by Michael Snyder
The election results from
Greece are in and the pro-bailout forces have won, but just barely. It is
being projected that the pro-bailout New Democracy party will have about 130
seats in the 300 seat parliament, and Pasok (another pro-bailout party) will have
about 33 seats. Those two parties have alternated ruling Greece for decades,
and it looks like they are going to form a coalition government which will keep
Greece in the euro.
On Monday we are likely to see
financial markets across the globe in celebration mode. But the truth is
that nothing has really changed. Greece is still in a depression. The
Greek economy has contracted by close to 25
percent over the past four
years, and now they are going to stay on the exact same path that they were
before. Austerity is going to continue to grind away at what remains of
the Greek economy and money is going to continue to fly out of the country at a
very rapid pace. Greece is still drowning in debt and completely dependent on outside
aid to avoid bankruptcy. Meanwhile, things in Spain and Italy are rapidly
getting worse. So where in that equation is room for optimism?
Right now the ingredients for
a "perfect storm" are developing in Europe. Government spending
is being slashed all across the continent, ECB monetary policy is very tight,
new regulations and deteriorating economic conditions are causing major banks
to cut back on lending and there is panic in the air.
Yes, the Greek election
results mean that Greece will stay in the euro - at least for now.
But is that really a reason
for Greeks to celebrate?
Right now, the unemployment
rate in Greece is about 22 percent. Businesses continue to
shut down at a staggering rate and suicides are spiking.
So far this month, about 500 million
euros a day has been pulled
out of Greek banks. The entire Greek banking system is on the verge of
collapse.
Meanwhile, the Greek
government is still running up more debt. It is being projected that the
Greek budget deficit will be about 7 percent of
GDP this year.
The Greeks went to the polls
and they voted for more of the same.
Are they crazy?
Someone once said that the
definition of insanity is doing the same thing over and over again and
expecting different results.
Unfortunately, it looks like
things are going to continue to get worse in Greece for quite some time.
And the rest of Europe is
heading into a very bleak economic future as well.
Most analysts expect it to go
even higher.
To say that Spain has an
unemployment problem would be a massive understatement. The unemployment
rate in Spain is even higher than the unemployment rate in Greece is. In
fact, unemployment in Spain is the highest that it has ever been since the
introduction of the euro.
The Spanish banking system is
a complete and total disaster at this point. The Spanish government has
already asked for a 100 billion
euro bailout for its banks.
But that might not be nearly
enough.
Spain is facing a housing
collapse similar to what the United States went through back
in 2008 and 2009. Right now, home prices in Spain are absolutely collapsing....
Fresh data yesterday shows how
desperate the crisis is becoming in Spain. The property crash is accelerating.
House prices fell at a 12.6pc rate in the first quarter of this year, compared
to 11.2pc the quarter before, and 7.4pc in the quarter before that. Prices have
fallen 26pc from their peak.
"Fundamentals point to a
further 25pc decline," said Standard & Poor's in a report on Thursday.
It may take another four years to clear a glut of one million homes left from
the building boom.
Meanwhile, money is being
pulled out of banks in Spain at a very alarming rate. As panic spreads we
are seeing slow motion bank runs all over Europe. Over the past few months
massive amounts of money have been moved from troubled nations to "safe
havens" such as Switzerland and Germany.
Investors are getting very
nervous and yields on Italian and Spanish debt are spiking again.
Last week yields on Spanish
debt hit their highest levels since the introduction of the euro. Without
massive ECB intervention the yield on 10 year Spanish bonds will almost
certainly blow well past the 7 percent danger mark.
The credit rating agencies are
indicating that there is danger ahead. Moody's recently downgraded
Spanish debt to just one notch above junk status. Spain is heading down
the exact same road that Greece has gone.
The situation in Europe is
very grim.
Greece is going to need
bailouts for as far as the eye can see.
Spain is almost certainly
going to need a huge bailout.
Italy is almost certainly
going to need a huge bailout.
Ireland and Portugal look like
they are going to need more money.
France is increasingly looking
vulnerable, and Francois Hollande appears to have no real solutions up his
sleeve.
As I have said so many times
before, watch Europe.
Every few weeks there are
headlines that declare that "Europe has been saved" but things just
keep getting worse.
"Our biggest trading
partner is tearing itself apart with no obvious solution."
And that is the truth.
There is no obvious solution to the problems in Europe. The politicians
could kick the can down the road for a while longer, but in the end there will be
no avoiding the pain that is coming.
Brutal austerity + toxic
levels of government debt + rising bond yields + a lack of confidence in the
financial system + banks that are massively overleveraged + a massive credit
crunch = A financial implosion of historic proportions
We are watching a slow-motion
financial train wreck that is absolutely unprecedented happen right in front of
our eyes and our politicians are powerless to stop it.
On election day in Greece, the
mood was incredibly somber. Instead of celebrating, most Greeks seemed
resigned to a very hard future. As an article in the Telegraph described, the entire
nation seems to be grinding to a halt....
This is the election that is
supposed to decide whether Greece stays in the euro. Yet as it, and Europe,
face what could be their Katrina moment, the dominant sense here is not of
panic, or fear, or even hope - but of a country in suspended animation,
grinding to a halt.
The Athens Heart shopping
centre, in the southern suburbs, is polished, full of big brands, and almost
totally empty of customers. "We've had five sales all day," says
Steryiani Vlachakou, the assistant in the Champion sportswear store. "It's
been getting a lot, lot worse."
Sadly, it is not only Greece
that is doomed.
The truth is that all of
Europe is doomed, and when Europe falls the entire globe is going to feel it.
So get ready for the hard
times that are coming. The pain is going to be immense and most people are not
even going to see it coming.
No comments:
Post a Comment