German Finance Minister Who Launched Euro, Calls For Its Breakup

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euroThat the euro has been a disaster is now beyond question.  Even the German Finance Minister, Oskar Lafontaine who was responsible for Germany launching the euro is now calling for its breakup. He believes countries would unite against Germany, forcing change. Ambrose Evans-Pritchard writes:

Oskar Lafontaine, the German finance minister who launched the euro, has called for a break-up of the single currency to let southern Europe recover, warning that the current course is “leading to disaster”.

“The economic situation is worsening from month to month, and unemployment has reached a level that puts democratic structures ever more in doubt,” he said.

“The Germans have not yet realised that southern Europe, including France, will be forced by their current misery to fight back against German hegemony sooner or later,” he said, blaming much of the crisis on Germany’s wage squeeze to gain export share.

Mr Lafontaine said on the parliamentary website of Germany’s Left Party that Chancellor Angela Merkel will “awake from her self-righteous slumber” once the countries in trouble unite to force a change in crisis policy at Germany’s expense.

His prediction appeared confirmed as French finance minister Pierre Moscovici yesterday proclaimed the end of austerity and a triumph of French policy, risking further damage to the tattered relations between Paris and Berlin.

“Austerity is finished. This is a decisive turn in the history of the EU project since the euro,” he told French TV. “We’re seeing the end of austerity dogma. It’s a victory of the French point of view.”

Mr Moscovici’s comments follow a deal with Brussels to give France and Spain two extra years to meet a deficit target of 3pc of GDP. The triumphalist tone may enrage hard-liners in Berlin and confirm fears that concessions will lead to a slippery slope towards fiscal chaos.

German Vice-Chancellor Philipp Rösler lashed out at the European Commission over the weekend, calling it “irresponsible” for undermining the belt-tightening agenda.

The Franco-German alliance that has driven EU politics for half a century is in ruins after France’s Socialist Party hit out at the “selfish intransigence” of Mrs Merkel, accusing her thinking only of the “German savers, her trade balance, and her electoral future”.

It is unclear whether the EU retreat from austerity goes much beyond rhetoric. Mr Moscovici conceded last week that the budget delay merely avoids extra austerity cuts to close the shortfall in tax revenues caused by the recession.

The new policy allows automatic fiscal stabilisers to kick in, but France will stay the course on the original austerity. “It is not about relaxing the effort to cut spending. There will no extra adjustment just to satisfy a number,” he said.

Mr Lafontaine said he backed EMU but no longer believes it is sustainable. “Hopes that the creation of the euro would force rational economic behaviour on all sides were in vain,” he said, adding that the policy of forcing Spain, Portugal, and Greece to carry out internal devaluations was a “catastrophe”.

Mr Lafontaine was labelled “Europe’s Most Dangerous Man” by The Sun after he called for a “united Europe” and the “end of the nation state” in 1998. The euro was launched on January 1 1999, with bank notes following three years later. He later left the Social Democrats to found the Left Party.

Remember Helmut Kohl’s recent comments on introducing the euro in an interview that was conducted by Jens Peter Paul, a German journalist in 2002, but only recently published. Kohl said that he would have lost any popular vote on the euro by an overwhelming majority.

“If a Chancellor is trying to push something through, he must be a man of power. And if he’s smart, he knows when the time is ripe. In one case – the euro – I was like a dictator …

“I knew that I could never win a referendum in Germany,” he said. “We would have lost a referendum on the introduction of the euro. That’s quite clear. I would have lost and by seven to three.”

So there you have it, stuck with a currency that was rammed through against peoples wishes and a completely predictable disaster. Of course a currency union, as the elites point out, cannot work without a fiscal union. That has always been the end game, to hand over all economic power to the EUSSR. In other words a “power grab”. Hegelian dialect, the method to implement something you want by creating a problem which induces a reaction , whereby you already have the solution. After all, the Soviet Union was based on Hegelian dialectic techniques.

Source: The Telegraph

Nigel Farage – The Euro is Doomed !

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Nigel Farage – “The Euro will break up, its just a matter of how”. He simplifies the EU bullshit spin on the euro very well. Not as entertaining as usual, but worth the look anyway.

Eurozone In Massive Trouble – Close To The End

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Egon von Greyerz (Matterhorn Asset Management out of Switzerland) gave an interesting interview on KingWorldNews regarding the state of the eurozone currently. He spoke about the massive over leveraged banks and the warning from the IMF that the euro is close to break up.

Spain has now borrowed $415 billion from the ECB, and that’s about 63% of the total ECB lending.  Bad debts in the Spanish banks are going up at record levels.  Bad debts over the last 3 months are now 8% of total debt.  That’s massive.  It also means defaults are not far away, and the banks haven’t reserved for these….

Banks are massively over leveraged and even a small write down on bad loans would have a devastating affect.

“The banking world is on the way to bankruptcy here.  We’ve talked about the leverage in the banking system, but people don’t seem concerned about it.  What we are going to see, one day, is when these dominos start falling, there will be panic.

Banks are supposed to come down to 20 times leverage.  There is only one bank of the top twenty-five banks in the world today that is below 20 times leverage.  Every other bank is above.  20 times leverage means that if they only lose 5% on their loan book, they have lost their capital.

I will bet you that virtually every bank in the world has a bad debt position which is worse than 5% of their assets.  And if you look at an entity such as Deutsche Bank, do you know what their leverage is?  62 times.  It means that if they have a bad debt position of 1.5%, the bank is bust.  Deutsche Bank is bigger than German GDP.  So, if something happens to Deutsche Bank, Germany goes under.

Credit Agricole, the largest French bank, has 63 times leverage.  This is absolutely frightening.  This situation is untenable.  Some of these banks will not survive.  Of course, central banks are aware of this, governments are aware of this, and they will print money.  Will they print in time?  Maybe for some banks, but some banks will not survive, I’m sure.

The two big Swiss banks combined total 7 times Swiss GDP.  The banks have a leverage which is unsustainable, and in many cases are bigger than the countries themselves.

 What does this mean for gold?

So, central banks, being aware of this, are going to keep accumulating more and more gold.  And that trend will accelerate because central banks know that buying bank debt or government debt is a bad move.  So, all of these dominos that will fall are going to accelerate the trend into gold.

Even the IMF are making noise regarding how bad things are regardless of the inability of european politicians to face up to the problem.

The IMF came out with a report yesterday saying we are very near a eurozone breakup, a disorderly one.  That would create panic in the market.  There would be an even greater flight of deposits out of the banking system which would make the situation even worse.

The IMF is coming out with statement after statement that should frighten the world.  Today they said that European Banks will have to sell roughly $3.8 trillion in assets.  In reality, it could be well over $10 trillion in the next couple of years.

We are in a mess, Eric, and the IMF recognizes this.  The central banks know this as well, but for right now they are trying to tell the markets, ‘We are not going to print any more money.’  They will print money.  The know they will print money. 

The IMF, by making these statements, is saying central banks are going to have to print money, just to sustain the financial system.  Improvements in the economy are unthinkable, things are going to get a lot worse.”

How Would The Euro Be Broken Up?

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Ambrose Evans-Pritchard writes about how the gurus nominated for the prestigious Wolfson Economics Prize discuss the breakup of the euro. First up is Neil Record from Record Currency Management.

“The consequences of a completely unplanned ‘Exit’ are likely to be catastrophic,” said Neil Record from Record Currency Management, one of the five qualifiers.

Mr Record believes piecemeal exits by one country at a time – the most likely outcome on current policy settings – would be “a recipe for continuous crisis”. There can be no such half-way house in any case. As soon as one country leaves EMU, the euro will lose its aura of inevitability. The charisma drains away.

He advocates a secret German-led “Taskforce”, with a French cameo role for the sake of “legitimacy”. Any broader planning would leak. The European Central Bank and the European Commission would be kept in the dark since they are “not well-equipped to design the demise of their own ‘great project’”.

“Failure to maintain secrecy would almost certainly lead to a complete freeze in the markets, making it impossible to finance eurozone member states’ deficits. This could accelerate a vicious circle … and possibly overwhelm the ECB. This is the stuff of nightmare,” he wrote.

The Taskforce would drop its bombshell on EU leaders on a Saturday morning. There would be a return to national currencies the same day. Any attempt to preserve a core euro would be unworkable since complex contracts worth hundreds of billions would leave a legacy of “ruinous litigation”, he said.

The only option would be to “force the legal frustration of all outstanding euro contracts” by abolishing the currency altogether. This would wipe the slate clean.

And what happens straight after it?

North European banks would face a brutal devaluation of Club Med debt. They would have to be recapitalized by their governments. The ECB would be shut down, with power reverting to national capitals.

Such a framework would allow Europe to “prosper again”. Foreign exchange markets would adjust “very quickly” once the boil was lanced. “Exit could start a new vibrant period in Europe’s history,” he said.

Then Jens Nordvig and Nick Firoozye from Nomura said

once the first state leaves EMU there will be a chain-reaction to Spain or Italy, causing havoc for currency swap contracts, and interest rate derivatives. “We believe that even if a break-up begins to unfold in an ‘onion-peeling’ fashion, it will eventually spin out of control and turn into a ‘big-bank’ break-up of the eurozone. An Italian default and exit would likely bring down large parts of the eurozone banking system.”

French banks would buckle, setting off a crisis that would push French public debt towards 120pc of GDP. “Capital controls would be a distinct possibility, at which point the euro would be obsolete”.

Mr Nordvig said policy makers must face the hard truth since credit markets are already pricing in a 30pc chance of Italy defaulting. “Euro adoption was supposed to be ‘irrevocable’, but the genie is out of the bottle. Foreign investors around the world, as well as institutions within the EU, are already trying to make contingency plans for a eurozone break-up. There is even evidence that some regulators outside the eurozone are asking banks to submit contingency plans for various eurozone break-up scenarios. Against this background, the cost-benefit analysis of planning ahead versus pretending that a break-up is not possible has shifted.”

EU leaders must spell out contingency plans right now to calm investors, above all by clarifying the jurisdiction of €14.2 trillion of debt. There should be a new European Currency Unit (ECU-20) ready to redenominate assets, if needed.

Catherine Dobbs, a former algorithms expert at Gartmore has a slightly different view on this

calling for a new settlement currency if the bloc splits into a hard core and weak periphery. Old euros and euro contracts would be treated equally. “There will be no impact on the solvency of financial institutions that have euro-denominated assets and liabilities that are unmatched,” she said.

Jonathan Tepper from Variant Perception said

Exit is the cleanest way to “re-balance Europe” and end the deflationary bias in the system. This may mean “crystalising losses” but they already exist in any case.

Mr Tepper said there have been at least 100 currency break-ups or exits over the past century, including the Austro-Hungarian union (the closest parallel), and Soviet, Czechoslovak, and Indian unions. They offer a roadmap of orderly divorce. The experience can be quick and liberating.

Devaluation episodes in Asia (1997), Russia (1998) and Argentina (2002) show the pain is sharp but short, followed by growth within two to four quarters. Dire warnings proved wrong in each case. Argentina rocketed back with 26pc growth over the next three years.



What Happens When Euro Breaks Up


What happens if the euro zone breaks up. In an interview on KingWorldNews, Felix Zulauf, of Zulauf Asset Management talks about the reprecussions of such a move.

“I expect next year one country, probably three, will exit the euro.  That will make 2012 very interesting because there are no rules on how to exit the euro.  A country exiting the euro means the next day, when they exit, their banking system is bust.  That means the banking system has to be immediately nationalized in a new currency.

 They introduce a new currency, they nationalize the banking system, and then, of course, the government is also bust.  Then the government will default.  That’s what you have to expect next year.  I think Greece will do so and Portugal and Ireland are candidates also.

 Then it will depend on how that crisis is managed as to whether the crisis can be turned around and terminated or whether it will intensify and drag on into 2013 and force Italy and Spain out of the Eurozone as well.  (This will have the effect of) creating turmoil in the financial markets and weakening the European and most likely the world economy (even) further….

“…Let’s go back to what I said, one country exiting (the euro) and then you have chaos.  Obviously that country will default.  Not only the government, but also the private sector will default to a large extent.  That means the banks in the remaining European countries will have to take huge losses, much more losses than the recent stress tests used.

That would mean you have to expect more nationalization of banks in several of the European countries to stabilize the system.  This means the governments that have to nationalize banks, they don’t have the money.  They have to go into debt and that means the debt levels go even higher.

So you can expect the bond markets will not be very quiet in their trading next year.  It will be a very wild situation that I see coming for next year.”

Life After The Euro

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Central Banks around Europe are considering life after the Euro as reported by GoldCore.

Central Banks Prepare For Life After Euro
The Wall Street Journal reports today that central banks are preparing for life after the euro with countries studying printing national currencies in case the single monetary union collapses.

Given the real risk of a breakup of the currency as we know it today, that would seem like the logical and prudent thing to do. 

Major multinational corporations are planning for the possibility of this scenario and recently British Chancellor George Osborne said his government had contingency planning in place in the event of the break-up of the euro.

There has been reports for the last few months of Central Banks seeking printing equipement or rumours of printing new currency. Earlier this week we reported that the Wall Street Journal has reported the Irish Central Bank has been seeking printing equipment to go back to the Punt.

In an article last week from ArabiaMoney,

Germany has its printing presses working overtime but they are not printing euros but Deutsche Mark notes in case the eurozone sovereign debt crisis ends in a return to national currencies.

At the same time the British Foreign Office has issued warnings to embassies in the eurozone to prepare to handle the problems of its expatriates who may be unable to access local bank accounts and face rioting mobs.

On the 4 October it was said quoted by a Philippa Malmgren who is a former economics advisor to George Bush

“The decision has already been made by the government that leaving the euro is a possibility. I think they have already got the printing machines going and are bringing out the old deutsche marks they have left over from when the euro was introduced.”

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