I am amazed at how really stupid the European Union is behaving towards Greece, Spain, and other countries. The European Union had entry criteria for each country to maintain a certain fiscal responsibility inorder to ensure the Euro wasn't undermined by some countries using the clout of the Euro to get a free ride.
Here we are years later, and its known that many countries used off-balance sheet tactics to hide massive debt, to play games with their balance sheets to appear more compliant than they where.
Once the derivative insurance schemes blew sky-high with cost, the jig was up. No longer could these countries afford to pay the premium to ensure the risk, to offset their at risk balance sheets.
The right thing to do for their citizens was one of two things. Either get the Euro onto a path of fiat currency, allowing countries to run debts not tied to a central authority OR to exit the Euro and return to a soveriegn currency.
Neither of those things happened, instead these countries have sold everything that wasn't nailed down, and cut services to the public to reduce spending. At the same time, jacked up taxes to new highs in hopes of balancing their budgets. Recently Greece initiated a 'savings tax', basically taking a % of all savings in banks, under certain criteria.
The result? Business plummeting, unemployment syrocketing, budgets blowing wider, not narrower. And like a crack addict trying to get his life together just by taking 'one more hit', it just gets worse.
Greece is entering into full implosion mode. The society is devolving into a barter society, with credit collapsing. Food stocks are low, estimated two days in super markets. Bank losses are going parabolic, and cash shortages due to the credit collapse.
The Greek government due to lack of strength to choose what is right for the people, has set themselves up for a violent revolution. Something that I didn't even think was possible 2 years ago. Never did I think the leaders would outright ignore the public and drive into private interests, bankrupting a nation. I knew that was the path they where on, but I thought this game of chicken would have ended a couple of years ago.
Next up is Spain, then Italy, then the rest of the weaker European countries. If Greece falls into revolution, we will have a Euro Spring, with a contagion that cannot be contained. If Germany doesn't relinquish its tight demands for fiscal responsibility, deflationary collapse is going to occur. Once started, it may actually take France down with it. I do think Germany will not fall, but will go under some severe stress as it tried to hold the line.
I really do hope I wake up tomorrow to hear Euro come to their senses. Forcing countries down a deflationary collapse and under economic strain to jack up taxes, slash services is not sane.
I do agree that all of that needs to happen - but under local rule. In this situation its a foreign entity - European Union, forcing fiscal responsibility. This will force the common Greek to enter a mind set of nationalization, us vs them. A more prudent path would have been Greece to have its own currency and due to its lack of fiscal constraint their own currency devaluation forcing Greece to reform.
I really hope that this collapse does not occur, that the nations can see fit to change the construct. The irony is if Germany holds the line, the Euro should shoot up like a rocket in a deflationary collapse with the dollar plummeting. As the European nations go under immense strain, the rising euro should give it a one-two punch accelerating the chaos. I am mildy optimistic that the US fares reasonably well, as the currency war favors the dollar in the near term. Take a look at the chart at the end of this post. Pretty amazing eh? Its nice to be the big boy on the block.
Gold should do well, but may get a punch down as asset fire sales occur to raise capital.
I could be wrong on all of this, but its starting to look pretty dicey to me. I went from looking at this situation that the policy makers would see the problems and realize that the path was destruction. Now its obvious that there is only one way to change course - by force.