Not having easy access to newspapers, I missed this piece by Ambrose Evans-Pritchard (do you think he might be Welsh?) in The Telelgraph until this evening. The credit booms in Ireland, Spain, Greece and Italy are not just as bad as that in the USA. They’re worse. Property prices are crashing, and the Germans are having to let interest rates fall to assist those in the credit mess, despite the inflationary effects. It’s pulling the Euro in two.
Those like me who are shocked and saddened by the complete lack of interest by Britons in the destruction of their country by the EU’s Lisbon Treaty, should take great pleasure in the unfolding mess, seeing now what a false structure it all is.
The EU has desensitised the normal political instincts of people by permitting an asset boom based on cheap and plentiful money for a decade, hoping to bed in the Euro. People who previously had struggled to get a half decent living found themselves paper rich, and on some strange level, this, in my opinion has persuaded many to comply with the takeover of their countries by the EU.
Well now the truth is starting to come out. You might have many noughts after your name, but soon that is all you will have. As the collapse of credit, in turn collapses asset prices (of houses but not of commodities), people whose scepticism lay dormant will now explode with anger against whatever political system has permitted this mess to arise. They’ve been living in a fool’s paradise.
Gordon Brown, so far is trying to pin all the blame on the USA as there the troubles of easy credit and foolish lending have manifested first. He blames ‘lack of transparency’ and the ‘wrong pricing of risk’. Who will he try to blame next as the same mess begins to unfold inside his favoured political entity, the EU and particularly the eurozone? The lack of transparency resides far closer to home.
Read Ambrose Evans-Pritchard from The Telelgraph and wonder how Gordon Brown has never mentioned any of this. Transparency my foot. You’re a living farce, Mr Brown. In fact ‘Transparency’ Brown would be a good moniker for you. (echoing another Brown who, unlike the Sub-Prime Minister was known for his Capability).
AEP writes –
Yet if the storm is peaking in the US, it has hardly begun in Europe. Bernard Connolly, global strategist at Banque AIG, (pictured above) says euro-losses may surpass the US debacle.
“The next really big shock to financial markets is likely to be the risk of collapse in the EMU credit bubble: the private sector credit consequences are likely to be catastrophic,” he said.
Budget deficits must stay below 3pc of GDP, on pain of fines. Germany once breached this with impunity, but that was before Angela Merkel appeared. Virtuous again, Germany now demands rigour.
Since France and Italy are already nearing the 3pc buffer, they may have to tighten into a downturn.
Monetary bail-outs are not allowed either, at least not until the German bloc gives a green light to the European Central Bank.
We are a decade into EMU. The outcome is what Bundesbank sceptics feared. Interest rates have been far too low for Club Med and Ireland, fuelling property booms.
These have burst, are bursting, or will burst. The victims are beached with current account deficits of 10pc of GDP in Spain, 13pc in Greece. The “Nordics” have surpluses, at Club Med expense.
Italy and Spain have lost 30pc in labour competitiveness against Germany under EMU. France has lost 20pc. An attempt to deflate these countries back to balance will run into revolt.
Hedge funds are already circling.
One has set up a Euro Divergence Fund. BNP Paribas said spreads on Club Med debt will soar this year to levels never seen in the euro-zone. “The markets are going to punish wrongdoing,” said Hans Redeker, the bank’s currency chief. “The politicians in Italy and Spain do not seem to realise how deep-rooted their problems are. They may have to cut real wages,” he said.
“While tensions can be camouflaged during economic upswings, they surface during downswings. All failed currency unions were abandoned during times of economic stress,” said the bank.
We are nearing the moment when the ECB must decide whether it is a bank or the political guardian of the EU Project. It cannot be both.
The monetary crunch needed to restrain German wage deals after the rail workers won 11pc will crucify Spain.
Over 40,000 estate agents closed doors in Spain last year. Property prices are dropping in Madrid, Barcelona, and Seville.
Spanish banks are issuing mortgage bonds to use as collateral at the ECB’s window, without even trying to sell them on the open market. La Gaceta said this “abuse” has reached €40bn.
The ECB has taken the political pulse of Latin Europe and concluded that rigour is now too dangerous. It will face a hostile troika of Paris, Madrid and Rome if it persists, risking EMU schism. Trumped by politics, the Germanic hawks have climbed down.
The euro fell hard last week. It is the start of a long slide to levels that reflect a sluggish, half-reformed bloc in demographic decline.
Says it all.