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Monday, 8 August 2011

The ECB and the G7 are going to support Italy and Spain by buying bonds. For what? When the Euro is supposed to go, these people won’t prevent this from happening.

Last week was an extremely turbulent week: the stock exchange rates were dropping like Newton’s proverbial apple, while the yields on Italian and Spanish sovereigns were making the exact opposite movement.
Some pundits and 'tweeters' were already dancing on the grave of the Euro-zone, by jokingly asking if Europe would be ‘open’ tomorrow.
Now the clouds of smoke have lifted, it becomes clear that the world seems currently divided in two extreme camps and two groups lying in between:
·    The camp that has decided that the Euro is a ‘dead currency walking’ and every attempt to rescue it, is ridiculous:
·    The group that is still in denial of the fact that something is wrong and that looks at the current commotion on the financial markets as bird-pooh:
·    The largest group that wants to keep the Euro, but is not willing to pay every price for it, like jeopardizing the stability in the now stable countries in Europe: Germany, France, The Netherlands and Finland
·   The camp that has decided that - in order to save the Euro - every country in the PIIGS-group needs to be rescued at all cost. This means saving the euro in order to save th banks, insurance companies and pension funds in the member states from having to deal with huge write-offs on their sovereign bond exposure.

And who is in which group?

Euro 2b rescued at all cost
We’re in denial
Want to keep Euro, but not at all cost
Dead currency walking
European Commission
North-West Euro countries:
Germany, The Netherlands, Finland
American bloggers, like Mish, Zero Hedge and (to a lesser degree) Minyanville
Dutch Finance Minister Jan-Kees de Jager
East-European Euro-countries
American pundits
The PIIGS-countries
German Chancellor Angela Merkel
Most European bloggers and pundits
Populist political parties, like PVV (Neth.), Vlaams Belang (Belgium), True Finns (Finland)
Banks all over Europe
Political representatives Euro-zone
Financial Markets
Herman van Rompuy

Although the two groups at both ends of the spectrum seem most radical, their predictability and unwillingness to change their stance, makes them stable: 
·    The financial markets will test each individual country in the Euro-zone, until all are broken or until the ‘mother of all solutions’ is found.
·    The ECB, France and the banks will use all means necessary to rescue the Euro-zone, until the last Euro-zone country is standing.

The other two groups are the most unpredictable: The group that ‘wants to rescue the Euro, but not at all costs’ might reach a moment that it decides: enough is enough. This moment will arrive when the economies of the still healthy Euro-countries are clearly suffering from the rescue attempts in terms of unemployment, growing inflation, clearly rising interest rates and a stalling or even negative economic growth. That would mean this group chooses to be part of the ‘dead currency walking’ group.
This lays a lot of responsibility in the hand of the most irresponsible group: the group that is currently in denial. This group consists of politicians that won’t take the financial markets seriously and state that the financial markets are exaggerating in their response to Italy, Spain and the other pigs. This was the same group responsible for the chicken-shit solution of the Greek problem and for the fact that the debt problems of the PIIGS could smoulder for more than a year, like a forest fire waiting for the next opportunity to blow up.
But I’m afraid that this will be the group that will have the final decision at what way the pendulum swings: towards the end of the Euro or not.
And what about the ECB and the G7? To be honest, nothing good will come from this, in my opinion:
The ECB, helped by the G7, may start its own version of QE1+2. It might buy bonds of Italy, Spain and the other PIIGS until it drops.
But it will prove again impossible to wear out the financial markets, as these are fully loaded and are currently smelling blood: the blood of indecisiveness, dividedness and lacking political leadership. I’m not stating this as to show you there is a conspiracy going on against the Euro; the markets just exposed the extremely weak leadership of Europe and the fatal flaws of the political network that surrounds the Euro.
When the ECB discovers this, billions (trillions) of Euro’s will be lost in vain and nothing will be solved in the end. The results will be that the savings accounts and nest eggs of millions of savers will be diluted, due to inflation and the total financial situation of Europe will be much worse.
As I stated above: I am also in group three: the group that wants to save the Euro, but not at all costs. Currently my heart is weeping for the Euro, as it made trade, financial services and tourism in Europe much easier and brought a feeling of interconnectedness to the countries that were part of the Euro-zone.
But if keeping the Euro means that all countries of the Euro-zone would be sentenced to poverty, then I say: let’s abolish the current Euro and start a new and improved one.

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