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What will happen when Germany wakes up?

Monetary union has left half of Europe trapped in depression - Telegraph
Events are moving fast in Europe. The worst riots since the fall of Communism have swept the Baltics and the south Balkans. An incipient crisis is taking shape in the Club Med bond markets. S&P has cut Greek debt to near junk. Spanish, Portuguese, and Irish bonds are on negative watch.

A great ring of EU states stretching from Eastern Europe down across Mare Nostrum to the Celtic fringe are either in a 1930s depression already or soon will be. Greece's social fabric is unravelling before the pain begins, which bodes ill.

Each is a victim of ill-judged economic policies foisted upon them by elites in thrall to Europe's monetary project – either in EMU or preparing to join – and each is trapped....

Fixed exchange systems – and EMU is just a glorified version – rupture suddenly. Things can seem eerily calm for a long time. Politicians swear by the parity. Remember John Major's "soft-option" defiance days before the ERM blew apart in 1992? Or Philip Snowden's defence of sterling before a Royal Navy mutiny forced Britain off the Gold Standard in 1931.

Don't expect tremors before an earthquake – and there is no fault line of greater historic violence than the crunching plates where Latin Europe meets Teutonia.

Greece no longer dares sell long bonds to fund its debt. It sold €2.5bn last week at short rates, mostly 3-months and 6-months. This is a dangerous game. It stores up "roll-over risk" for later in the year. Hedge funds are circling.

Traders suspect that investors are dumping their Club Med and Irish debt immediately on the European Central Bank in "repo" actions.

In other words, the ECB is already providing a stealth bail-out for Europe's governments – though secrecy veils all.

An EU debt union is being created, in breach of EU law. Liabilities are being shifted quietly on to German taxpayers. What happens when Germany's hard-working citizens find out?

This could get very, very ugly very quickly. Batten down the hatches, withdraw and make secure are the sensible orders of the day.

Comments

What a very interesting article, thank you for bringing it to my attention.

I have been suggesting for some time now that we need to get unsustainable debt out of the system and accept a period of relative decline in order to be able to cope with the future. As for an individual, so for a country. You can't live on credit for more than a short time because credit makes you pay twice for things, it's madness.

The one and only advantage the UK has over Europe is that we are not shackled by a central bank outside our control. How it could be thought that a single exchange rate and interest rate for all countries using the Euro would be beneficial in apparent good times was always beyond my understanding. It is in hard times that the absurdity of the notion is illustrated.

Not that any of this will deter the rejected national politicians who make up the self-oiling EU elite.

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