The yield on 10-year Greek bonds blasted upwards by over 40 basis points to 7.15% in a day of wild trading. Spreads over German Bunds reached almost four percentage points, by far the highest since Greece joined the euro, and close to levels that risk a self-feeding spiral. Contagion hit Portuguese, Spanish, Irish, and Italian bonds. George Papandreou (pictured left), the Greek premier, said in Davos that his country had been singled out as the weak link in an "attack on the eurozone" by speculators and political foes. "We are being targeted, particularly by those with an ulterior motive." – UK Telegraph
Dominant Social Theme: Nothing to see here, Move along.
Free-Market Analysis: We've been writing about the decline and fall of the European Union for years. And for some reason, (even despite our criticisms!) the EU has slithered onward, swallowing up countries like a boa constrictor or pressing them close to its bosom in a tender embrace – one that we have always maintained might eventually turn deadly. Yes, we figured that one or more "hug-ees" would eventually face the prospect of eventual strangulation.
And now indeed we are faced with the prospect of the "hug too far." And it is Greece that may prove to be the unlovable morsel. The Greeks, in our opinion, are a pretty indigestible bunch anyway. Theirs is a very old culture relatively speaking and we just have this funny feeling that the Greeks as a nationality don't really care all that much about the EU so long as it delivers to THEM. But what if the EU is delivering austerity and deep cuts in social and educational services? We have a feeling that Greek society could be wracked by protests and violence. And if that happens, the euro's price relative to other currencies will drop faster than a dead constrictor from the top of a tree.
Ah, is it sad to behold? The European "recession" is providing the socialist hacks that run the EU with all the drama they can handle. As country after country threatens to breach EU financial discipline, the ramifications will become increasingly obvious and severe in our opinion. The Greek crisis is only one of many on the way. Numerous EU countries are spending much more on social programs than they can afford. The monetary boom of the mid 2000s covered up this state of affairs but now the bust has revealed the true bankruptcy of Europe and undercut the EU strategy, which was simply (so far as we can tell) to aim a money spigot at individual European tribes until the pressure pushed them into the constrictor's lap. Here's another take on what's going on:
EU sets tough targets for Greece rescue … EUROPEAN officials will this week set the Greek government a four-month deadline to impose a stringent regime of budget cuts and financial reforms. Leaked documents have revealed Brussels will publish a plan for Greece this week, under the headline "Urgent measures to be taken by May 15, 2010". The package includes demands to "cut average nominal wages, including in central government, local governments, state agencies and other public institutions". It also suggests new taxes on luxury goods and proposals to speed up tax payments by the self-employed. Greece has been under pressure from international investors over fears it will default on its debts, precipitating an unprecedented strain on the euro. Fears of a Greek debt default have spread concerns that other EU countries could face problems – including Ireland, Spain, Portugal or Italy. Richer eurozone countries such as Germany and France would be expected to bail out Greece in the worst-case scenario, to prevent a disastrous crash in the value of the single currency. Officials in both countries have been attempting to play down such speculation, heaping further pressure on Greece to resolve its problems itself. (- Times Online)
OK, so Greece will be bullied into cutting its social/civil programs (being free-market oriented, we're in favor of that – not the bullying part though) at which point the EU, in the guise of Germany (mostly), will step in to backstop the Greek government. We do believe that there will be some grumbling in Germany over this as the German economy is not very healthy at this moment either. But we would propose that this grumbling will grow louder as Germans watch first Portugal, then Spain, then Ireland and all those funny little central European countries go through their own version of the Greek crisis. When exactly will Germans decide enough is enough? Will France step in to fill the breach? You think?
Add into all this looming trouble the British discontent with the EU generally and you have the makings of exciting times (delightfully so, from our perspective) for those who wish to hold the EU together. We don't doubt it can be done in some sense – but the result might be a euro pegged close to zero, given how distorted the euro-model will have to become to absorb all the looming damage. And how much, really, is a devalued euro worth? Really, things were much simpler when the EU was simply a free-trade zone instead of a United States of Europe.
This brings us back to our recent discussion about the memes of the power elite. The EU, in our opinion, is one of the elite's biggest and most absurd promotions (though most of them are fairly absurd, actually) and readers of the Bell (heck, anybody with a portfolio) will want to follow developments closely. The unraveling of the EU, if it does indeed occur, would have far more pertinent and immediate ramifications than the apparent unraveling – even – of the global warming theme.
This is yet another example of how "investing" hinges on the Anglo-American elite's attempt to substitute dominant social themes – and their success or failure – for a market-based economy. Kind of like substituting propaganda for production. In fact, it is no small thing as the EU project has taken 50 years and counting to reach this point – 50 years we might add of increasing official lies and bureaucratic misdirection – and generally, an ever-widening ambit of authoritarianism, incompetence and increasingly open malfeasance.
Once the EU bureaucracy began turning back votes and insisting on "do-overs" it was fairly finished in our opinion. What's been going on, finally, as we've pointed out numerous times, is that the great EU experiment has boiled down to compulsive, serial bribe-making to keep the unruly tribes of Europe in check. But the tribes of Europe are very old and human culture is almost impossible to vitiate in a single generation – or even two or three. The Basques, a most fascinating human phenomenon, are said to trace their roots to the last of the Cro-Magnon invasions 15,000 years ago. Now that's history. The EU is still searching for an anthem.
If the money isn't there, we have serious doubts as to whether the loyalty will be either. The unraveling of the EU, to the degree that it occurs, could have big impacts on the price of gold, on the dollar and on world currencies in general, with all the additional attendant ramifications currency turmoil would entail. Another meme bites the dust?