The Fat Lady is warming up her voice!

Quotable

“It ain’t over till the fat lady sings.”
                                    Yogi Berra

Commentary & Analysis
The Fat Lady is warming up her voice!

My apologies to Yogi! But can’t you hear it: “Do, re, mi, fa, so, la, ti, do…” I’m talking about the end game for the euro as a single currency of course. You know the one: The single-currency-cum-sovereign debt crisis-cum European banking crisis (note the single currency is where all this mess started):

From Zerohedge today:

Just when we thought the world was running out of headlines, here comes something that will send futures scurrying for even more safety. According to Belgian Nieuwsblad, the CEO of Belgium’s biggest bank has just resigned. As a reminder, Dexia is the one European bank that in the 2008-2009 period borrowed more money from the Fed than anyone else, and which we have discussed on several occasions in the past few months as being rumored to be on the receiving end of a variety of liquidity "complications" and counterparty concerns. Typically rumors of that nature, coupled with the sudden departure of the CEO, end up being proven as fact shortly to quite shortly. In other news, we are happy to announce the expansion of the PIIGS to BIG PIS following the arrival of the latest country to join the sovereign and bank funding crisis.

Time to get serious…again…no, really! From German Finance Minister Wolfgang Schauble writing in the Financial Times [my emphasis]:

“It is an undisputable fact that excessive state spending has led to unsustainable levels of debt and deficits that now threaten our economic welfare. Piling on more debt now will stunt rather than stimulate growth in the long run. Governments in and beyond the eurozone need not just to commit to fiscal consolidation and improved competitiveness – they need to start delivering on these now.”

There is some concern that fiscal consolidation, a smaller public sector and more flexible labour markets could undermine demand in these countries in the short term. I am not convinced that this is a foregone conclusion, but even if it were, there is a trade-off between short-term pain and long-term gain. An increase in consumer and investor confidence and a shortening of unemployment lines will in the medium term cancel out any short-term dip in consumption.

These efforts will inevitably bear fruit, but it will not come overnight. This time, we will have to take the longer view. For too long we have forsaken long-term gains for short-term gratification with the result we all know. The members of the eurozone have and will continue to collectively provide conditional financial assistance to those countries that find themselves cut off from capital markets, buying them time to put their public finances on a sustainable footing and to improve their competitiveness. There are risks to this strategy. Yet the alternative, by allowing the crisis to infect the eurozone as a whole and threaten the euro, would be riskier still.

When markets become the bearer of bad news, there is a natural tendency to take aim at the messenger. The truth is that governments need the disciplining forces of markets.

Say what? “…governments need the disciplining forces of markets”? Very nice logic! Too bad the government in our White House totally distrusts markets – crony capitalism and free money for moochers is a non-market event, so I guess it is no surprise.

I wonder if our illustrious President, Mr. B.H. Obama, ever reads the Financial Times (Do they have a teleprompter edition?) I wonder if our President has ever chatted with someone as smart as Mr. Schauble? If recent public appearance and dogma is any guide, it is highly unlikely.

It was just special yesterday watching Obama and his hired labor union goons and assorted moochers expound on more need for collectivism. And it was so appropriate the speech was delivered from the hellhole that is Detroit, which became that way thanks to labor union goons and the leftist policies implemented there over the years (and of late with a helping hand by the global “free traders” across the entire political spectrum). Oh joy! Just can’t wait till Obama and his gang force-feed that type of economic doctrine on every city in America. You couldn’t make up this insanity if you tried.

Yet, no matter. Union morons and assorted corrupt capitalist cronies will continue to support this travesty. Must be nice never letting the facts get in the way of your story–but such is the modern liberal. But I digress…

Speaking of facts getting in the way of the story, remember how this single currency thing was going to be the best thing since sliced bread for the eurozone? All those false promises, from all those wanting so desperately to centralize power in Europe–the wet dream of the European socialists, of which there are many.

I guess it becomes easy to love the welfare state when you have lost your core [my emphasis]:

Europeans today prefer leisure to performance, security to risk-taking, paternalism to free markets, collectivism and group entitlements to individualism. They have always been more risk-averse than Americans, but the difference continues to grow. Economic freedom has a very low priority here. It seems that Europeans are not interested in capitalism and free markets and do not understand that their current behavior undermines the very institutions that made their past success possible. They are eager to defend their non-economic freedoms–the easiness, looseness, laxity and permissiveness of modern or post-modern European society–but when it comes to their economic freedoms, they are quite indifferent.

Vaclav Klaus

This is what President Obama is using a role model for his economic policy; make no mistake it is anything other than that. Socialists do all they can to make the populace dependent on the state – it enhances their power. Simple as that; nothing new here! Uhggg….

The breakup of the single currency and breakdown of euro centralization will be the best single thing that happened to Europe in a very long time. It is called liberty and sovereignty. It will allow each European nation the chance to define its own economic destiny and its proper level to compete. Again, over to Mr. Klaus [my emphasis]:

A positive evaluation of developments in Europe over the past 50 years can be explained only as an underestimation of what has been going on recently. In the 1950s, the leading idea behind the European integration was to liberalize, to open up, to remove all kinds of barriers which existed at the borders of individual countries, to enable the free movement of goods, services, people and ideas across the European continent. This was undisputedly a step forward, and it helped Europe significantly.

But European integration took a different course during the 1980s, and the decisive breakthrough came with the Maastricht Treaty in December 1991. Political interests that sought to unify and create a new superpower out of Europe started to dominate. Integration had turned into unification, and liberalization had turned into centralization of decision making, the harmonization of rules and legislation, the strengthening of European institutions at the expense of institutions in the member states, and what can even be called post-democracy. Since then, Europe’s constituting elements–the states–have been consistently and systematically undermined. It was forgotten that states are the only institutions where real democracy is possible.

After the fall of communism, the Czech Republic wanted to reassume its place among European democracies. We did not want to sit aside–as we were forced to do throughout the communist era–and European Union membership was the only alternative. Nothing else legitimizes a country in Europe these days. Therefore we joined the EU in May 2004. However, for those of us who spent most of our lives in the authoritative, oppressive, and non-functioning communist regime, the ongoing weakening of democracy and of free markets on the European continent represents something we did not expect and did not wish for in the moment of the fall of communism.

The most visible European problem today is the European monetary union, which was presented as the most important unification achievement following the Maastricht Treaty. The realization of this monetary union has not delivered the positive effects that–rightly or wrongly–had been expected from it. It was intended to accelerate economic growth, reduce inflation, and protect member states against external economic disruptions or so-called exogenous shocks. It has not worked. After the establishment of the euro zone, the economic growth of its member states slowed down relative to previous decades, thus increasing the gap between the rate of growth in the euro zone countries and that in other major economies. The internal disequilibria–such as trade imbalances and state budget imbalances–became larger, not smaller. And there is no indicator pointing towards a growing convergence in the euro zone countries. During its first decade of existence, a common currency has not led to any measurable homogenization of the member states’ economies.

Germany is the paymaster of this mess. And as right as I think Mr. Schauble may be about piling debt on debt, I think he is wrong to suggest the end of the euro is a bigger crisis. It is his country’s basic monopoly power over Europe through the straightjacket of the euro, so brilliantly maneuvered to enrich German industrial interests, that has led to the problems he now expounds upon. Now that German voters are getting fed up with funding others who lack their discipline and work ethic and competency (socialism again), in the wake of rapid decline in German industrial production numbers, the endgame could be near.

One can hope!

EURUSD Monthly: