The Eurozone "crisis"…what crisis?

Just got back from me hols in Ireland. Contrary to what you might read about the Emerald Isle in the Daily Mail we are not all on the bread line, nor is a great depression in full swing. Exports are up and we are currently running a trade surplus on manufactured goods. The reason why the rish economy is still stuck in the doldrums is largely due to three things (1) the Irish building industry (home and abroad) has gone from a massive boom to a complete bust with a near full stop in all construction (2) the economic costs of this, notably the effect that its had on the banks (quick summary – they’re all broke!) and (3) the effect this has had on Ireland’s national debt, after we foolishly bailed out some of the banks, which we should have left to go to the wall. It’s the fallout of this building boom and its effects on the banks that acting like a lead weight tied around Ireland’s ankles.

Of course Ireland’s sovereign debt “crisis” is part of a wider “crisis” across the Eurozone. However, what the commentators in London and New York fail to mention, is that in the grand scheme of things €200-300 Billion Euros isn’t a huge amount of money when compared to the whole of the eurozone economy (around a € 8.4 Trillion GDP). Worst case scenario the eurozone might have to perform have a minor default of some sorts. This is of course precisely what the UK and USA have been doing for the past few years with “Quantitative Easing” – or printing more money and giving it away to the banks to put it in layman’s terms. This of course makes the debts the UK and the USA owe worth less (as there are more US dollars or British pounds floating around). However it also punishes savers by reducing the value of their savings and it also amounts to a default on ones loans by the back door. It is of course somewhat Ironic that Ireland, Greece, Portugal and Spain’s credit rating are being cut, due to the “risk” we might default, even though the UK and the USA who are already effectively in the process of defaulting, yet they have AAA+ ratings :??:. Of course the fact that the same spiv’s and speculators who run the big US/UK banks also set the credit ratings and have everything to gain from hammering the Eurozone is just a huge big coincidence ;)!

Don’t get me wrong, several eurozone economies are in a mess of their own making (Ireland included) but it’s also clear that some of the traders in London and New York are taking the opportunity to kick the Irish while we’re down. Many of these traders bet that the Euro house would burn down back in 2009. When it didn’t they now seem determined to make sure it does, even if they have to light the fire themselves. Much of the current debts of these EU countries is a consequences of the high interest rates we’re being asked to pay, not the original debts themselves.

Casing point, as part of Ireland’s IMF bailout the Irish proposed a “hair cut” of the debts owed by Irish banks to international lenders, downgrading said debts by a rate of 2/3’s their original value. In other words the Irish were proposing that those who stupidly lent money to Irish banks in the middle of our housing boom should take some hit for such foolishness, rather than taxpayers (either Irish or Internationally through the IMF). This was also inline with Irish domestic policy which basically said the same thing (the state only puts its hands in its pockets after those who bet foolishly during the boom take a hit). For example, in setting up NAMA to take large property loans off the bank’s the Irish government imposed a 30% “hair cut” on the banks. However, such “capitalist” thinking was shot down by none other than Timothy Geithner the US Treasury Secretary who threatened to veto such a move by the IMF as it would mean US banks (including his former employer’s AIG and Goldman Sachs) taking a $17 billion or so hit. No, Geithner thought that instead governments and taxpayers (Irish, British, European and American ones) should pay the cost of Ireland’s rescue, i.e Main Street should again bailout Wall Street (or in this case Stephens Green).

This is perhaps the wider problem. Yes, the ECB could announce a program of quantitative easing in the eurozone tomorrow. A modest programme of this over several years would wipe out all of these toxic debts relatively quickly. It would also put the cat among the pigeons as far as the rating agencies in London and New York are concerned. They couldn’t cut the eurozone credit rating (which for some countries is only a notch or two above junk status anyway) when the eurozones doing exactly what the US and UK are doing. Indeed they may well have to raise the credit rating to the same level as US/UK even though the Eurozone was now defaulting on its debts via the back door!

Unfortunately the eurozone isn’t run by spiv’s and speculators and the good olde boys network, as London and New York are. It’s run by economists who can add and subtract and who don’t like the idea of burning savers to save foolish gamblers (so the low credit rating of the eurozone is more a reflection of the fact that the rating agencies fear that the eurozone ministers will act responsibly!). There is also a lack of joined up thinking. Despite having a single currency there is a failure of the EU to recognise that this is a joint problem that effects the entire eurozone area. Leaving Ireland and Greece to sort out the mess on our own in a single currency is not only unfair on these smaller countries but in the longer term risky as it means there is a danger of the problems not being fixed effectively and then spreading and growing larger in scale, possibly to the point that they could affect a much larger eurozone economy (such as Spain or Italy) and then we really would have a crisis!

As I see it some sort of “hair cut” (of banking debts) or default by default (such as quantitative easing) is the only way out of the crisis now, its really only a matter of timing. The timing being, how long it takes for the larger eurozone economies to wake up and smell the coffee. And the longer the eurozone dithers the worse the problem becomes.

Bringing back the Punt or the Drachma (as the right wing newspapers in the UK gleefully like to predict) would be silly. Neither currency would survive for very long in the current economic climate and it’s doubtful anyone with half a brain would led to Ireland or Greece if it held its debts in such a small and potentially unstable currency. I also would note that the only people seriously proposing this are far-left political parties (such as Sinn Fein) so it’s a little ironic how right wing hacks seem to like the policies of a hard-left Republican party. Any talk of this (as recently came out in Der Spiegel) is likely just a Greek ploy to wind up the Germans.

Equally the spiv’s and speculators in London and New York and their political lackies need to realise that what goes around comes around. With the very same people who caused the last banking crisis (and the dot com bubble before that… and the bubble before that…and the one before that…:no:) still in charge, all of whom show no sign of having learnt any lessons from the crisis (other than the ease at which they can persuade governments to bail them out) its almost a certainty that another economic bubble will be built up by in the Anglo-American economy (which may already be building in the form of excessively high gold and sliver prices) and burst. When it bursts, expect little sympathy from the EU. Indeed, you can expect a quiet nod from the ECB to French and German currency speculators for permission to go out and screw the UK/US over by doing onto them what they are doing onto the Euro right now (i.e by start a massive run on Sterling or the Dollar). This is a particular issue for the US, as they are making absolutely no effort to tackle their current budget deficit, even with a Democrat in charge. Inevitably once a Republican takes over (and wants to cut taxes, start a war and build a massively expensive missile defence system…or write fuck off china on the moon with a giant laser or something) there is even less chance of this problem being tackled. Obviously once the Chinese and OPEC states realise this, and the current Eurozone crisis is over (but the EU still angry about the behaviour of the US), we are looking at the makings of a perfect economic storm hitting the dollar sometime in the next few years.

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One thought on “The Eurozone "crisis"…what crisis?

  1. I believe the problem in greece simply came from governments buying votes with wages and pensions they would not have to pay for. This is an endemic flaw in any elective oligarchy where the public is insulated from decisive power and usually kept unaware of policymaking information.

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