by Mark Grant
Europe is heading for a showdown and in a
number of places; that much can be acknowledged with certainty. The first, and
perhaps the most important, is the stand-off between France and the European
Commission. The EU budgetary office is demanding that France reduce its deficit
to 3.00% for 2012 while the projection is for 4.50% so that the Commission is
threatening France with large fines.
Mr. Hollande ran his campaign upon a reduction in the retirement age, more generous pensions, shorter work hours and more governmental spending so that the budgetary miss is likely to be larger than forecast; somewhere around 5.2% in my estimation. France then finds itself, one way or another, with a larger budgetary deficit and if the EU then imposes fines and sanctions Paris may thumb its nose at Berlin/Brussels in what could be a rather nasty affair with unknown consequences.
Mrs. Merkel in
one corner and Mr. Hollande in another slugging it out will not make for
harmonious relations. Then there are the issues of Greece and Spain and the
Socialist reaction is bound to be very different than the Austerity imposition
as demanded by Germany. Jawohl!
“After all, one can’t complain. I have my friends. Somebody spoke to me only yesterday. And was it last week or the week before that Rabbit bumped into me and said Brother!”
-Eeyore
The new EU fiscal pact is
becoming something of a deviated piece of humor as Spain is being released from
its constraints and Greece is now only constrained by the fear and loathing of
the country removing its hand from the honey pot. “Keep Eating,” is the
resounding cry from all of the European politicians as they are truly
frightened of the old bear not following orders. It may well be that the new
political dandy in Greece is correct; Europe may soon be begging for Greece to
take the money under almost any terms as they do not wish to dance the jig of
contingent liabilities becoming real ones and having to be accounted for in
actuality with all of the pending losses that this would entail.
What will they say in Berlin;
“Mein Gott, waren wir nur ein Scherz“(My God, we were just kidding.) If Greece
defaults or leaves the Eurozone then the ECB will be broke and have to be
re-capitalized, the IMF will take one serious financial hit, the EIB will be
seriously impaired and while the Greek bonds are mostly held by governmental
bodies now the municipal debt, the derivatives, the bank loans are still to be
found in securitizations of many of the large European banks and American banks
who will be forced to recognize thier losses. Charades is so much fun until
someone comes up with the answer.
The real debt of Greece is approximately $1.30
trillion and as contingent morphs into actual the impending explosion may
become reality. This amount of money is 40.60% of the entire GDP of Germany
because it is a small country that now has a giant debt given its population.
Europe has, in fact, bet the farm and the decision now rests entirely with the
Greek electorate. The European Union has played its hand badly and reality is
very close to biting off the hand that fed it! I want to repeat this for you, I
want you to understand the gravity of what Europe is facing; Europe has BET THE
FARM and the croupier is about to roll the dice. We are all facing a momentous
instant in time and all of the noise in the background is quelled by the
showman announcing the main event; Let’s Roll.
“You are about to have your first experience with a Greek lunch. I will kill you if you pretend to like it.”
-Jacqueline Kennedy Onassis
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