"If the euro fails, then Europe fails."
- German Chancellor Angela Merkel (HT: The Economic Collapse)
The Euro has its issues. It combines 17 disparate currencies into one. This group of nations is known as The Eurozone. The Euro works based upon a framework of internal limits that Eurozone members would adapt. The agreement was that no Eurozone member would take on annual public debt in excess of 3% of that nation’s GDP. The total ratio of all public debt to GDP was set at 60%. Violators were supposed to pay a fine. In 2005, Germany and France both went over the limit. The remainder of the Eurozone members lacked the will to bell the cat.
Once Germany and France went unpunished, the 3% limit became an amusing bromide. In 2007, only six of the 17 Eurozone Members had public debt over the 60% limit. By 2010, 12 of the 17 Eurozone members were in violation. Portugal, Ireland, Italy, Greece and Spain (PIIGS) all seemed to be on the verge of total economic meltdown.
Rather than hold members accountable to a rule being honored only in the breach, the Eurozone turned into the Bailout Zone. The Council of The European Union stepped in on 10 May 2010. They set up a fund to transfer up to 500Bn Euro from more wealthy countries to the so-called PIIGS.
The Euro had previously worked to everyone’s advantage. Smaller, nations got to borrow as if they were France or Germany, while France and Germany got a protectionism-free market for their exports. As long as the Euro gave something to everyone, it was viewed as a convenience. Once it exacted rigorous costs, it became a threat to national sovereignty.
As Greece failed to take advantage of the European Union’s bailouts, the EU began to work on a long-term bailout program to make permanent the mechanisms that currently transfer wealth into poorer Eurozone members and force wealthier banks to buy bad sovereign debt. The European Parliament did this by approving a treaty that established The European Stability Mechanism.
Opinion in Europe is now sharply divided. German Chancellor, Angela Merkel, fights to keep the Euro afloat, but is faced with a brutal reality. Puru Saxena describes the magnitude of Greece’s public debt problem below.
In Greece, government debt now represents almost 160% of GDP and the average yield on Greek debt is around 15%. Thus, if Greece’s debt is rolled over without restructuring, its interest costs alone will amount to approximately 24% of GDP.
The German banking experts feel they can’t truly digest the sovereign debt that they’ve already swallowed in 2010. The CEO of Deutsche Bank Josef Ackermann decided to talk down to Earth this past Labor Day. He offered his opinion on the accounting stability of his own operation below.
"It's stating the obvious that many European banks would not survive having to revalue sovereign debt held on the banking book at market levels,
But what does the average German Citizen think? With much of the 500Bn in bailout coming from German sources, they are not excited. International Forecaster.com writes on German public opinion regarding the Euro.
76% of Germans say they have little or no faith in the euro, up from 71% two months ago. This is what we have been stating for ten years. Long-term 69% to 71% have never wanted the euro. The poll is not at all surprising. The Germany people are saying we have put up with the euro and euro zone for long enough – we want out now.
Germans feel they are forced to eat the losses caused by others. They get punished for properly doing their jobs. On voting day, they hit back. In six local elections in 2011, Angela Merkel’s coalition has lost or won by a decreased margin in ever one. In Mecklenburg-Western Pomerania, Angela Merkel’s home region, The Social Democrats, Germany’s mainstream Leftist Party won 37% of the vote and will lead that state’s government. This is seen by some as a precursor to what will happen when Merkel herself stands for re-election.
In Finland, the issue of Euro-Bailouts played a significant role in a national, parliamentary election. The True Finns, a rightwing (by European standards), nationalist movement, finished 3rd in Finland’s voting. They gained a whopping 447,819 votes from their performance in 2007. This was out of less than 3 million total votes cast nationwide.
The True Finn Party would seem Jacksonian by American standards and observers have nick-named them a non-socialist workers party. They have been compared to The Tea Party Movement in the United States. The True Finns opposed bailing out Southern Europe via the EU. They strongly oppose the open borders laws advocated by the EU. They are what Europeans describe as Euro-skeptic Party.
This is becoming a more common opinion in European elections. Denmark, Sweden, The Netherlands, France, Switzerland and Italy have all seen similar resurgences in euro skepticism in the last two years.
These people are not the Neanderthals they are accused of being. They tire of seeing Brussels order their nation’s banks to buy 1-yr Greek bonds that require an 81% interest rate to move at market. They want their money back and they want their nations back as well.
The Euro stands between these people and their goals. A Euro-skeptic revolution, more even than economic implausibility, will be what dooms the Euro. Nationalism is on the rise, Globalism is on the wane. The Euro will die as a direct consequence of this trend.