Friday, 24. May 2013 - 02:05
05. 07. 12. - 19:00
Until politics take a back seat to economics, recovery from the on-going euro crisis will remain on hold, argues Clem Chambers, CEO of leading stocks and shares site www.ADVFN.com and author of investment titles and thriller novels. (www.clemchambers.com )
Europe should be declared financially insane.
News of a future, centralised banking union - a ‘FED-alike’ institution to regulate and bail-out European banks, including Croatia’s if the country officially joins the EU next year - is viewed as a big step towards resolution of the seemingly never ending ‘euro crisis’ .
Certainly, it’s a stabilising mechanism. Following last week’s post EU-summit announcement ,a calming effect was immediately observed in financial markets. Yet the inherent problem of the Eurozone – the fact many European countries can’t afford to service debts at ‘old-fashioned’ interest rates - is yet to be addressed.
Think of it this way. Individuals like you or I don’t expect to get low-interest loans of, say, 2-3%. We expect to pay 5-10% on our borrowings.
In the modern world of broke, so-called, ‘PIIGS’ (Portugal, Italy, Ireland, Greece and Spain) however, a 6% interest rate for governmental borrowings is viewed as too high.
If I couldn’t afford to service my debts at 6% I would soon find myself in bankruptcy court.
Soit’s almost funny to hear European leaders claim they can no longer borrow at ‘reasonable’ rates - as if it’s a moral outrage that no one dares lend them money for practically nothing.
If this complaint came from you or I, it would soon be pointed out to us that we should live within our means – we should be thinking about ways of repaying what we owe, rather than borrowing even more.
These sortsof thoughts don’t appear to have entered the collective ‘head’ of Europe. It can be concluded that the entire region has now reached a place that is far, far away from financial sanity.
And this is why the trouble is far from over.
When there is one reality for the state - in this case financial probity - and another for its citizens, it amounts to a major stability problem. The more those two realities (state and citizen) diverge, the bigger the trouble in store.
There is a giant ‘double bind’ behind the whole crisis. To see it, a number of basic premises must be accepted:
- Europe has a giant fiscal budget crisis and most members are insolven
- The states cannot recover without restructuring.
- The necessary restructuring involves two paths, austerity or inflation - or both.
Austerity means cuts to the work and entitlements available to the group responsible for the restructuring - as well as to masses of their voting supporters.
Inflation means the destruction of the entitlements, and, most importantly, pensions of the group responsible for the restructuring and masses of their voting supporters.
The result? Nothing much happens, as those responsible for restructuring cheat.
This is why Germany is not agreeing to Eurobonds. Germany is afraid the measure will equate to putting itself ‘on the hook’ for the sake of other countries – i.e. taking responsibility for ‘the PIIGSs’ ‘ out-of- control spending.
The bottom line is broke members of the Euro cannot leave the Euro, however much sense it may make, because that would destroy the very individuals responsible for taking that action.
Euro-exit would relatively quickly rebalance a broke nation to where its economic equilibrium should be. This would be disastrous for many protected parts of that nation’s economy. The shift would devastate entitlements of the state sector and anyone dependent on the state.
There would be dramatic, public sector retrenchment and likely dramatic change amongst the political classes. As such, a Euro exit means the end of the current state system for much of socialised Europe.
It would be like a mini collapse of the Berlin Wall.
This is why the obvious, ‘Euro exit’ solution has not been embraced by the very countries that most need it This is why, instead, countries under the worst stress will end up surrendering sovereignty instead rather than buckle to economic sense.
Remember, turkeys do not vote for Christmas. So rather than bow to regional economic realities, Europe’s regions will sell themselves into a Federated Europe which the industrious north will control via Europe’s funding systems.
From a political stand point a Federated Europe is a glorious victory for global peace - all for the price of a little economic discomfort.
Europe will likely suffer a long period of continued brinkmanship punctuated by small bridging bailouts and partial solutions designed to curry favour with an angry and confused electorate while political unification is cemented.
Any country in the euro needing funds but not prepared to federate will be expelled. However, it is unlikely that any will refuse. As such, the euro crisis will last however long it takes to federate. This will probably be another 2 years.
There is really only one thing that could go wrong.
Germany could refuse to foot the bill for this grand plan. It is a huge tariff even if it is a historic one.
If the German populace cottoned on and felt it shouldn’t foot the bill for a Federal Europe then all bets would be off. Germany would then leave the euro and the currency would fall like a stone and likely collapse.
The most likely outcome is, however, more pain and instability, no Euro exits and two years more of headlines and hard times.
By then, there could even have been enough slow adjustment to produce a platform for growth. Yet until there is a public/private sector rebalancing across the board, the story will develop at the political level, rather than at an economic one.
Sadly, until we can leave politics behind and let economics drive the process, recovery will be on hold.
Unions urge for the privatisation of 3. maj shipyard
Unions of the 3. maj Shipyard in Rijeka have urged the Croatian government to speed up the privatisation and to agree new business deals.
Transport Minister sees future for Croatia Airlines
Croatian Transport Minister Sinisa Hajdas Doncic has revealed national airliner Croatia Airlines is going to survive.
Hajduk needed to open their stadium in the middle of the night to let fans celebrate the cup
Hajduk Split football club needed to open its Poljud Stadium at 4.30 AM when thousands of fans wanted to greet their team upon a return from Zagreb where they won the national football cup on Wednesday night.
Missing woman married Facebook friend
A woman reported missing by her friends for more than a month turned up safe after 44 days to tell them she'd run off with a man she'd met on Facebook.
Mayor saves a woman in Senj
The mayor of the western Croatian coastal town of Senj has spread a good image of his town in a direct way.
Policemen in coma after trying to stop violence in a family
Two Croatian policemen are in an artificial coma after an action in Sesvete on the outskirts of the capital Zagreb where they intended to stop a domestic violence incident.
Parents protest against suspected paedophile professor
Dozens of parents have protested in eastern village of Vranovci trying to prevent the return to school of a professor suspected to be a paedophile.
Croatia marks the 21st anniversary of joining UN
Croatian has on Wednesday marked the 21st anniversary of being accepted as a member of United Nations.
Strike ends at Croatia Airlines
Croatia Airlines flights have proceeded on a normal schedule on Wednesday after the strike of the employees ended.
Ivan Katalinic new coach of Slaven Belupo
The coach has agreed details with the club from the northern Croatian town of Koprivnica and is expected to lead the team at the start of preparations for the new season in June.
The most popular stories –
last 7 days
|Croatian companies consider to move their production towards east|
|Pirates attack Croatian ship Segesta on Danube in Serbia|
|Croatian cities to get 30 million Euro from EU|
|Eliademy spreads to Croatia from next week|
|Serbian tycoon wants to invest in Croatian hotels|