deutsche Bank. It has been reported that Deutsche Bank has a whopping 75 trillion dollars worth of exposure to derivatives, their co-CEOs were recently forced to resign, and there are all sorts of rumblings about troubles going on behind the scenes at the bank.
What do you think would happen if the biggest and most important bank in Germany suddenly became the next Lehman Brothers?
That is something to think about.
Meanwhile, the euro continues to fall. For a long time, I have been repeating my prediction that the euro would fall to parity with the U.S. dollar.
One year ago, the EUR/USD was sitting at 1.35.
Today, it has come all the way down to 1.08.
There will be more ups and downs, but we are almost there.
A time of great chaos is coming to Europe, and the eurozone will be deeply shaken.
But whether or not there is a break up of the eurozone in the short-term, in the long-term the goal of the European elite is even more integration and even more centralization.
So even though there will be significant bumps in the road, I fully expect to see the “United States of Europe” that French President Francois Hollande has proposed.
Do you agree?
What do you think the future holds for Europe?
Please feel free to join the discussion by posting a comment below…
It turns out that the poster child for the European debt crisis is not actually poor at all. In fact, the truth is that the nation of Greece is sitting on absolutely massive untapped reserves of gold, oil and natural gas. If the Greeks were to fully exploit the natural resources that are literally right under their feet, they would no longer have any debt problems. Fortunately, this recent economic crisis has spurred them to action and it is now being projected that Greece will be the number one gold producer in Europe by 2016. In addition, Greece is now opening up exploration of their massive oil and natural gas deposits. Reportedly, Greece is sitting on hundreds of millions of barrels of oil and gigantic natural gas deposits that are worth trillions of dollars. It is truly sad that Greece should be one of the wealthiest nations in all of Europe but instead the country is going through the worst economic depression that it has experienced in modern history. It is kind of like a homeless man that sleeps on the streets every night without realizing that a relative has left him an inheritance worth millions of dollars. Greece is not poor at all, and hopefully the people of Greece can learn the truth about all of this wealth and chart a course out of this current mess.
I have written extensively about the nightmarish economic conditions that Greece is experiencing right now. Just check out this article, this article and this article. Since the depression began in Greece, the Greek economy has contracted by more than 20 percent. In April 2010, the unemployment rate in Greece was only 11.8 percent. Since then it has skyrocketed to 25.1 percent.
The government debt to GDP ratio in Greece is projected to hit 198 percent this year, and there are persistent rumors that Greece will be forced to leave the euro.
But all of this is completely and totally unnecessary. Greece is not actually poor at all. In fact, after you account for untapped natural resources, Greece is actually one of the wealthiest nations in all of Europe.
According to Bloomberg, there is a massive amount of gold in Greece. This recent economic crisis has accelerated the approval of mining activity, and it is now being projected that Greece will soon be the number one gold producing country in all of Europe…
Gold mining is gathering momentum after Greece began what it called a “fast-track” approvals program. The Canadian and Australian companies said their projects will add about 425,000 ounces by 2016, worth $757 million at the Oct. 5 spot price, to the 16,000 ounces the country produced in 2011.
“There’s clearly evidence that Greece has woken up to the potential of their mining industry,” said Jeremy Wrathall, chairman of Perth-based Glory Resources. “Politicians increasingly realize that a pro-mining stance is appropriate due to job creation potential.”
Greece, which is also fast-tracking state property sales, is set to overtake Finland as the continent’s largest gold producer within four years, as regulators in Athens sign off on mines kept on hold for more than a decade by red tape and environmental rules.
But Greece doesn’t just have gold. Greece is also swimming in oil and natural gas. It turns out that Greece is sitting on the western edge of an absolutely mammoth sub-Mediterranean oil and gas field, and there are also huge deposits of oil and natural gas in the western parts of the country.
A Reuters article back in July discussed how foreign firms are now rushing to exploit these tremendous resources…
Greece has received eight bids by companies to search for oil and natural gas in three blocks in the western part of the country, the energy ministry said on Monday, as debt-laden Athens seeks to save money on energy imports.
Greece, which produces almost no oil or natural gas, aims to develop potential hydrocarbon reserves as part of an effort to overhaul its economy and lessen dependence on energy imports.
So exactly how much oil and natural gas does Greece have?
The numbers that are being reported so far are staggering. The following comes from a Greek news source…
Until now the offers for hydrocarbon exploration have concerned three blocks: The first is in the Gulf of Patra, the second off the coast of Katakolo — both in Western Greece — and the third at Ioannina, northwestern Greece.
Early estimates suggest that the Gulf of Patra may have 200 million barrels of crude oil, and that there are another 80 million at Ioannina and nearly 3 million off the coast of Katokolo.
Furthermore, according to the United States Geological Survey, in the sea between Crete, Cyprus, Israel and Egypt, there are about 15 trillion cubic meters of natural gas and oil just waiting to be extracted.
The truth is that Greece has enough oil and natural gas to be able to pay off all of their debts. The value of the natural gas that they are sitting on alone has been estimated to be worth trillions of dollars. The following is from an article earlier this year by F. William Engdahl…
In December 2010, as it seemed the Greek crisis might still be resolved without the by-now huge bailouts or privatizations, Greece’s Energy Ministry formed a special group of experts to research the prospects for oil and gas in Greek waters. Greece’s Energean Oil & Gas began increased investment into drilling in the offshore waters after a successful smaller oil discovery in 2009. Major geological surveys were made. Preliminary estimates now are that total offshore oil in Greek waters exceeds 22 billion barrels in the Ionian Sea off western Greece and some 4 billion barrels in the northern Aegean Sea. 
The southern Aegean Sea and Cretan Sea are yet to be explored, so the numbers could be significantly higher. An earlier Greek National Council for Energy Policy report stated that “Greece is one of the least explored countries in Europe regarding hydrocarbon (oil and gas-w.e.) potentials.”  According to one Greek analyst, Aristotle Vassilakis, “surveys already done that have measured the amount of natural gas estimate it to reach some nine trillion dollars.”  Even if only a fraction of that is available, it would transform the finances of Greece and the entire region.
Tulane University oil expert David Hynes told an audience in Athens recently that Greece could potentially solve its entire public debt crisis through development of its new-found gas and oil. He conservatively estimates that exploitation of the reserves already discovered could bring the country more than €302 billion over 25 years.
So unlike several other nations in Europe, things actually look quite promising for Greece in the years ahead if they manage their resources correctly and don’t let foreigners come in and steal all of their wealth.
And perhaps this is why there is such hesitation to boot Greece out of the EU. It seems probable that many of the top politicians in Europe know about all of this gold, oil and natural gas that Greece is sitting on.
Hopefully the people of Greece will learn about this massive amount of wealth that is just under their feet. If they can figure out a way to get this wealth to start to flow into the hands of the people of Greece, a lot of their problems could be solved rather quickly and they could start to experience a massive economic turnaround.
Summer vacation is over and things are about to get very interesting in Europe. Most Americans don’t realize this, but much of Europe shuts down for the entire month of August. I wish we had something similar in the United States. But now millions of Europeans are returning from their extended family vacations and the fun is about to begin. During August economic conditions continued to degenerate in Europe, but I figured that it wouldn’t be until after August that the European debt crisis would take center stage once again. And as I wrote about last week, if there is going to be a financial panic, it typically happens in the fall. The stock market has seen quite a nice rally over the summer, and many investors are nervous that we could see a significant “correction” very soon. The month of September has been the absolute worst month for stock performance over the past 50 years, and it has also been the absolute worst month for stock performance over the past 100 years as well. Of course that does not guarantee that anything is going to happen this year. But things in Europe continue to get worse. Unemployment rates are spiking, manufacturing activity is slowing down, housing prices are crashing and major financial institutions are failing. What is happening in Europe right now appears to be an even worse version of what happened to the United States back in 2008.
But most Americans aren’t too concerned about what is happening in Europe.
In fact, most Americans don’t believe that a European financial collapse would be much of a problem for us.
Well, just remember what happened back in 2008. When the U.S. financial system started coming apart at the seams it sparked a devastating worldwide recession which was felt in every corner of the globe.
If the European financial system implodes, the consequences could be even worse.
Europe has a larger population than the United States does.
Europe has a larger economy than the United States does.
Europe has a much, much larger banking system than the United States does.
If Europe experiences a financial collapse, the entire globe will feel the pain.
And considering how weak the U.S. economy already is, it would not take much to push us over the edge.
What is going on in Europe right now is a very, very big deal and people need to pay attention.
The following are 18 indications that Europe has become an economic black hole which is going to suck the life out of the global economy….
#1 The unemployment rate in France is up to 10 percent, and the French media is buzzing about the fact that the number of unemployed French workers has now hit the 3 million mark.
#2 The French government has just announced the nationalization of its second largest mortgage lender. Additional bailouts are likely on the way.
#3 French automaker PSA Peugeot Citroen has announced that it will be cutting more than 10,000 jobs. But of course major layoff announcements like this are coming out of Europe almost every day now.
#4 Home prices in France are falling rapidly and the recent election of a socialist president has created a bit of a panic in the French housing market….
British people with homes in France were today warned that the property market is in ‘free fall’.
A combination of factors including the election of a tax-and-spend Socialist government means that prices are tumbling.
It means an end to the boom years, when thousands of Britons poured money into rental or retirement investments across the Channel.
#5 A slow-motion bank run is happening in Spain. The amount of money being pulled out of the Spanish banking system is absolutely unprecedented. The following is from a recent Zero Hedge article….
The central bank of Spain just released the net capital outflow numbers and they are disastrous. During the month of June alone $70.90 billion left the Spanish banks and in July it was worse at $92.88 billion which is 4.7% of total bank deposits in Spain. For the first seven months of the year the outflow adds up to $368.80 billion or 17.7% of the total bank deposits of Spain and the trajectory of the outflow is increasing dramatically. Reality is reality and Spain is experiencing a full-fledged run on its banks whether anyone in Europe wants to admit it or not.
If this pace keeps up, more than 600 billion dollars will be pulled out of Spanish banks by the end of the year.
Keep in mind that the GDP of Spain for all of 2011 was just 1.49 trillion dollars.
So by the end of this year we could see the equivalent of more than 40 percent of Spanish GDP pulled out of Spanish banks and sent out of the country.
In case you were wondering, yes, that is a nightmare scenario.
#6 The unemployment rate in Spain is over 25 percent. The youth unemployment rate in Spain is well over 50 percent. Spain is a tinderbox that could be set ablaze at any moment.
#7 The yield on 10 year Spanish bonds is up to 6.85 percent. This is an unsustainable level, and if rates don’t come down on Spanish debt soon it is inevitable that Spain will end up just like Greece.
#8 On Monday it was announced that Spanish banking giant Bankia will be getting an emergency “cash injection” of between 4 and 5 billion euros. Apparently “cash injection” sounds better to the politicians than “a bailout” does.
#9 The housing crash in Spain just continues to get worse. It is being reported that some homes in Spain are being sold at a 70% discount from where they were at the peak of the market back in 2006. At this point there are approximately 2 million unsold homes in Spain.
#10 There are persistent rumors that the government of Spain will soon be forced to officially ask for a bailout from the rest of Europe. But who is going to bail them out? Most of the other governments of the eurozone are on the verge of bankruptcy themselves.
#11 Manufacturing activity in Europe has contracted for 13 months in a row. The following is from a recent Reuters report….
The downturn that began in the smaller periphery members of the 17-nation bloc is now sweeping through Germany and France and the situation remained dire in the region’s third and fourth biggest economies of Italy and Spain.
“Larger nations like France and Germany remain in reverse gear… the (manufacturing) sector is on course to act as a drag on gross domestic product in the third quarter,” said Rob Dobson, senior economist at data collator Markit.
Markit’s final Purchasing Managers’ Index (PMI) for the manufacturing sector fell from an earlier flash reading of 45.3 to 45.1, above July’s three-year low of 44.0, but notching its 13th month below the 50 mark separating growth from contraction.
#12 Chinese exports to the EU declined by 16.2 percent in July. U.S. exports to Europe have been steadily falling as well.
#13 Slovenia and Cyprus are two other eurozone members that are in desperate need of bailout money. The dominoes just keep falling and nobody seems to be able to come up with a plan to “fix” Europe.
#14 Even the “strong” economies in Europe are being dragged down now. For example, unemployment in Germany has risen for five months in a row.
#15 According to one recent poll, only about one-fourth of all Germans want Greece to remain a part of the eurozone. The odds of a breakup of the euro seem to rise with each passing day.
#16 It is now estimated that bad loans make up approximately 20 percent of all domestic loans in the Greek banking system at this point.
#17 The suicide rate in Greece is more than 30 percent higher than it was last year. People are becoming very desperate in Greece and there is no end in sight to the economic depression that they are going through.
#18 Large U.S. companies have been rapidly getting prepared for a Greek exit from the eurozone. The following is from a recent New York Times article….
Even as Greece desperately tries to avoid defaulting on its debt, American companies are preparing for what was once unthinkable: that Greece could soon be forced to leave the euro zone.
Bank of America Merrill Lynch has looked into filling trucks with cash and sending them over the Greek border so clients can continue to pay local employees and suppliers in the event money is unavailable. Ford has configured its computer systems so they will be able to immediately handle a new Greek currency.
Every time European leaders get together they declare that they have “a plan” that will solve the problems that Europe is experiencing, but as we have seen things in Europe just continue to get worse with no end in sight.
A key date is coming up in the middle of this month. On September 12th, Germany’s Constitutional Court will determine the fate of the recent fiscal pact and the ESM. According to UniCredit global chief economist Erik Nielsen, if the court rules against the fiscal pact and the ESM the fallout will be catastrophic….
“If they were to surprise us by striking down Germany’s participation, I would think it’d be an utter bloodbath in markets”
But that is not the only thing that could set off a full-blown panic in the financial markets.
The truth is that Europe is teetering on the edge.
One wrong move and it is going to be 1929 all over again.
As I have maintained all along, the next wave of the economic collapse is rapidly approaching, and this time the epicenter for the crisis is going to be in Europe.
But that does not mean that things are going to be easier for the United States than last time. We have never even come close to recovering from the last recession. Most Americans families are just barely getting by. In fact, 77 percent of them are living paycheck to paycheck at least part of the time.
Right now there are millions of Americans that have lost their jobs and their homes in recent years and that feel forsaken by society.
After this next wave hits us there will be tens of millions of Americans feeling the pain of economic desperation.
The last wave of the economic collapse hurt us.
This next wave is going to absolutely devastate us.
Watch what is happening in Europe very carefully. What Greece, Spain, Italy and France are experiencing right now is going to hit us soon enough.
It seems like almost everywhere you turn these days there is bad economic news. Foreclosures are setting records, unemployment remains depressingly high, poverty is exploding, U.S. government debt is wildly out of control and Europe is on the verge of an economic collapse that could send the entire globe into a devastating financial panic. If all that wasn’t enough, the oil spill in the Gulf of Mexico has destroyed the seafood and tourism industries along the Gulf coast and threatens to push that entire region into a depression for years to come. The truth is that the more you look at the economic statistics coming in from around the globe the more it becomes obvious that we are headed for a complete and total economic nightmare.
Just consider some of the most recent economic news….
*The number of U.S. home foreclosures set a record for the second consecutive month in May. How can the U.S. housing industry be recovering when the number of Americans being foreclosed on continues to set all-time records?
*As of March, U.S. banks had an inventory of approximately 1.1 million foreclosed homes, up 20 percent from a year ago. Instead of working their way through the huge backlog of unsold homes, U.S. banks continue to pile up a massive inventory of foreclosed homes at a staggering pace.
*According to figures from the U.S. Commerce Department, housing starts in the United States fell 10 percent in May, the biggest decline since March 2009. The data also revealed that single-family home starts suffered the biggest drop since 1991. There is already a massive glut of unsold homes on the market, so builders simply do not think it is profitable to build many new homes right now.
*Officials now tell us that the cost of “fixing” Fannie Mae and Freddie Mac, the government-backed mortgage companies that last year bought or guaranteed the vast majority of all U.S. home loans, will be at least $160 billion and could grow as high as $1 trillion. The twin pillars of the U.S. mortgage industry have become financial black holes that the U.S. government endlessly pours massive amounts of cash into. That is not a good sign.
*Fannie Mae and Freddie Mac are to be delisted from the New York Stock Exchange because their stock prices have been trading under $1 per share for more than 30 trading days. The truth is that Fannie Mae and Freddie Mac would have completely imploded by now if the U.S. government had not decided to step in and bail them out.
*The average duration of unemployment in the United States has risen to an all-time high. Not only are a ton of Americans out of work, they can’t find work for a very, very long time once they are unemployed.
*For Americans younger than 25 years of age, the unemployment rate is 18.8%. But even those young Americans that can find employment often find themselves working in very low paying service jobs.
*Federal Reserve Chairman Ben Bernanke says that the U.S. unemployment rate is likely to stay “high for a while”. Considering how badly Bernanke has been doing his job, it would be really nice if we could add just one more person to the unemployment rolls.
*According to one new study, approximately 21 percent of children in the United States are living below the poverty line in 2010 – the highest rate in 20 years. There are hundreds of thousands of American children on the streets each night, and yet we continue to insist that we are the greatest country in the world.
*For the first time in U.S. history, more than 40 million Americans are on food stamps, and the U.S. Department of Agriculture projects that number will go up to 43 million Americans in 2011. How many tens of millions of Americans have to be on food stamps before we officially say that we are in a depression?
*According to the Wall Street Journal, the debates have begun inside the Fed about what it should do in the event of a “double dip” recession. If they are already debating what to do during the next economic downturn that means it is probably a foregone conclusion.
*If you were alive when Christ was born and spent one million dollars every single day from then until now, you still would not have spent one trillion dollars by now. But somehow the U.S. government is now over 13 trillion dollars in debt. According to a U.S. Treasury Department report to Congress, the U.S. national debt will top $13.6 trillion this year and climb to an estimated $19.6 trillion by 2015.
*It is being projected that the U.S. national debt will grow to surpass our gross domestic product in 2012. Needless to say, that is a really, really bad sign.
*The total of all government, corporate and consumer debt in the United States is now equal to 360 percent of GDP. At no point during the Great Depression did we ever even come close to such a figure.
But things may be even worse in Europe right now. Unfortunately for the U.S., when Europe experiences an economic collapse it will devastate the American economy as well.
The economic news coming out of Europe lately has been extremely alarming….
*George Soros says that a European recession next year is “almost inevitable”. Considering how much access George Soros has to inside information, the fact that he is so pessimistic about Europe is a very troubling thing indeed.
*A report by the Bank for International Settlements says that the debt crisis hitting southern Europe resembles the 2007 subprime mortgage crisis. Is history about to repeat itself?
*Moody’s has downgraded Greece government bond ratings into junk territory, citing the risks inherent in the rescue package that the rest of the eurozone has put together for them. Soon Spain, Portugal, Italy, Ireland, Romania and a number of other European nations could have their debt downgraded as well.
*The U.K.’s new Office for Budget Responsibility has announced that the U.K. economy was more damaged by the recent financial crisis than previously admitted, and that it may never fully recover. But the same could be said for many other nations across the world as well.
*21.5% of all working-age people in the U.K. do not have a job. It seems like almost every country has a shortage of jobs these days.
*New U.K. Prime Minister David Cameron is warning that Britain’s “whole way of life” is about to be significantly disrupted for years by the most drastic public spending cuts in a generation. In fact, severe austerity measures being implemented all across Europe could make this one of the most “interesting” European summers in ages.
*Spanish banks are borrowing record amounts of money from the European Central Bank as Spain’s financial institutions are finding it increasingly difficult to acquire funds in international capital markets. But the truth is that it isn’t just Spanish banks that are facing a liquidity squeeze – the entire world is heading for a massive credit crunch.
But the biggest piece of bad economic news of all is the nightmare that is unfolding in the Gulf of Mexico. There is no way that the southeast United States is going to be the same after this. Hordes of businesses and entire industries have been literally destroyed over the past two months. The total economic damage from this unprecedented disaster will easily run into the hundreds of billions of dollars. This is an economic blow that the teetering U.S. economy simply could not afford right now. Once the oil finally stops flowing the crisis will not be over. In fact, the aftermath from this oil spill could end up echoing for decades.
So are things bad out there? Yes, things are incredibly bad and they are about to get a whole lot worse. In fact, there are so many cancers eating away at the U.S. economy that it would take an entire book to detail them all.
What we are dealing with is not “just another recession” or “just another economic downturn”. What we are witnessing is the fundamental unraveling of the monstrous debt spiral that our economy is based upon. Any economy that is built on a foundation of debt and paper money is inevitably doomed.
So yes, the bad economic news is going to continue. Things may get better for a while here and there, but the truth is that we are caught in a long-term spiral of economic decline from which there is no escape.
So what do you think? Do you believe that there is hope for the U.S. economy? Feel free to leave a comment with your opinion….
Barring an economic bailout of mammoth proportions, the economy of Spain is completely and totally doomed. The socialist government of Spain is drowning in debt, unemployment is running rampant and everywhere you turn there are major economic problems. So will Spain be the next Greece? No. When the economy of Spain implodes it is going to be a whole lot worse for the world economy. The economy of Spain is more than four times the size of the economy of Greece. Spain accounts for 11.5 percent of eurozone GDP while Greece only accounts for approximately 2.5 percent. Spain is the 4th largest economy in the 16 nation eurozone and it is the 10th largest economy in the world. If the economy of Spain fails it will cause a shockwave that will be felt in every corner of the globe. In fact, there are quite a few analysts that believe if Spain defaults it would ultimately lead to the breakup of the eurozone.
So will the EU step up and bail out Spain? Well, there are rumors that EU officials have begun work on a bailout package for Spain which is likely to run into the hundreds of billions of dollars, but on Monday the European Commission, the Spanish government and the German government all denied that the European Union was preparing a bailout for the Spanish economy.
Of course we all know that politicians don’t always tell us the truth.
So who knows what is going on over there right now.
But the reality is that the economy of Spain is not going to make it much longer without serious help, and some EU officials are already using apocalyptic language to describe what an economic collapse in Spain would mean.
For example, EU Commission President Jose Manuel Barroso recently warned that democracy could completely collapse in Greece, Spain and Portugal unless urgent action is taken to tackle the burgeoning European debt crisis.
So could democracy actually fail in those nations?
Well, considering the fact that Greece, Spain and Portugal only became democracies in the 1970s, and that all three of those countries have a history of military coups, such a scenario is not that far-fetched.
Without a doubt there would be serious public unrest in those nations if public services collapsed because their governments ran out of money.
So are there signs that the economy of Spain is about to collapse?
Well, yes, there are quite a few of them.
The following are 9 reasons why Spain is a dead economy walking….
#1) Even before this most recent crisis, unemployment in Spain was approaching Great Depression levels. Spain now has the highest unemployment rate in the entire European Union. More than 20 percent of working age Spaniards were unemployed during the first quarter of 2010. If people aren’t working they can’t pay taxes and they can’t provide for their families.
#2) In an effort to stimulate the economy, Spain’s socialist government has been spending unprecedented amounts of money and that skyrocketed the government budget deficit to a stunning 11.4 percent of GDP in 2009. That is completely unsustainable by any definition.
#3) The total of all public and private debt in Spain has now reached 270 percent of GDP.
#4) The Spanish government has accumulated way more debt than it can possibly handle, and this has forced two international ratings agencies, Fitch and Standard & Poor’s, to lower Spain’s long-term sovereign credit rating. These downgrades are making it much more expensive for Spain to finance its debt at a time when they simply can’t afford to pay more interest on their debt.
#5) There are 1.6 million unsold properties in Spain. That is six times the level per capita in the United States. Considering how bad the U.S. real estate market is, that statistic is incredibly alarming.
#6) The new “green economy” in Spain has been a total flop. Socialist leaders promised that implementing hardcore restrictions on carbon emissions and forcing the nation over to a “green economy” would result in a flood of “green jobs”. But that simply did not happen. In fact, a leaked internal assessment produced by the government of Spain reveals that the “green economy” has been an absolute economic nightmare for that nation. Energy prices have skyrocketed in Spain and the new “green economy” in that nation has actually lost more than two jobs for every job that it has created. But Spain so far seems unwilling to undo all of the crazy regulations that they have implemented.
#7) Spain’s national debt is so onerous that they are now caught in a debt spiral where anything they do will harm the economy. If they cut government expenditures in an effort to get debt under control it will devastate economic growth and crush badly needed tax revenues. But if the Spanish government keeps borrowing money their credit rating will continue to decline and they will almost certainly default. The truth is that the Spanish government is caught in a “no win” situation.
#8) But even now the IMF is projecting that the Spanish economy is going nowhere fast. The International Monetary Fund says there will be no positive GDP growth in Spain until 2011, at which point it will still be below one percent. As bleak as that forecast is, many analysts believe that it is way too optimistic considering the fact that Spain’s economy declined by about 3.6 percent in 2009 and things are rapidly getting worse.
#9) The Spanish population has gotten used to socialist handouts and they are not going to accept public sector pay cuts, budget cuts to social programs and hefty tax increases easily. In fact, there is likely to be some very serious social unrest before all of this is said and done. On May 21st, thousands of public sector workers took to the streets of Spain to protest the government’s austerity plan. But that was only an appetizer. Spain’s two main unions are calling for a major one day general strike to protest the government’s planned reforms of the country’s labor market. The truth is that financial shock therapy does not go down very well in highly socialized nations such as Greece and Spain. In fact, the austerity measures that Spain has been pressured to implement by the IMF have proven so unpopular that many are now projecting that Spain’s socialist government will be forced to call early elections.
So what is going to happen in Spain?
The truth is that nobody can predict for sure how things are going to play out over the coming weeks and months.
But what everyone can agree on is that the stakes are incredibly high.
Speaking at the World Economic Forum in Davos, Switzerland, world famous economist Nouriel Roubini put it this way: “If Greece goes under, that’s a problem for the eurozone. If Spain goes under, it’s a disaster.”
But right now the entire population of Spain (along with much of the rest of the world) is completely distracted by the World Cup. As long as the Spanish team does well, that is likely to keep the Spanish population sedated. But if the Spanish team gets knocked out of the tournament early that will put the entire Spanish population in a really, really bad mood and that could mean a really chaotic summer for the nation of Spain.
Extreme volatility is not a sign of health for financial markets. But in 2010 financial markets around the globe are experiencing unprecented volatility. Why? It is because the entire world financial system has been gripped by fear. In today’s crazed environment, it seems like just about anything can set off a major panic. In fact, these days politicians have to be extremely careful about what they say about their national finances, because saying the wrong thing can literally send world markets into violent convulsions. For instance, when a senior Hungarian official said that the Hungarian economy was in a “very grave situation” last week it sent world financial markets into a tailspin. Panic was everywhere and everyone was talking about how Hungary could be the “next Greece”. Of course on Monday Hungarian officials backed away from that comment and tried to reassure world markets that everything was fine, but the damage had been done.
It was a perfect example of the spirit of irrational fear that has gripped the financial world.
After all, even if Hungary did fall apart financially, it wouldn’t plunge the rest of the world into a depression.
And the truth is that Hungary is not really in that bad shape financially. Hungary’s budget deficit is about half the size of the Greek budget deficit and Hungary doesn’t even use the euro.
But now investors all over the world are constantly scanning the news for the latest piece of information that will send waves of panic through the markets.
In the current environment, fear is what moves the markets.
The reality is that fear is the reason why the euro is plunging at breathtaking speed.
Are many of the economies in Europe truly in really bad shape?
However, it could be argued that the economies of the U.S. and Japan are in even worse shape in many ways. Japan’s gross public debt has reached 201 percent of GDP and the United States has piled up the biggest mountain of debt in the history of the world.
But because of the extreme fear that has been generated, people are moving out of the euro and into dollars and yen.
In fact, the euro is probably headed even lower.
GFT Forex’s Boris Schlossberg believes that the euro could fall down to the 1.16/1.17 range before this current panic is over….
“I think we run the risk of seeing 1.16/1.17 before the next selling phase dies down. The euro is just absolutely hated here. The European rescue package still faces some regional opposition. There were rumors the German high court could rule it was unconstitutional. They don’t have a federal mechanism to put it in place, and there’s worries that at any point in time, the rescue package could be sabotaged.”
But all of this fear and panic is actually good for investors in gold and silver.
Because during times of fear and panic investors look to move their money into something that is secure, and gold and silver have been secure investments for thousands of years.
So in this environment of fear, gold is absolutely soaring. On Monday, the price of gold climbed 1.9 percent to $1239.30 per ounce. That was the largest one day rise in the price of gold since February 16th.
So how high will gold go?
Well, the truth is that nobody knows.
But if fear and panic continue to grip world financial markets in the months ahead, there is really no telling how high it could go.
In fact, even many mainstream financial analysts are becoming extremely bullish on gold.
As Dan Burrows of Daily Finance recently commented, “you don’t have to be a member of the build-a-bunker-in-Montana crowd to believe gold could hit $2,500 in the next couple of years.”
But these days no investment is truly safe. One really bad rumor these days can send any stock, any currency or any commodity into a tailspin.
Fear is everywhere. Governments and central banks are intervening in the markets in unprecedented ways, but it is still not enough to keep the markets from flopping around like a dying fish.
So for those who are waiting for the financial markets to get back to “normal”, you are likely to be waiting for quite a long time. The world economic situation is not going to be getting any better in the long-term. So if financial markets are flipping out this much even now, just wait and see what happens when things really start falling apart.
The summer of 2010 promises to be the most tumultuous summer in the short history of the European Union. The sovereign debt crisis sweeping the continent threatens to cause economic and political instability on a scale not seen in Europe for decades. The truth is that governments across the eurozone have accumulated gigantic piles of debt that simply are not sustainable. Prior to the implementation of the euro, these European governments often “printed” their way out of messes like this, but now they can’t do that. Now they either have to dramatically cut government expenses or they have to default. But the austerity measures that the IMF and the ECB are pressuring these European governments to adopt are likely to have some very painful side effects. Not only will these austerity measures cause a significant slowdown in economic growth, they are also likely to cause the same kinds of protests, strikes and riots that we saw in Greece to erupt all over Europe.
You see, most Europeans have become very accustomed to the social welfare state. Tens of millions of Europeans aren’t about to let anyone cut their welfare payments or the wages on their cushy government jobs. In most of the European nations that are experiencing big financial problems there are very powerful unions and labor organizations that do not want anything to do with austerity measures and that are already mobilizing.
As the IMF and the ECB continue to push austerity measures all over Europe this summer, the chaos that we witnessed in Greece could end up being repeated over and over again across the continent. This could truly be Europe’s summer of discontent.
The following are just a few of the countries that we should be watching very carefully in the months ahead….
In many ways, the economic situation in Spain is now even worse than the economic situation in Greece. Spain’s unemployment was already above 20 percent even before this recent crisis. There are now 4.6 million people without jobs in Spain. There are 1.6 million unsold properties in Spain, six times the level per capita in the United States. Total public/private debt in Spain has reached 270 percent of GDP.
But this past week things really started to spin out of control in Spain. Ambrose Evans-Pritchard of The Telegraph describes the current situation in Spain this way….
For Spain it has been a horrible week. The central bank seized CajaSur and imposed draconian write-down rules on banks to restore confidence. The Spanish Socialist and Workers Party (PSOE) of Jose Luis Zapatero then rammed a 5pc cut in public wages through the Cortes by a single vote, shattering consensus. The government cannot hope to pass a budget. Its own trade union base is planning a general strike.
The austerity measures that Spain has been pressured to implement have proven so unpopular in Spain that many are now projecting that Spain’s socialist government will be forced to call early elections.
Spain finds itself in a very difficult position. They have a debt that they cannot possibly handle, the IMF and the ECB are pressuring Spain to implement austerity measures which are wildly unpopular with the public, and if Spain does implement those austerity measures it may send the Spanish economy into a downward spiral.
In addition, the fact that Fitch Ratings has stripped Spain of its AAA status has pushed Spain to the edge of financial oblivion.
A recent editorial inEl Pais spoke of the “perverse spiral” that Spain’s economy is entering….
“The Fitch note drives home the apparently unsolvable contradiction in which the Spanish economy finds itself. To maintain debt solvency Spain must squeeze public spending: yet this policy undermines the chances of recovery which itself causes further loss of confidence.”
And Spain’s very powerful labor organizations are not about to take these austerity measures sitting down. In fact, the two largest trade unions in Spain are already calling for a general strike.
So could Spain end up being the next Greece?
France admitted on Sunday that keeping its top-notch credit rating would be “a stretch” without some tough budget decisions.
But French citizens are not too keen on belt-tightening. We all remember the massive riots in France a few years ago when it was proposed the the work week should be shortened. It certainly seems unlikely that the French will accept “tough budget decisions” without making some serious noise.
The Italian government recently approved austerity measures worth 24 billion euros for the years 2011-2012. But the Italian public is less than thrilled about it.
In fact, Italy’s largest union has announced that it will propose to its members a general strike at the end of June to protest these measures.
Under pressure from the IMF and the ECB, Portugal has agreed to impose fresh austerity measures that include much higher taxes and very deep budget cuts.
And the truth is that Portugal desperately needs to do something to get their finances under control. Recent EU data shows that Portugal’s total debt is 331 percent of GDP, compared to only 224 percent for Greece.
So will the Portuguese public accept these austerity measures?
It doesn’t seem likely.
In fact, Fernando Texeira dos Santos, Portugal’s finance minister, says that he expects “violent episodes” comparable to those in Greece but insists that there is no other option.
So it promises to be a wild summer in Portugal. The CGTP trade union federation in Portugal has promised to mobilize their members….
“Either we come up with a very strong reaction or we will be reduced to bread and water.”
They have already been rioting in the streets in Romania.
Tens of thousands of workers and pensioners recently took to the streets in Romania to protest the harsh austerity measures that the Romanian government is imposing at the request of the International Monetary Fund.
The Romanian people have been through incredibly hard times before, and they aren’t about to let the IMF and the ECB impose strict austerity measures on them without a fight.
It is being reported that Germans are bracing themselves for a “bitter” round of government budget cuts. It seems that even Germany has some belt-tightening to do.
In addition, resentment is rising fast in Germany as the population there realizes that it is Germany that is going to be the one funding a large portion of the bailouts for these other European nations.
How long will the German people be able to control their tempers?
The Wall Street Journal is warning that Ireland could be Europe’s next financial basket case.
Well, the Irish have gotten into a ton of debt, and they are now finding it very expensive to finance new debt. The Irish government is now paying approximately 2.2 percentage points more than Germany is to borrow money for 10 years, while Spain (even with their economy in such a state of disaster) only has to pay 1.6 percentage points more than Germany.
But if “austerity measures” come to Ireland, how do you think the public will react?
It likely would not be pretty.
The United Kingdom
The exploding debt situation in the U.K. was a major issue in the most recent election. David Cameron promised the voters to get the U.K.’s exploding debt situation under control. But the coming budget cuts are likely to be incredibly painful. In fact, Bank of England governor Mervyn King has even gone so far as to warn that public anger over the coming austerity measures will be so painful that whichever party is seen as responsible will be out of power for a generation.
But it isn’t just national governments that are in trouble in Europe. The European Central Bank is warning that eurozone banks could face up to 195 billion euros in losses during a “second wave” of economic problems over the next 18 months.
The truth is that almost everyone is expecting the next couple of years to be very tough economically all across Europe.
But the vast majority of the European public is not going to understand the economics behind what is happening. All most of them are going to know is that the budget reductions, tax increases and pay cuts really, really hurt and that is likely to result in a whole lot of anger.
When Europeans get really angry it isn’t pretty. If what happened in Greece is any indication, this upcoming summer and fall could be a really wild one throughout Europe.
“Euroland, burned down. A continent on the way to bankruptcy”
-The front page of Der Spiegel, May 5th, 2010
Most Americans have no idea what the term “Keynesian economics” means, but the truth is that it has been deeply influencing U.S. economic policy for decades. Essentially, it is an economic theory that originated with a 20th century British economist named John Maynard Keynes, and it advocates government intervention in the economy in order to smooth out economic cycles. The general idea was that lower interest rates and increased government spending could be used to increase aggregate demand when the economy was experiencing a downturn, thus increasing economic activity and reducing unemployment.
And you know what?
To a certain degree, Keynesian economic theory actually does work.
Increased government spending DOES stimulate the economy.
But the problem is that governments all over the world decided that they would just run constant budget deficits and stimulate the economy all the time.
All of this debt has brought a temporary prosperity to many of the nations around the globe, but there is one huge problem with debt.
It has to be paid back eventually.
So what happens when nations have to start spending huge chunks of their national budgets just to service all the debt that they have piled up?
Well, that is when they taste the bitter side of Keynesian economics.
In fact, we see that starting to happen all over the world right now.
All of a sudden, governments all over the globe are talking about huge budget cuts, pay decreases, and higher taxes.
We all know about what is going on in Greece right now, but suddenly it seems like “austerity measures” are being implemented all over the place. Just consider the following examples….
*Portugal has pledged to impose fresh austerity measures that include much higher taxes and dramatic budget cuts.
*Barack Obama is personally pressuring Spain to make severe austerity cuts.
*It’s not just Southern Europe that is facing these austerity measures either. It is being reported that Germans are bracing themselves for a “bitter” round of budget cuts.
*The exploding debt situation in the U.K.was a major issue in the most recent election. Bank of England governor Mervyn King has even gone so far as to warn that public anger over the “austerity measures” that soon must be implemented in the U.K. will be so painful that whichever party is seen as responsible will be out of power for a generation.
*Federal Reserve Chairman Ben Bernanke says that United States citizens will soon have to make difficult choices between higher taxes and reduced government spending.
*California Governor Arnold Schwarzenegger is reportedly planning to seek “terrible cuts” to eliminate an $18.6 billion budget deficit facing the most-populous U.S. state through June 2011.
*In fact, many U.S. states are getting ready for their biggest budget cuts in decades.
Austerity measures for everyone?
That is the way it is shaping up.
So what happens when austerity measures are implemented?
Well, just as Keynesian economics correctly predicts that economic growth goes up when government spending increases, it also correctly tells us that economic growth goes down when government spending decreases.
So all of these austerity measures are going to mean economic pain for a whole lot of people.
Not only that, but there are now whispers that this European debt crisis could potentially cause the break up of the euro.
Whether or not that is actually the case, officials in Europe are sure seizing on this crisis to advocate for increased centralization of power in the EU.
For example, senior administrators of the European Union are proposing that they be given unprecedented power to scrutinize the spending plans of member countries before national parliaments can vote on those budgets.
Talk about a loss of sovereignty.
But not only that, the Governor of the Bank of England, Mervyn King, has come right out and said that he believes that the European Union must become a federalized fiscal union if it is to survive.
Doesn’t it seem like whenever there is a crisis the solution that is always being proposed is to give centralized institutions even more power?
There has also been talk that nations such as Greece could end up being ejected from the euro, but the reality is that such a scenario is not very likely.
For one thing, the ECB has already come out and said that under current EU law, ejection of a nation from the monetary union is “legally next to impossible”.
In addition, leaders throughout Europe realize that if the euro fails then the entire EU may fail as well. German Chancellor Angela Merkel made this very clear when she recently warned that if the euro collapses, “then Europe and the idea of European union will fail.”
For many in Europe that would seem like a disaster, but the truth is that it would be a wonderful, wonderful thing if the euro failed.
Because it would represent a major defeat for those who are seeking to drag us towards a “world currency” and a “global government”.
It would also be a huge victory for those who still believe in national sovereignty and the decentralization of economic power.
So let us hope that the euro breaks up.
But don’t count on it.
Meanwhile, the one thing that we can count on is all of the economic pain that all of these new austerity measures are going to bring.
Now that the Greek debt crisis has been “fixed” by a gigantic pile of more debt, many are wondering which European nation will be next to experience a massive debt crisis. Increasingly, all eyes are turning to the U.K. and their public debt that is spiralling out of control. The U.K. government’s deficit is projected to be approximately 13 percent of GDP in 2010, which is even worse than Greece’s 12.5 percent figure. Right now the public debt of the U.K. is “only” at 68 percent of GDP, but three years ago it was sitting at about 40 percent, so as you can see the national debt of the U.K. is absolutely exploding in size. In fact, it is now being projected that the public debt of the U.K. will exceed 100 percent of GDP within the next three years. Considering the fact that citizens of the U.K. are some of the most highly taxed people in the world already, there just is not much room for raising more revenue.
So obviously there is a problem.
A massive, unchecked, out of control problem that threatens to blow out the entire U.K. economy.
And considering the fact that it took just about everything that Europe could muster to bail out poor little Greece, how in the world is Europe going to be able to bail out the U.K. when their debt crisis violently erupts?
If Greece almost brought down the euro and the financial system of Europe, then what would a financial implosion in the U.K. do?
Considering the fact that the Greek economy is approximately 16% the size of the U.K. economy, it is very sobering to think what a “Greek style” debt crisis in the U.K. would mean for the entire world.
But if something is not done rapidly it will happen.
Just consider the following charts….
Now how in the world do you go from a deficit that is between 2 and 3 percent of GDP in 2007 to one that is above 11 percent in 2009? That takes some serious financial mismanagement. Not only that, but as we mentioned earlier, this year the deficit is projected to be approximately 13 percent of GDP. That is a level that is catastrophic.
Kornelius Purps, the fixed income director of Europe’s second largest bank is very open about the fact that he believes that the U.K. is likely the next European nation that will face a very serious debt crisis….
“Britain’s AAA-rating is highly at risk. The budget deficit is huge at 13% of GDP and investors are not happy. The outgoing government is inactive due to the election. There will have to be absolute cuts in public salaries or pay, but nobody is talking about that.”
In fact, Morgan Stanley has already warned that there is a very strong probability that some of the rating agencies may remove the U.K.’s AAA status before 2010 is over.
If that happened, it would make the crisis that we just saw in Greece look like a Sunday picnic.
So what must be done?
Well, already world financial authorities are calling for “austerity measures” and deep budget cuts to be implemented in the U.K., but the reality is that those moves will cause deep economic pain.
In fact, Bank of England governor Mervyn King recently warned that public anger over the “austerity measures” that soon must be implemented in the U.K. will be so painful that whichever party is seen as responsible will be out of power for a generation.
The cold, hard reality is that the U.K. is in for economic pain in any event. Either they cut the budget and implement severe “austerity measures” which will hit people really hard economically, or they continue on the current course and risk a much worse version of what just happened in Greece.
Not that the rest of the world should be gloating about what is going on in the U.K. either.
The financial situation in Japan is even worse than what the U.K. is dealing with, and the United States is going to have the biggest economic downfall of them all one of these days.
As we wrote about yesterday, the sad truth is that the governments of the world are rapidly running out of money and are drowning in debt. It is a gigantic mess, and the term “sovereign debt crisis” is going to pop up in the news very regularly from now on.
You see, it is not just the financial systems of the U.S. and the U.K. that are broken. The entire world financial system is fundamentally flawed and is doomed to failure.
Right now the central banks of the world can do their best to try to hold things together with a tsunami of debt and paper money, but they are not going to be able to keep up this balancing act forever.
When it does all start coming apart and the dominoes do start falling, it is going to be a complete and total nightmare. Paper currencies around the globe will lose value at breathtaking speeds as central banks flood economies with cash in an attempt to stop the madness.
But more debt and more paper never solves anything. All it does is make the long-term problems even worse.
When the tipping point comes, things are going to move fast. Let’s just hope that we all have a good bit more time to prepare before that happens.