Jim Cramer Is Predicting Bank Runs In Spain And Italy And Financial Anarchy Throughout Europe

During an appearance on Meet The Press on Sunday, Jim Cramer of CNBC boldly predicted that “financial anarchy” is coming to Europe and that there will be “bank runs” in Spain and Italy in the next few weeks.  This is very strong language for the most famous personality on the most watched financial news channel in the United States to be using.  In fact, if Cramer is not careful, people will start accusing him of sounding just like The Economic Collapse Blog.  It may not happen in “the next few weeks”, but the truth is that the European banking system is in a massive amount of trouble and if Greece does leave the euro it is going to cause a tremendous loss of confidence in banks in countries such as Spain, Italy and Portugal.  There are already rumors that the “smart money” is pulling out of Spanish and Italian banks.  So could we see some of these banks collapse?  Would they get bailed out if they do collapse?  It is so hard to predict exactly how “financial anarchy” will play out, but it is becoming increasingly clear that the European financial system is heading for a massive amount of pain.

Posted below is a clip of Jim Cramer making his bold predictions during his appearance on Meet The Press.  He is obviously very, very disturbed about the direction that Europe is heading in….

But what is Europe supposed to do?  Even though “austerity measures” have been implemented in many eurozone nations, the truth is that they are all still running up more debt.  Are European nations just supposed to run up massive amounts of debt indefinitely and pretend that there will never been any consequences?

That is apparently what Barack Obama wants.  During the G-8 summit that just concluded, Obama urged European leaders to pursue a “pro-growth” path.

Of course to Obama a “pro-growth” economic plan includes spending trillions of dollars that you do not have without any regard for what you are doing to future generations.

Germany has been trying to get the rest of the eurozone to move much closer to living within their means, but as the recent elections in France and Greece demonstrated, much of the rest of the eurozone is not too thrilled with the end of debt-fueled prosperity.

In Greece, the recent elections failed to produce a new government, so new elections will be held on June 17th.

Many EU politicians are trying to turn these upcoming elections into a referendum on whether Greece stays in the eurozone or not.  If the next Greek government is willing to honor the austerity agreements that have been previously agreed to, then Greece will probably stay in the eurozone for a while longer.  If the next Greek government is not willing to honor the austerity agreements that have been previously agreed to, then Greece will probably be forced out of the eurozone.

The following is what John Praveen, the chief investment strategist at Prudential International Investments Advisers, had to say about the political situation in Greece recently….

“If the pro-euro major parties fail to muster enough support to form a coalition and the radical left Syriza party and other anti-euro, anti-austerity parties secure a majority, the risk of a disorderly Greek exit from the Euro increases and could roil markets”

Right now, polls show the leading anti-austerity party, Syriza, doing very well.  The leader of Syriza, Alexis Tsipras, has declared that he plans “to stop the experiment” with austerity and that what the rest of the eurozone has tried to do in Greece is a “crime against the Greek people“.

But the Germans do not see it that way.  The Germans just want the Greeks to stop spending far more money than they bring in.

The Germans do not want to endlessly bail out the Greeks if the Greeks are not willing to show some financial discipline.

As we approach the June 17th elections, the financial markets are likely to be quite nervous.  According to Art Hogan of Lazard Capital Partners, many investors are deeply concerned about how “sloppy” a great exit from the euro could be….

“Next week is only one of the four weeks we have to wait until the Greek election. Every utterance out of Greece makes us think about their [possible] exit and how sloppy that could be”

Most Greek citizens want to remain in the eurozone and most European politicians want Greece to remain in the eurozone, but it is looking increasingly likely as if that may not happen.

In fact, there are reports that preparations are rapidly being made for a Greek exit.  According to Reuters, “contingency plans” for the printing of Greek drachmas have already been drawn up….

De La Rue (DLAR.L) has drawn up contingency plans to print drachma banknotes should Greece exit the euro and approach the British money printer, an industry source told Reuters on Friday.

And even EU officials are now acknowledging that plans for a Greek exit from the euro are being developed.  The following is what EU Trade Commissioner Karel De Gucht said during one recent interview….

“A year and a half ago, there may have been the danger of a domino effect,” he said, “but today there are, both within the European Central Bank and the European Commission, services that are working on emergency scenarios in case Greece doesn’t make it.”

When these kinds of things start to become public, that is a sign that officials really do not expect Greece to remain a part of the euro.

And Greece is rapidly beginning to run out of money.  According to a recent Ekathimerini article, the Greek government is likely to run out of money at the end of June….

The public coffers are seen running dry at the end of June, but this will depend on two key factors. First, revenue collection: In the first 10 days of May, inflows were about 15 percent lower than projected but there are fears that the slide may reach 50 percent. The GAO will have a picture for the first 20 days on May 23, while the last three days of the month are considered crucial, when 1.5 billion euros of the month’s budgeted total of 3.6 billion are expected to flow in.

Second, whether the IMF and EFSF installments are disbursed: This is not certain, as the decision will be purely political for both providers and evidently partly linked to political developments. Earlier this month the eurozone approved a disbursement 1 billion short of the 5 billion euros that were expected.

If Greece runs out of money and if the rest of Europe cuts off the flow of euros, Greece would essentially be forced to leave the euro.

So the last half of June looks like it could potentially be a key moment for Greece.

Meanwhile, the Greek banking system is struggling to survive as hundreds of millions of euros get pulled out of it.  The following is from a recent CNN article….

The Greek financial system is straining hard for cash.

Consumers and businesses are making massive withdrawals from Greece’s banks — leading to concern the beleaguered nation could be forced out of the eurozone by a banking crisis even before its government runs out of cash.

Deposits are the lifeblood of any bank, and Greeks pulled 800 million euros out of the banking system on Tuesday alone, the most recent day for which figures are available.

If Greece does leave the euro and the Greek banking system does collapse, that is going to be a clear signal that a similar scenario will be allowed to play out in other eurozone nations.

That is why Jim Cramer, myself and many others are warning that there could soon be bank runs all over the eurozone.

Sadly, the banking crisis in Europe just seems to get worse with each passing day.

For example, the Telegraph has reported that wealthy individuals are starting to pull money out of Spanish banking giant Santander….

Customers with large deposits have started withdrawing cash from Santander, the bank has admitted, as it tried to reassure concerned members of the public that their money is safe.

Round and round we go.  Where all this will stop nobody knows.

If Greece does end up leaving the euro, that could set off a chain of cascading events that could potentially be absolutely catastrophic.

Former Italian Prime Minister Romano Prodi recently stated that the “whole house of cards will come down” if Greece leaves the euro.

And if the “house of cards” does come down in Europe, that is going to greatly destabilize the global derivatives market.

You see, the truth is that the global derivatives market is very delicately balanced.  The assumption most firms make is that things are not going to deviate too much from what is considered “normal”.

If we do end up seeing “financial anarchy” in Europe, that is going to greatly destabilize the system and we could rapidly have a huge derivatives crisis on our hands.

And as we saw with JP Morgan recently, losses from derivatives can add up really fast.

Originally, we were told that the derivatives losses that JP Morgan experienced recently came to a total of only about 2 billion dollars.

Now, we are told that it could be a whole lot more than that.  According to the Wall Street Journal, JP Morgan could end up losing about 5 billion dollars (or more) before it is all said and done….

J.P. Morgan Chase & Co. is struggling to extricate itself from disastrous wagers by traders such as the “London whale,” in a sign that the size of its bets could bog down the bank’s unwinding of the trades and deepen its losses by billions of dollars.

The nation’s largest bank has said publicly that its losses on the trades have surpassed $2 billion, and people familiar with the matter have said they could over time reach $5 billion.

And if Europe experiences a financial collapse, the losses experienced by U.S. firms could make that 5 billion dollars look like pocket change.  The following is from a recent article by Graham Summers….

According to Reuters once you include Spain and Italy as well as Credit Default Swaps and indirect exposure to Europe, US banks have roughly $4 TRILLION in potential exposure to the EU.

To put that number in perspective, the entire US banking system is $12 trillion in size.

Interesting days are ahead my friends.

Let us hope for the best, but let us also prepare for the worst.

18 Signs That The Banking Crisis In Europe Has Just Gone From Bad To Worse

With each passing day, the banking crisis in Europe escalates.  European banks are having their credit ratings downgraded in waves, bond yields are soaring and billions of euros are being pulled out of banks all across the eurozone.  The situation in Europe is rapidly going from bad to worse.  It is almost like watching air being let out of a balloon.  The key to any financial system is confidence, and right now confidence in banks in Greece, Italy, Spain and Portugal is declining at an alarming rate.  When things hit the fan in Europe, it is going to be much safer to have your money in Swiss banks or German banks than in Greek banks, Spanish banks or Italian banks.  Millions of people in Europe are starting to realize that a “euro” is not necessarily always going to be a “euro” and they are starting to panic.  The Greek banking system is already on the verge of total collapse, and at this rate it is only a matter of time before we see some major Spanish and Italian banks start to fail.  In fact it has already been announced that the fourth largest bank in Spain, Bankia, will be getting bailed out by the Spanish government.  It is only a matter of time before we hear more announcements like this.  Right now, events are moving so quickly in Europe that it is hard to keep up with them all.  But this is what usually happens in the financial world.  When things go well, it tends to happen over an extended period of time.  When things fall apart, it tends to happen very rapidly.

And at the moment, things across the pond are moving at a pace that is absolutely breathtaking.

The following are 18 signs that the banking crisis in Europe has just gone from bad to worse….

#1 Moody’s has announced that it has downgraded the credit ratings of 16 Spanish banks.  Included was Banco Santander, the largest bank in the eurozone.

#2 Shares of the fourth largest bank in Spain, Bankia, dropped 14 percent on Thursday.

#3 Overall, shares of Bankia have declined by 61 percent since last July.

#4 Shares of the largest bank in Italy, Unicredit, dropped by about 6 percent on Thursday.

#5 According to CNBC, a Spanish bond auction on Thursday went very poorly….

The Spanish Treasury had to pay around 5 percent to attract buyers of three- and four-year bonds. The longer-dated paper sold with a yield of 5.106 percent, way above the 3.374 percent the last time it was auctioned.

#6 The yield on 10 year Spanish bonds is back above 6 percent.

#7 In recent days, about eight times more money than usual has been pulled out of Greek banks.

#8 Fitch has slashed the long-term credit rating for Greece from B- to CCC.

#9 The European Central Bank has cut off direct lending to at least 4 Greek banks.

#10 According to a recent German documentary, financial records at the Ministry of Finance in Athens are being stored in garbage bags and shopping carts.

#11 The euro hit a 4 month low against the U.S. dollar on Thursday.

#12 It has been announced that the Spanish economy and the Italian economy are officially in recession.

#13 The Spanish government is becoming increasingly concerned about the bad loans that are mounting at major Spanish banks.  The following is from a recent Bloomberg article….

The government has asked lenders to increase provisions for bad debt by 54 billion euros ($70 billion) to 166 billion euros. That’s enough to cover losses of about 50 percent on loans to property developers and construction firms, according to the Bank of Spain. There wouldn’t be anything left for defaults on more than 1.4 trillion euros of home loans and corporate debt.

Taking those into account, banks would need to increase provisions by as much as five times what the government says, or 270 billion euros, according to estimates by the Centre for European Policy Studies, a Brussels-based research group. Plugging that hole would increase Spain’s public debt by almost 50 percent or force it to seek a bailout, following in the footsteps of Ireland, Greece and Portugal.

#14 Civil unrest is rising to dangerous levels in Italy.  The Italian government has assigned bodyguards to 550 individuals and has increased security at about 14,000 locations in response to recent violence related to the economic crisis.

#15 Governments all over Europe are rapidly making preparations for a Greek exit from the euro.  The following is from a recent article in the Guardian….

The British government is making urgent preparations to cope with the fallout of a possible Greek exit from the single currency, after the governor of the Bank of England, Sir Mervyn King, warned that Europe was “tearing itself apart”.

#16 According to CNBC, the banking crisis in Europe is beginning to affect global trade….

The euro zone debt crisis is affecting trade as companies shy away from dealing with firms and banks in countries deemed at risk of contagion, a senior banker said on Thursday.

#17 Moody’s downgraded the credit ratings of 26 Italian banks on Monday.

#18 Moody’s has announced that it is reviewing the credit ratings of 114 more European financial institutions.

Newspapers all over the globe are speaking breathlessly of a potential Greek exit from the euro, but it is very unlikely to happen before the next Greek election on June 17th.

The rest of Europe is going to continue to financially support Greece until a new government takes power.

If the new government is willing to accept the previous bailout agreements, then financial support for Greece will continue.

If the new government is not willing to accept the previous bailout agreements, then financial support for Greece will stop.

If that happens, the bank runs in Europe will likely become a lot worse.

But for now, Greece almost certainly has at least one more month in the euro.

Beyond that, there is no telling what is going to happen.

Greece is the first domino.  If Greece falls, you can count on others to eventually start tumbling as well.

The second half of 2012 is going to be fascinating to watch.

Hopefully things will not be as bad as many of us now fear they may be.

Why A Greek Exit From The Euro Would Mean The End Of The Eurozone

What was considered unthinkable a few months ago has now become probable.  All over the globe there are headlines proclaiming that a Greek exit from the euro is now a real possibility.  In fact, some of those headlines make it sound like it is practically inevitable.  For example, Der Spiegel ran a front page story the other day with the following startling headline: “Acropolis, Adieu! Why Greece must leave the euro”.  Many are saying that the euro will be stronger without Greece.  They are saying things such as “a chain is only as strong as its weakest link” and they are claiming that financial markets are now far more prepared for a “Grexit” than they would have been two years ago.  But the truth is that it really is naive to think that a Greek exit from the euro can be “managed” and that business will go on as usual afterwards.  If Greece leaves the euro it will set a very dangerous precedent.  The moment Greece exits the euro, investors all over the globe will be asking the following question: “Who is next?”  Portugal, Italy and Spain would all see bond yields soar and they would all likely experience runs on their banks.  It would only be a matter of time before more eurozone members would leave.  In the end, the whole monetary union experiment would crumble.

As I have written about previously, New York Times economist Paul Krugman is wrong about a whole lot of things, but in a blog post the other day he absolutely nailed what is likely to soon unfold in Greece….

1. Greek euro exit, very possibly next month.

2. Huge withdrawals from Spanish and Italian banks, as depositors try to move their money to Germany.

3a. Maybe, just possibly, de facto controls, with banks forbidden to transfer deposits out of country and limits on cash withdrawals.

3b. Alternatively, or maybe in tandem, huge draws on ECB credit to keep the banks from collapsing.

4a. Germany has a choice. Accept huge indirect public claims on Italy and Spain, plus a drastic revision of strategy — basically, to give Spain in particular any hope you need both guarantees on its debt to hold borrowing costs down and a higher eurozone inflation target to make relative price adjustment possible; or:

4b. End of the euro.

By itself, Greece cannot crash the eurozone.  But the precedent that Greece is about to set could set forth a chain of events that may very well bring about the end of the eurozone.

If one country is allowed to leave the euro, that means that other countries will be allowed to leave the euro as well.  This is the kind of uncertainty that drives financial markets crazy.

When the euro was initially created, monetary union was intended to be irreversible.  There are no provisions for what happens if a member nation wants to leave the euro.  It simply was not even conceived of at the time.

So we are really moving into uncharted territory.  A recent Bloomberg article attempted to set forth some of the things that might happen if a Greek exit from the euro becomes a reality….

A Greek departure from the euro could trigger a default-inducing surge in bond yields, capital flight that might spread to other indebted states and a resultant series of bank runs. Although Greece accounts for 2 percent of the euro-area’s economic output, its exit would fragment a system of monetary union designed to be irreversible and might cause investors to raise the threat of withdrawal by other states.

In fact, yields on Spanish debt and Italian debt are already rising rapidly thanks to the bad news out of Greece in recent days.

What makes things worse is that a new government has still not formed in Greece.  It looks like new elections may have to be held in June.

Meanwhile, the Greek government is rapidly running out of money.  The following is from a Bank of America report that was released a few days ago….

“If no government is in place before June when the next installment (of loan money) from the European Union and International Monetary Fund is due, we estimate that Greece will run out of money sometime between the end of June and beginning of July, at which point a return to the drachma would seem inevitable”

In the recent Greek elections, parties that opposed the bailout agreements picked up huge gains.  And opinion polls suggest that they will make even larger gains if another round of elections is held.

The Coalition of the Radical Left, also known as Syriza, surprised everyone by coming in second in the recent elections.  Current polling shows that Syriza is likely to come in first if new elections are held.

The leader of Syriza, Alexis Tsipras, is passionately against the bailout agreements.  He says that Greece can reject austerity because the rest of Europe will never kick Greece out of the eurozone.  Tsipras believes that the rest of Europe must bail out Greece because the consequences of allowing Greece to go bankrupt and fall out of the eurozone would be far too high for the rest of Europe.

A spokesman for Syriza, Yiannis Bournos, recently told the Telegraph the following….

“Mr Schaeuble [Germany’s finance minister] is pretending to be the fearless cowboy on the radio, saying the euro is secure [against a Greek exit]. But there’s no way they will kick us out”

So Greece and Germany are playing a game of chicken.

Who will blink first?

Will either of them blink first?

Syriza is trying to convince the Greek people that they can reject austerity and stay in the euro.  Syriza insists that the rest of Europe will provide the money that they need to pay their bills.

And most Greeks do actually want to stay in the euro.  One recent poll found that 78.1 percent of all Greeks want Greece to remain in the eurozone.

But a majority of Greeks also do not want anymore austerity.

Unfortunately, it is not realistic for them to assume that they can have their cake and eat it too.  If Greece does not continue to move toward a balanced budget, they will lose their aid money.

And if Greece loses that aid money, the consequences will be dramatic.

Outgoing deputy prime minister of Greece Theodoros Pangalos recently had the following to say about what would happen if Greece doesn’t get the bailout money that it needs….

“We will be in wild bankruptcy, out-of-control bankruptcy. The state will not be able to pay salaries and pensions. This is not recognised by the citizens. We have got until June before we run out of money.”

If Greece gets cut off and runs out of money, it will almost certainly be forced to go back to using the drachma.  If that happens there will likely be a “bank holiday”, the borders will be secured to limit capital flight and new currency will be rapidly printed up.  It would be a giant mess.

In fact, there are rumblings that the European financial system is already making preparations for all this.  For example, a recent Reuters article had the following shock headline: “Banks prepare for the return of the drachma

But a new drachma would almost certainly crash in value almost immediately as a recent article in the Telegraph described….

Most economists think that a new, free-floating drachma would immediately crash by up to 50 percent against the euro and other currencies, effectively halving the value of everyone’s savings and spelling catastrophe for those on fixed incomes, like pensioners.

A Greek economy that is already experiencing a depression would get even worse.  The Greek economy has contracted by 8.5 percent over the past 12 months and the unemployment rate in Greece is up to 21.8 percent.  It is hard to imagine what Greece is going to look like if things continue to fall apart.

But the consequences for the rest of Europe (and for the rest of the globe) would be dramatic as well.  A Greek exit from the euro could be the next “Lehman Brothers moment” and could plunge the entire global financial system into another major crisis.

Unfortunately, at this point it is hard to imagine a scenario in which the eventual break up of the euro can be avoided.

Germany would have to become willing to bail out the rest of the eurozone indefinitely, and that simply is not going to happen.

So there is a lot of pessimism in the financial world right now.  Nobody is quite sure what is going to happen next and the number of short positions is steadily rising as a recent CNN article detailed….

After staying quiet at the start of the year, the bears have come roaring back with a vengeance.

Short interest — a bet on stocks turning lower — topped 13 billion shares on the New York Stock Exchange at the end of last month. That’s up 4% from March and marks the highest level of the year.

If the eurozone is going to survive, Greece must stay a part of it.

Instead of removing the weakest link from the chain, the reality is that a Greek exit from the euro would end up shattering the chain.

Confidence is a funny thing.  It can take decades to build but it can be lost in a single moment.

If Greece leaves the euro, investor confidence in the eurozone will be permanently damaged.  And when investors get spooked they don’t behave rationally.

A common currency in Europe is not dead by any means, but this current manifestation is now operating on borrowed time.

As the eurozone crumbles, it is likely that Germany will simply pull the plug at some point and decide to start over.

So what do you think?

Do you think that I am right or do you think that I am wrong?

Please feel free to post a comment with your thoughts below….

The Countdown To The Break Up Of The Euro Has Officially Begun

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.

Francois Hollande, the new French president, has declared that the financial world is his “greatest enemy“.

He may regret making that statement.

One of the primary reasons why Hollande was elected was because he clearly rejected the austerity approach favored by the Germans.  Shortly after winning the election in France, he made the following statement….

“Europe is watching us, austerity can no longer be the only option”

Hollande says that he wants to “renegotiate” the fiscal pact that European leaders agreed to under the leadership of Merkel and Sarkozy.

But Merkel says that is not going to happen.  The following Merkel quotes are from a recent CNBC article….

“We in Germany are of the opinion, and so am I personally, that the fiscal pact is not negotiable. It has been negotiated and has been signed by 25 countries,” Merkel told a news conference.

“We are in the middle of a debate to which France, of course, under its new president will bring its own emphasis. But we are talking about two sides of the same coin — progress is only achievable via solid finances plus growth,” she added.

So instead of being on the same page, Germany and France are now headed in opposite directions.

But if the French do not get their debt under control, they could be facing a huge crisis of their own very quickly.  The following is from a recent article by Ambrose Evans-Pritchard….

“They absolutely must cut public spending and control the debt,” said Marc Touati from Global Equities in Paris. “It will soon be clear that we are in deep recession. If they don’t act fast, interest rates will shoot up and we will have a catastrophe by September,” he said.

Without German help, France is not going to be able to handle its own financial problems – much less bail out the rest of Europe.

Germany is holding all of the cards, but much of the rest of the eurozone does not seem afraid to defy Germany at this point.

In Greece, anti-bailout parties scored huge gains in the recent election.

None of the political parties in Greece were able to reach 20 percent of the vote, and there is a tremendous amount of doubt about what comes next.

New Democracy (the “conservatives”) won about 19 percent of the vote, but they have already announced that they have failed to form a new government.

So now it will be up to the second place finishers, the Syriza party (the radical left coalition), to try to form a new government.

Alexis Tsipras, the leader of the Syriza party, is very anti-austerity.  He made the following statement the other night….

“The people of Europe can no longer be reconciled with the bailouts of barbarism.”

But at this point, it seems very doubtful that Syriza will be able to form a new government either.

PASOK, the socialists that have been pushing through all of the recent austerity measures, only ended up with about 13 percent of the vote.  In the 2009 election, PASOK got 44 percent of the vote.  Obviously their support of the austerity measures cost them dearly.

So what happens if none of the parties are able to form a new government?

It means that new elections will be held.

Meanwhile, Greece must somehow approve more than 11 billion euros in additional budget cuts by the end of June in order to receive the next round of bailout money.

Greece is currently in its 6th year of economic contraction, and there is very little appetite for more austerity in Greece at this point.

Citibank analysts are saying that there is now a 50 to 75 percent chance that Greece is going to be forced to leave the euro….

Overall, the outcome of the Greek election shows that it will be very difficult to form a viable coalition and to implement the measures required in the MoU. Particularly, the identification of the 7% GDP of budget savings for 2013 and 2014 by the end of June looks very unlikely to us. As a consequence, in a first step, the Troika is likely to delay the disbursement of the next tranche of the programme. Note that for 2Q 2012, disbursements of €31.3bn from the bailout programme are scheduled. If Greece does not make progress, in a second step, the Troika is likely to stop the programme. If that happens, the Greek sovereign and its banking sector would run out of funding. As a consequence, we expect that Greece would be forced to leave the euro area. With the outcome of the election, to us the probability of a Greek exit is now larger than our previous estimate of 50%, and rises to between 50-75%. However, even after the elections in Greece, France and Germany, we regard the probability of a broad-based break up of the monetary union as very low. We continue to expect that in reaction to Greece leaving the euro area, more far-reaching measures from governments and the ECB would be put in place.

But if Greece rejects austerity that does not mean that it has to leave the eurozone.

There is no provision that allows for the other nations to kick them out.

Greece could say no to austerity and dare Germany and the rest of the eurozone to keep the bailout money from them.

If Greece defaulted, it would severely damage the euro and bond yields all over the eurozone would likely skyrocket – especially for troubled countries like Spain and Italy.

If Greece wanted to play hardball, they could simply choose to play a game of “chicken” with Germany and see what happens.

Would Germany and the rest of the eurozone be willing to risk a financial disaster just to teach Greece a lesson?

But Greece is not the only one that is in trouble.

As I wrote about recently, the Spanish economy is rapidly heading into an economic depression.

Now it has come out that the Spanish government is going to bail out a major Spanish bank.  The following is from a recent Bloomberg article….

Rodrigo Rato stepped down as head of the Bankia group as a government bailout loomed after Spanish Prime Minister Mariano Rajoy retreated from a pledge to avoid using public money to save lenders.

Rato, a former International Monetary Fund managing director, proposed Jose Ignacio Goirigolzarri, ex-president and chief operating officer of Banco Bilbao Vizcaya Argentaria SA (BBVA), as Bankia executive chairman, he said in a statement today in Madrid. The government plans to inject funds into the lender by buying contingent-capital securities, said an Economy Ministry official who declined to be named as the plan isn’t public.

But this is just the beginning.

Major banks all over Europe are going to need to be bailed out, and countries such as Portugal, Italy and Spain are going to need huge amounts of financial assistance.

So does Germany want to keep rescuing the rest of the eurozone over and over again during the coming years?  The cost of doing this would likely be astronomical.  The following is from a recent New York Times article….

Bernard Connolly, a persistent critic of Europe, estimates it would cost Germany, as the main surplus-generating country in the euro area, about 7 percent of its annual gross domestic product over several years to transfer sufficient funds to bail out Europe’s debt-burdened countries, including France.

That amount, he has argued, would far surpass the huge reparations bill foisted upon Germany by the victorious powers after World War I, the final payment of which Germany made in 2010.

At some point, Germany may decide that enough is enough.

In fact, there have been persistent rumors that Germany has been very quietly preparing to leave the euro.

A while back, German Chancellor Angela Merkel’s Christian Democratic Union party approved a resolution that would allow a nation to leave the euro without leaving the European Union.

Many believed that this resolution was aimed at countries like Greece or Portugal, but the truth is that the resolution may have been setting the stage for an eventual German exit from the euro.

The following is an excerpt from that resolution….

“Should a member [of the euro zone] be unable or unwilling to permanently obey the rules connected to the common currency he will be able to voluntarily–according to the rules of the Lisbon Treaty for leaving the European Union–leave the euro zone without leaving the European Union. He would receive the same status as those member states that do not have the euro.”

Most analysts will tell you that they think that it is inconceivable that Germany could leave the euro.

But stranger things have happened.

And Germany has made some very curious moves recently.

For example, Germany recently reinstated its Special Financial Market Stabilization Funds.  Those funds could be utilized to bail out German banks in the event of a break up of the euro.  The following is from a recent article by Graham Summers….

In short, Germany has given the SoFFIN:

  1. €400 billion to be used as guarantees for German banks.
  2. €80 billion to be used for the recapitalization of German banks
  3. Legislation that would permit German banks to dump their euro-zone government bonds if needed.

That is correct. Any German bank, if it so chooses, will have the option to dump its EU sovereign bonds into the SoFFIN during a Crisis.

In simple terms, Germany has put a €480 billion firewall around its banks. It can literally pull out of the Euro any time it wants to.

So has Germany been quietly preparing a plan “B” just in case the rest of the eurozone rejected the path of austerity?

Most people have assumed that it will be a nation such as Greece or Portugal that will leave the euro first, but in the end it just might be Germany.

And the “smart money” is definitely betting on something big happening.

Right now some of the largest hedge funds in the world are betting against the eurozone as a recent Daily Finance article described….

Some of the world’s most prominent hedge fund managers are betting against the eurozone — and not just the peripheral countries everyone knows are in trouble. They’re taking positions against the core countries, economies that — until now — everyone has assumed were rock-solid.

Yes, the countdown to the break up of the euro has officially begun.

A great financial crisis is going to erupt in Europe, and it is going to shake the world to the core.

If you were frightened by what happened back in 2008, then you are going to be absolutely horrified by what is coming next.

22 Signs That The Collapsing Spanish Economy Is Heading Into A Great Depression

What happens when debt-fueled false prosperity disappears?  Just look at Spain.  The 4th largest economy in the eurozone was riding high during the boom years, but now the Spanish economy is collapsing with no end in sight.  When a debt bubble gets interrupted, the consequences can be rather chaotic.  Just like we saw in Greece, austerity is causing the economy to slow down in Spain.  But when the economy slows down, tax revenues fall and that makes it even more difficult to meet budget targets.  So even more austerity measures are needed to keep debt under control and the cycle just keeps going.  Unfortunately, even with all of the recently implemented austerity measures the Spanish government is still not even close to a balanced budget.  Meanwhile, the housing market in Spain is crashing and unemployment is already above 24 percent.  The Spanish banking system is a giant, unregulated mess that is on the verge of a massive implosion, and the Spanish stock market has been declining rapidly.  The Spanish government is going to need a massive bailout and so will the entire Spanish banking system.  But that is going to be a huge problem, because the Spanish economy is almost 5 times as large as the Greek economy.  When the Spanish financial system collapses, the entire globe is going to feel the pain and there will be no easy solution.

So just how bad are things in Spain at this point?

The following are 22 signs that the collapsing Spanish economy is heading into a great depression….

#1 The unemployment rate in Spain has reached 24.4 percent – a new all-time record high.  Back in April 2007, the unemployment rate in Spain was only 7.9 percent.

#2 The unemployment rate in Spain is now higher than the U.S. unemployment rate was during any point during the Great Depression of the 1930s.

#3 According to CNBC, some analysts are projecting that the unemployment rate in Spain is going to go above 30 percent.

#4 The unemployment rate for those under the age of 25 in Spain is now a whopping 52 percent.

#5 There are more than 47 million people living in Spain today.  Only about 17 million of them have jobs.

#6 Retail sales in Spain have declined for 21 months in a row.

#7 The Bank of Spain has officially confirmed that Spain has already entered another recession.

#8 Last week, Standard & Poor’s Ratings Services slashed Spain’s credit rating from A to BBB+.

#9 The yield on 10-year Spanish bonds is up around 6 percent again.  That is considered to be very dangerous territory.

#10 Two of Spain’s biggest banks have announced that they are going to stop increasing their holdings of Spanish government debt.

#11 Of all the loans held by Spanish banks, 8.15 percent are considered to be “bad loans”.

#12 The total value of all bad loans in Spain is equivalent to approximately 13 percent of Spanish GDP.

#13 Of all real estate assets held by Spanish banks, more than 50 percent of them are considered to be “troubled” by the Spanish government.

#14 That total amount of money loaned out by Spanish banks is equivalent to approximately 170 percent of Spanish GDP.

#15 Home prices in Spain fell by 11.2 percent last year, and the number of property repossessions in Spain rose by a staggering 32 percent during 2011.

#16 Spanish housing prices are now down 25 percent from the peak of the housing market and Citibank’s Willem Buiter expects the eventual decline to be somewhere around 60 percent.

#17 It is being projected the the economy of Spain will shrink by 1.7 percent this year, although there are some analysts that feel that projection is way too optimistic.

#18 The Spanish government has announced a ban on all cash transactions larger than 2,500 euros.

#19 One key Spanish stock index has already fallen by more than 19 percent so far this year.

#20 The Spanish government recently admitted that its 2011 budget deficit was much larger than originally projected and that it probably will not meet its budget targets for 2012 either.

#21 Spain’s debt to GDP ratio is projected to rise by more than 11 percent during 2012.

#22 Worldwide exposure to Spanish debt is estimated to be well over a trillion euros.

Spain is going down the exact same road that Greece went down.

Greece is already suffering through a great depression and now Spain is joining them.  The following is from a recent BBC article….

“In Spain today, a cycle similar to Greece is starting to develop,” said HSBC chief economist Stephen King.

“The recession is so deep that when you take one step forward on austerity, it takes you two steps back.”

In Spain right now there is a lot of fear and panic about the economy.  In many areas, it seems like absolutely nobody is hiring right now.  The following is from a recent USA Today article….

“The situation is very bad. There’s no work,” said Enrique Sebastian, a 48-year-old unemployed surgery room assistant as he left one of Madrid’s unemployment offices. “The only future I see is one with wages of €400 ($530) a month for eight-hour days. And that’s if you can find it.”

But Spain is just at the beginning of a downward spiral.  Just wait until they have been through a few years of economic depression.  Once that happens, millions of people begin to lose all hope.  A recent Reuters article discussed the epidemic of suicides that is happening in Greece right now….

On Monday, a 38-year-old geology lecturer hanged himself from a lamp post in Athens and on the same day a 35-year-old priest jumped to his death off his balcony in northern Greece. On Wednesday, a 23-year-old student shot himself in the head.

In a country that has had one of the lowest suicide rates in the world, a surge in the number of suicides in the wake of an economic crisis has shocked and gripped the Mediterranean nation – and its media – before a May 6 election.

And you know what?

The nightmares that we are seeing unfold in Spain and Greece right now are just a preview of what is coming to most of the rest of the world.

The next wave of the economic crisis will soon envelop the United States, Japan and the rest of Europe.

When it strikes, the pain will be immense.

But it won’t be the end – it will only be just the beginning.

The global financial system is starting to crumble.

You better get ready.

A Financial Nightmare For Italy: The Yield Curve For Italian Bonds Is Turning Upside Down

What we are all watching unfold right now is a complete and total financial nightmare for Italy.  Italian bond yields are soaring to incredibly dangerous levels, and now the yield curve for Italian bonds is turning upside down.  So what does that mean?  Normally, government debt securities that have a longer maturity pay a higher interest rate.  There is typically more risk when you hold a bond for an extended period of time, so investors normally demand a higher return for holding debt over longer time periods.  But when investors feel as though a major economic downturn or a substantial financial crisis is coming, the yield on short-term bonds will often rise above the yield for long-term bonds.  This happened to Greece, to Ireland and to Portugal and all three of them ended up needing bailouts.  Now it is happening to Italy and Spain may follow shortly, but the EU cannot afford to bail out either of them.  An inverted yield curve is a major red flag.  Unfortunately, there does not seem to be much hope that there is going to be a solution to this European debt crisis any time soon.

We are witnessing a crisis of confidence in the European financial system.  All over Europe bond yields went soaring today.  When I finished my article about the financial crisis in Italy on Tuesday night, the yield on 10 year Italian bonds was at 6.7 percent.  I awoke today to learn that it had risen to 7.2 percent.

But even more importantly, the yield on 5 year Italian bonds is now sitting at about 7.5 percent, and the yield on 2 year Italian bonds is about 7.2 percent.

The yield curve for Italian bonds is in the process of turning upside down.

If you want to see a frightening chart, just look at this chart that shows what has happened to 2 year Italian bonds recently.

Do phrases like “heading straight up” and “going through the roof” come to mind?

This comes despite rampant Italian bond buying by the European Central Bank.  CNBC is reporting that the European Central Bank was aggressively buying up 2 year Italian bonds and 10 year Italian bonds on Wednesday.

So what does it say when even open market manipulation by the European Central Bank is not working?

Of course some in the financial community are saying that the European Central Bank is not going far enough.  Some prominent financial professionals are even calling on the European Central Bank to buy up a trillion euros worth of European bonds in order to soothe the markets.

Part of the reason why Italian bond yields rose so much on Wednesday was that London clearing house LCH Clearnet raised margin requirements on Italian government bonds.

But that doesn’t explain why bond yields all over Europe were soaring.

The reality is that bond yields for Spain, Belgium, Austria and France also skyrocketed on Wednesday.

This is a crisis that is rapidly engulfing all of Europe.

But at this point, bond yields in Europe are still way too low.  European leaders shattered confidence when they announced that they were going to ask private Greek bondholders to take a 50% haircut.  So now rational investors have got to be asking themselves why they would want to hold any sovereign European debt at all.

There is no way in the world that any rational investor should invest in European bonds at these levels.

Are you kidding me?

If there is a very good chance that private bondholders will be forced to take huge haircuts on these bonds at some point in the future then they should be demanding much, much higher returns than this.

But if bond yields continue to go up in Europe, we are going to quickly come to a moment of very great crisis.

The following is what Rod Smyth of Riverfront Investment Group recently told his clients about the situation that is unfolding in Italy….

“In our view, 7% is a ‘tipping point’ for any large debt-laden country and is the level at which Greece, Portugal and Ireland were forced to accept assistance”

Other analysts are speaking of a “point of no return”.  For example, check out what a report that was just released by Barclays Capital had to say….

“At this point, Italy may be beyond the point of no return. While reform may be necessary, we doubt that Italian economic reforms alone will be sufficient to rehabilitate the Italian credit and eliminate the possibility of a debilitating confidence crisis that could overwhelm the positive effects of a reform agenda, however well conceived and implemented.”

But unlike Greece, Ireland and Portugal, the EU simply cannot afford to bail out Italy.

Italy’s national debt is approximately 2.7 times larger than the national debts of Greece, Ireland and Portugal put together.

Plus, as I noted earlier, Spain is heading down the exact same road as Italy.

Europe has simply piled up way, way too much debt and now they are going to pay the price.

Global financial markets are very nervous right now.  You can almost smell the panic in the air.  As a CNBC article posted on Wednesday noted, one prominent think tank actually believes that there is a 65 percent chance that we will see a “banking crisis” by the end of November….

“There is a 65 percent chance of a banking crisis between November 23-26 following a Greek default and a run on the Italian banking system, according to analysts at Exclusive Analysis, a research firm that focuses on global risks.”

Personally, I believe that particular think tank is being way too pessimistic, but this just shows how much fear is out there right now.

It seems more likely to me that the European debt crisis will really unravel once we get into 2012.  And when it does, it just won’t be a few countries that feel the pain.

For example, when Italy goes down many of their neighbors will be in a massive amount of trouble as well.  As you can see from this chart, France has massive exposure to Italian debt.

Just like we saw a few years ago, a financial crisis can be very much like a game of dominoes.  Once the financial dominoes start tumbling, it will be hard to predict where the damage will end.

Some believe that what is coming is going to be even worse than the financial nightmare of a few years ago.  For example, the following is what renowned investor Jim Rogers recently told CNBC….

“In 2002 it was bad, in 2008 it was worse and 2012 or 2013 is going to be worse still – be careful”

Rogers says that the reason the next crisis is going to be so bad is because debt levels are so much higher than they were back then….

“Last time, America quadrupled its debt. The system is much more extended now, and America cannot quadruple its debt again. Greece cannot double its debt again. The next time around is going to be much worse”

So what is the “endgame” for this crisis?

German Chancellor Angela Merkel is saying that fundamental changes are needed….

“It is time for a breakthrough to a new Europe”

So what kind of a “breakthrough” is she talking about?  Well, Merkel says that the ultimate solution to this crisis is going to require even tighter integration for Europe….

“That will mean more Europe, not less Europe”

As I have written about previously, the political and financial elite of Europe are not going to give up on the EU because of a few bumps in the road.  In fact, at some point they are likely to propose a “United States of Europe” as the ultimate solution to this crisis.

But being more like the United States is not necessarily a solution to anything.

The U.S. is 15 trillion dollars in debt and extreme poverty is spreading like wildfire in this nation.

No, the real problem is government debt and the central banks of the western world which act as perpetual debt machines.

By not objecting to central banks and demanding change, those of us living in the western world have allowed ourselves to become enslaved to gigantic mountains of debt.  Unless something dramatically changes, our children and our grandchildren will suffer under the weight of this debt for as long as they live.

Don’t we owe future generations something better than this?

Could The Financial Crisis Erupting In Ireland, Portugal, Greece And Spain Lead To The End Of The Euro And The Break Up Of The European Union?

The Irish banking system is melting down right in front of our eyes.  Ireland, Portugal, Greece and Spain are all drowning in debt.  It is becoming extremely expensive for all of those nations to issue new debt.  Officials all over Europe are begging Ireland to accept a bailout.  Portugal has already indicated that they will probably be next in line.  Most economists are now acknowledging that without a new round of bailouts the dominoes could start to fall and we could see a wave of debt defaults by European governments.  All of this is pushing the monetary union in Europe to its limits.  In fact, some of Europe’s top politicians are now publicly warning that this crisis may not only mean the end of the euro, but also the end of the European Union itself.

Yes, things really are that serious in Europe right now.  In order for the euro and the European Union to hold together, two things have got to happen.  Number one, Germany and the other European nations that are in good financial condition have got to agree to keep bailing out nations such as Ireland, Portugal and Greece that are complete economic basket cases.  Number two, the European nations receiving these bailouts have got to convince their citizens to comply with the very harsh austerity measures being imposed upon them by the EU and the IMF.

Those two things should not be taken for granted.  In Germany, many taxpayers are already sick and tired of pouring hundreds of billions of euros into a black hole.  The truth is that the Germans are not going to accept carrying weak sisters like Greece and Portugal on their backs indefinitely.

In addition, we have already seen the kinds of riots that have erupted in Greece over the austerity measures being implemented there.  If there is an overwhelming backlash against austerity in some parts of Europe will some nations actually attempt to leave the EU?

Right now the focus is on Ireland.  The Irish banking system is a basket case at the moment and the Irish government is drowning in red ink.  European Union officials are urging Ireland to request a bailout, but so far Irish Prime Minister Brian Cowen is not taking the bait.  The Irish government does not seem too keen on having even more austerity measures imposed upon it by the EU and the IMF.

According to Nadeem Walayat, the harsh austerity measures that Ireland has endured during this past year have only made Ireland’s financial problems even worse….

The people of Ireland having endured over a year of austerity on the promise that it was all necessary to suffer pain today by cutting public spending so as to reduce the annual budget deficit to sustainable level for economic gains tomorrow. Instead the exact opposite is taking place as the Irish economy contracts due to economic austerity whilst its bankrupt banks are sending the countries debt and liabilities soaring, thus resulting in a far worse budgetary position than where Ireland was before the austerity measures were implemented as the bond markets are waking up to evitable debt default which is sending interest rates demanded to hold Irish debt soaring to new credit crisis highs.

But the big Irish banks are bleeding cash fast.  For example, the Bank of Ireland recently reported “a 10 billion euro outflow of deposits from early August until the end of September.”  Irish banks and the Irish government need help whether they are willing to admit it or not.

But Ireland is not the only one in trouble.  Portugal became the latest European nation to push the panic button when Portuguese Finance Minister Fernando Teixeira dos Santos announced that his country was in such bad financial shape that it might have to seek a bailout package.

Things are so bleak in Portugal right now that Foreign Affairs Minister Luis Amado says that his nation “faces a scenario of exit from the euro zone” if a solution is not found for this financial mess.

On top of all this, word is coming out that Greece is in even worse financial condition than initially believed.  The statistics agency for the EU, Eurostat, revealed on Tuesday that Greece’s deficit for 2009 was actually 15.4% of GDP rather than 13.6% of GDP as originally thought.

The Greek national debt is now well over 120 percent of GDP.  It seems inevitable at this point that Greece will need more bailouts if they are to remain part of the EU.

Spain is also starting to feel the heat.  Spain’s short-term debt financing costs jumped sharply on Tuesday, and officials in Spain are begging the Irish government to accept the bailout they are being offered so that the “contagion” does not spread.

But could a few mid-size countries in Europe really cause the next great global financial crisis?

Yes.

In the UK, veteran Conservative MP Peter Tapsell is warning that a total collapse in Ireland “could pose as great a threat to the world economy as did Lehman Brothers, AIG and Goldman Sachs in September 2008”.

Already we are seeing world financial markets getting rattled by all this news.

Fears regarding what is happening in Ireland, Greece, Spain and Portugal helped push the Dow Jones industrial average down nearly 200 points on Tuesday.

But the real story is that this financial crisis in Europe could potentially cause the break up of the euro and of the European Union.

The truth is that the euro and the European Union are inseparably linked at this point.  In fact, EU President Herman Van Rompuy is warning that if some of the weaker countries in Europe are forced to abandon the euro it will likely cause the total destruction of the European Union….

“We’re in a survival crisis. We all have to work together in order to survive with the euro zone, because if we don’t survive with the euro zone we will not survive with the European Union.”

German Chancellor Angela Merkel is also warning that a failure of the euro could bring down the entire European Union….

“If the euro fails, then Europe fails.”

But officials in Europe are not going to let the dream of a united Europe slip away easily.  Right now they are working really hard to keep Europe together, and that means some “tough love” has to be imposed on the “weak sisters”.  As these weaker European economies collapse, they are being forced to accept harsh EU mandates in exchange for bailouts.  As Ambrose Evans Pritchard recently pointed out, “forced austerity” is quite similar to serfdom….

Greece is now under an EU protectorate, or the “Memorandum” as they call it. This has prompted pin-prick terrorist attacks against anybody associated with EU rule. Ireland and Portugal are further behind on this road to serfdom, but they are already facing policy dictates from Brussels, but will soon be under formal protectorates as well in any case. Spain has more or less been forced to cut public wages by 5pc to comply with EU demands made in May. All are having to knuckle down to Europe’s agenda of austerity, without the offsetting relief of devaluation and looser monetary policy.

In the end, Europe is going to move in one of two directions.  Either this financial crisis will finally be the thing that breaks up the euro and the European Union, or it will result in a Europe that is ruled even more strongly by EU bureaucrats.

As this crisis unfolds over the next couple of years, the EU is going to try to grab more power and more control.  They are going to ask national governments to give up substantial amounts of power and sovereignty in exchange for bailouts.  So far it is working.

But at some point will one nation say that enough is enough?

Perhaps that one nation could be Ireland.  The citizens of Ireland actually voted “no” on the EU Constitution, but then the EU forced them to vote a second time so that they could “get it right”.

Wouldn’t it be ironic if it is Ireland that ends up lighting the fuse that breaks up the euro and the European Union?  The Irish are a fiercely independent people, and they have a history of resisting tyranny.

In any event, this is going to be an extremely interesting winter across the EU.  If things go badly, the entire global financial system could be plunged into mayhem.  Let us hope that does not happen.

Why You Should Be VERY CONCERNED About The Financial Crisis In Greece

Up to this point, it seems as though most Americans have not really been too concerned about the financial meltdown that is taking place in Greece.  But they should be.  The truth is that the debt crisis we see playing out in Greece may soon repeat itself in some of the largest nations in the world such as Japan, the U.K. and even the United States.  Once upon a time, this kind of thing only happened in third world nations, but now virtually every nation on earth has a debt problem.  As the saying goes, the borrower is the servant of the lender, and so when a country like Greece gets in way, way too deep financially, it ends up having to give up a portion of its sovereignty to those controlling the purse strings.  In the case of Greece, those controlling the purse strings are the IMF and the EU.  But it just isn’t Greece that is in trouble.  Dozens of nations are in serious financial trouble and are at the mercy of those who can bail them out.  The truth is that global financial institutions like the IMF, the World Bank, the European Central Bank and the Federal Reserve are increasingly gaining power all over the globe as governments around the world continue to accumulate frightening amounts of debt.

This has been quite a week for Greece and for the other nations in Europe teetering on the edge of financial disaster.  Standard & Poor’s reduced Greek debt to “junk” status, and Spain and Portugal’s debts were also downgraded substantially.  These unprecedented steps by Standard & Poor’s have many concerned that this financial “contagion” could start spreading across all of Europe.

We’ll take a look at the “austerity measures” being forced on Greece in a moment, but first it is important to note that financial panic is already spreading to other nations in the region.

In Portugal, the government has announced that additional “austerity measures”, beyond those in the current three year plan, are expected to be implemented.  Perhaps they wouldn’t need to take such drastic steps if they hadn’t spent all of those millions constructing those shiny new soccer stadiums a few years ago.  But in any event, many analysts are now forecasting that Portugal will be the next domino to fall.

Officials in Spain are expected to announce this week that unemployment has hit 20%.  But of course any nation that implements a hardcore “cap and trade” law like the one in Spain should expect unemployment to soar into the stratosphere.  So they are just reaping what they have sown, but the fallout could end up being very painful.  Spain’s economy is approximately five times larger than Greece’s so if Spain ends up defaulting it will create a financial nightmare for all of Europe.

There are now rumors that even Italy and Ireland are in a massive amount of trouble financially.

So will the EU and the IMF end up having to bail all of them out?

Well, for now Greece is first in line.

European officials said on Friday that the Greek government, facing a rapidly deteriorating financial situation, is close to completing negotiations for assistance from the International Monetary Fund.

So Greece is going to get the money that it needs – but it comes with strings.

Greece must surrender some of its fiscal sovereignty and adopt a three year program of severe spending cuts and higher taxes.

In fact, one major Greek newspaper says that wage and job cuts for public workers will also be ordered alongside the spending cuts and tax increases to get through what they are calling “three hard years”.

You see, the truth is that Greece is a highly socialized nation.  In a population of just over 11 million people, Greece employs more than a million in the public sector.

Just think about that for a moment.

That is huge.

They get paid extremely well, and Greek civil servants also enjoy very generous pension benefits and early retirement.

Needless to say a lot of these Greek civil servants are not happy at all about the changes the IMF is forcing upon them, and they have called a general strike for May 5th.

For his part, the Greek Prime Minister, George Papandreou, is trying to convince the Greek people that these new spending cuts and tax increases are necessary to keep his nation afloat.  According to The Associated Press, Mr. Papandreou recently told the Greek Parliament the following….

“The measures we must take, which are economic measures, are necessary for the protection of our country — for our survival, for our future, so we can stand firmly on our feet.”

There are even fears that this sovereign debt crisis could spell the end for the Euro.  Back on Wednesday, the leaders of the 16 countries currently using the Euro called an emergency meeting to attempt to avert a Euro meltdown triggered by Greece’s financial collapse.

Of course the Euro is not actually going to collapse, but the fact that they all felt the need to get together and talk about this situation is quite telling.

In fact, the language used by some of the top financial authorities in the world when speaking about the Greek debt crisis is quite alarming….

Angel Gurría, head of the Organization for Economic Cooperation and Development:

“This is like Ebola. It’s threatening the stability of the financial system.”

Colin Ellis, economist at Daiwa Capital Markets:

“The time for horse-trading, prevarication and posturing is over. Arguably, the very future of the euro area is now teetering on a knife edge.”

Dominique Strauss-Kahn, head of the International Monetary Fund:

“If we don’t fix it in Greece, it may have a lot of consequences on the EU.”

But for the people of Greece, getting help with their debt means giving up their ability to determine their own affairs.  They have gotten into so much debt that now they are forced to do whatever the IMF and the EU tell them to do.  Of course there are many in Greece who are extremely upset by this as evidenced by the recent riots there….

But this is what happens when a nation allows itself to get into way too much debt.  In fact, this has been done by design in third world nations for decades.  In his extraordinary book, Confessions of an Economic Hitman, John Perkins explained how it was his job to go around the world and get third world governments to accept multibillion-dollar loans that he knew they would never be able to repay.  Of course when the time came and they could not repay the loans, the big global institutions would go in and confiscate natural resources and impose “conditions” and implement “austerity measures” similar to the ones they are currently imposing on Greece.

The alarming thing today is that it just isn’t third world nations where this game is being played anymore.  Now that they have perfected the blueprint, they are trying it out on nations like Greece.

The reality is that this is all part of the push towards globalization.  In fact, Jean-Claude Trichet, the president of the European Central Bank, emphasized the need for global coordination in financial matters during his April 26th address at the Council on Foreign Relations.

“Global coordination” sounds nice, but just like “global governance” and “global cooperation”, it is just another way of saying that we need to transfer more power and more authority to globalist institutions.

You see, whatever problem that pops up (in this instance it is the Greek debt crisis), the solution always seems to be to transfer more power to global institutions.

In fact, as a “solution” to the global financial crisis, the IMF is proposing two new taxes on financial institutions worldwide: a “financial stability contribution” which levies a small charge on financial institution balance sheets, and a “financial activities tax”, which would tax “excess profits” and bonuses.

As the nations of the world continue to get deeper in debt, and as more power and more money is transferred to unelected global institutions, the people of the world may find their lives increasingly being run by heartless bureaucrats on the other side of the globe.

For anyone who loves freedom, that is a very sobering thought.

The Economic Collapse