Category: government

07:56 – The EU summit turned out exactly as I predicted. They kicked the can a bit farther down the road, putting off Greece’s inevitable collapse for a few more weeks, if they’re lucky. Greece in turn agreed to become a wholly-owned subsidiary of the eurocracy, abandoning its sovereignty. Ironically, it was also announced yesterday that the old drachma ceases to be legal tender as of 1 March. One would have thought they’d have kept it around a while longer. It might come in useful. Or perhaps they’re just doing a central collection of all outstanding drachma-denominated notes and coins, expecting to reissue them shortly.

I’m told that no one in Europe wants to be holding Greek-branded euros, and that those of Portugal, Ireland, Spain, and Italy are also looked upon as of questionable value. In a real-world demonstration of Gresham’s Law, everyone is getting rid of southern-tier euros as fast as they can and attempting to replace them with German, Dutch, and Finnish euros. And who can blame them? The expectation is that when Greece leaves the euro, Greek euros will be the new drachma until Greece can afford to print real new drachmas. And the same will occur as the other southern-tier nations leave the euro. Frankly, I expect the opposite to happen; the poorer nations, including Belgium and France, will end up using increasingly worthless euros, while Germany and the other richer nations return to their own former currencies. Or, if they’re foolish, to a new shared currency, but one shared only among the richer northern-tier nations.

One thing is certain, though. The results of the latest euro summit bought them weeks if they’re lucky, and only days if they’re not.

09:56 – The situation in Greece would be funny if it weren’t so serious. Right now, the Greek government and the Troika are arguing about trivial issues like cutting 15,000 government employees. The Troika surely must know that that’s a drop in the bucket. Even to get a start on solving the problem, Greece needs to cut literally 100 times that number of government employees.

Everyone is fully aware that cutting 15,000 employees won’t even begin to make a start, but the Greek government is also fully aware that cutting even 15,000 government employees is likely to lead to riots and possibly a full-blown revolution. For a decade now, Greeks have gotten used to an unsustainably high standard of living, subsidized by cheap loans that there was never any prospect of them repaying. Now that the tap has run dry, Greece is going to have its standard of living cut in half, it it’s lucky. That’s what happens when, for a decade, a country consumes twice as much as it produces. Eventually, other people get tired of paying for it.

08:45 – I see that Italy is delighted with the “successful” results of its bond sale. The first headline I read claimed that Italian bond yields had fallen to half what they had been at the most recent previous sale. Well, yes, but only on short-term paper, much of which was probably sold to local investors. The yields on benchmark 10-year bonds, which are what really matter, were still at a disastrous 6.7%. EU authorities were hoping that much of the flood of cheap money made available to EU banks by the ECB would be invested in long-term southern periphery bonds, driving down their yields. That didn’t happen, and no one except the clueless EU leadership expected it to.

13:18 – Someone asked me if I expected significant developments in the Euro crisis imminently. I won’t say that I “expect” it to happen in the next few days. There’s simply too much I don’t know and that, in total, no one person knows. I will say that if I were Greece and knew I would have to default in the near future, this week would be the optimum time for doing so. Financial markets are lightly staffed and a holiday is coming up. The ability of the markets, other governments, banks, bank depositors, and companies to react will be minimal from Friday through Tuesday, which would give me my best chance to implement capital controls, airport and bank shutdowns, and so on with maximal effect and minimal risk of interference. If I were doing it, I’d time it for late Thursday night or early Friday morning local time, or possibly late Friday evening/early Saturday morning.

09:30 – Hmmm. The (French) head of the IMF now says that the rest of world has to bail out the eurozone if a world-wide 1930’s style great depression is to be avoided. Fortunately–with the exception of Russia, which has agreed to kick in a few billion–the rest of the world has basically said NFW. The UK’s share was to be about $40 billion, and the UK has already announced that isn’t going to happen. Same for the US and China, which have ruled out paying to bail out a group of nations that’s perceived as being capable of paying the costs itself if only they were willing to do so.

What’s unavoidable is that standards of living are going to be going down in Europe. Way down. The eurozone nations have been on a borrowing and spending binge for many years. What’s worse is that their current debts, as horrendously high as they are, pale in comparison to their unfunded liabilities for pensions and medical care. All told, Europe is looking at a real debt load of something like $100 trillion. With a T. As I’ve said, we’re watching the collapse of the European welfare state. That won’t be pretty, as people who expected to retire in their 50’s or early 60’s with full pensions and free health care learn that those pensions won’t be paid–or, if they are, they won’t buy a cup of coffee–and that free health care won’t be available. The riots and firebombings we’ve seen so far will seem mild compared to the social unrest we’ll be seeing over the next decade or two. It’s not exaggerating to predict a coming Europe-wide revolution as the EU breaks up.

The UK would do well to distance itself as soon as possible and as much as possible from the EU, starting by withdrawing from the EU itself. The cost of doing so would actually be negative. Any additional trading costs involved in imports from and exports to the EU under WTO rules rather than EU rules would be much more than offset by the elimination of the net direct subsidies the UK pays to the EU, not to mention the indirect and largely invisible subsidies that result from EU regulations that are not in the interests of the UK. The UK is in terrible shape economically, but it’s nothing compared to the terminal economic condition of the rest of the EU. Cameron and his Tories need to get the UK out of the EU before the EU drags them further down. And he has the support of British voters, the majority of whom now favor withdrawing from the EU.