THE DECLINE AND
FALL OF THE EURO
By: S.R. SHEARER
In November of 2007, I wrote:
"There is a great deal of talk today by "ninnies" and "know-nothings"
that the falling dollar on the world's monetary exchanges
denotes the collapse of the American Imperial System and the
rise of Europe. Much is being made of the fact that as the
dollar declines, the world's central banks will trade in their
dollars for euros, displacing the dollar as the world's central
currency ..." [Please see our article, "Ninnies,
Know-Nothings and the 'Falling Dollar'."]
Of course, the American Imperial System has not
collapsed; and more than that, the dollar continues to reign supreme, despite
the many pronouncements of its demise, and it is the euro that is on "life-support."
The fact is, nothing
seems able to shake the dollar's preeminence; it seems that America is not
bound by the same economic rules that bind the rest of the world. Writing
on this extraordinary phenomenon, Dr. Michael Hudson writes:
"Like most individuals, every nation would love to obtain the proverbial
free lunch favoring its own interests while other countries
passively refrain from promoting their own economies ... Today
the United States has done so. AMERICA IS NOW ABLE TO RUN
TRADE AND PAYMENTS DEFICITS AMOUNTING TO BILLIONS AND BILLIONS
OF DOLLARS ANNUALLY WITH VERY LITTLE PROTEST FROM THE REST
OF THE WORLD ..." [Please see our movie, GREED
The dollar continues to reign supreme
And there can be no question about it, THE
EURO IS IN A LOT OF TROUBLE. Megan McArdle, a Washington, D.C.-based
journalist who reports mostly on economics, finance and government policy,
"There has been a lot of talk about the trouble the dollar is in, but we
might better be worrying about the euro."
Philipp Bagus, a professor at Universidad Rey
Juan Carlos in Madrid and a visiting professor at Prague University, agrees;
"Concerns about the public finances of eurozone countries Portugal, Ireland,
Italy, Greece, and Spain, the so-called 'PIIGS', have emerged in financial
markets. Greece is facing the severest crisis, with its 10-year bond yield
NOTE: What this means is that
Greece must pay an astounding 7% interest rate in order
to attract money with which to fund its debt;
"The Greek government estimates its budget deficit at 12.7% of GDP in 2009.
Gross government debts amount to 113% of its GDP. If the interest rate Greece
has to pay for its debts keeps rising, the country may have to default on
so-called "PIIGS" nations (Portugal, Italy, Ireland,
Greece and Spain) are teetering on the edge insolvency;
of being unable to pay the interest on their debt. Deficit
spending by member states of the Euro-bloc of nations
is not supposed to exceed three percent of GDP; and
total government debt is not supposed to exceed 60 percent
of GDP; but that's not what is happening: The budget
deficits of all the PIIGS nations greatly exceed 3 percent
of GDP, and the total government debt of all these nations
exceeds 60 percent of GDP. In other words, THESE NATIONS
ARE ALL IN GRAVE DANGER OF DEFAULTING ON THEIR DEBTS
- causing a run on those financial institutions who
are the bondholders of the debt accrued by these countries.
Bryan Rich, a well-known financial analyst, writes:
"All of these countries [i.e., the "PIIGS" nations] are running massive budget
deficits, many have huge debt burdens and all have muted prospects for growth."
Rich labels these countries as -
"Weak spots [that] could threaten the Eurozone's stability."
"Greece may finally be reaching the end of its ability to borrow at any price,
and what the euro zone does about this crisis--the EU is statutorily forbidden
to intervene--may determine whether the euro ultimately survives.
"Greece has already accumulated a mountain of debt that will be difficult
if not impossible to pay off. The government has borrowed more than 110 percent
of the country's economic output over the years, and if investors lose confidence
in the bonds, a meltdown could happen as early as next year.
"That's when the government borrowers in Athens will be required to refinance
$25 billion worth of debt -- that is, repay what they owe using funds borrowed
from the financial markets. But if no buyers can be found for its securities,
Greece will have no choice but to declare insolvency -- just as Mexico, Ecuador,
Russia and Argentina have done in past decades.
"This puts Brussels in a predicament. European Union rules preclude the 27-member
bloc from lending money to member states to plug holes in their budgets or
"And even if there were a way to circumvent this prohibition, the consequences
could be disastrous. The lack of concern over budget discipline in countries
like Spain, Italy and Ireland would spread like wildfire across the entire
continent. The message would be clear: Why save, if others will eventually
foot the bill?
"On the other hand, if Brussels left the Greeks to their own devices, the
consequences would also be dire. Confidence in the euro would be shattered,
and the union would face a crucial test. What good is a common currency, many
would ask, if some of the member states pay their debts while others do not?
"Furthermore, there is a threat of a domino effect. If one euro member falls,
speculators will test the stability of other potential bankruptcy candidates.
This could destroy the currency union ..."
There is bitterness among some of the larger economies
that they share the same currency as countries like Greece and may have to
bail them out; this dissatisfaction is especially prominent in Germany where
many GERMANS HAVE BECOME SO DISILLUSIONED WITH THE EURO, THEY WILL NOT
ACCEPT NOTES PRODUCED OUTSIDE THEIR HOMELAND - and many have begun hoarding
pounds and dollars.
German demonstrators burning EU flag.
ALL THIS TO SAY, WHILE THERE MAY BE A FINANCIAL
CRISIS IN THE U.S. IT DOES NOT BEGIN TO MATCH THE CRISIS THAT IS BREWING IN
THE EU - A CRISIS THAT THREATENS TO BREAKUP THE CONTINENT INTO A SERIES OF
MIDGET NATIONS ALL CLAMORING TO SAVE THEMSELVES FROM THE WORLD-WIDE FINANCIAL
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