We’ve noted for more than 5 years that the European crisis would spread in the following order … more or less:
Greece → Ireland → Portugal → Spain → Italy → UK
We also warned that the EU’s approach to economic problems in the periphery would lead the cancer to spread to the core. For example, we’ve repeatedly warned that:
- Bailing out the big European banks would just transfer the risk to the people
- Propping up stocks and asset prices won’t get Europe out of the crisis
- Covering up fraud by the European banks would sink the economy
Now, the IMF is forecasting that Italy could be in recession for two decades … and that it’s weakness could spread to the rest of the system.
Britain is – of course -in trouble. But it’s not just Brexit …
Europe has been stuck in a downturn worse than the Great Depression for years. The former Bank of England head Mervyn King said recently that the “depression” in Europe “has happened almost as a deliberate act of policy”. Specifically, King said that the formation of the European Union has doomed Europe to economic malaise.
He points out that Greece is experiencing “a depression deeper than the United States experienced in the 1930s”.
(Indeed, some say that the UK was smart to get out while it could.)
Even Germany’s largest bank, and the bank with the highest exposure to derivatives anywhere in the world – Deutsche Bank – is in big trouble.
Here’s its stock price:
And here’s its market capitalization:
In May, Moody’s downgraded Deutsche to a mere 2 notches above junk.
And credit default swaps – bets that a company is in risk of failing – against Deutsche have absolutely skyrocketed:
Deutsche Bank’s chief economist just said:
Europe is extremely sick and must start dealing with its problems extremely quickly, or else there may be an accident.
He’s calling for a $166 billion dollar bailout of European banks.
BlackRock Inc. Vice Chairman Philipp Hildebrand said earlier this month the European Commission should allow governments to take temporary equity stakes in their banks, similar to what the U.S. did with its Troubled Asset Relief Program during the 2008 crisis.
Europe has made bad choices since the 2008 crisis … so Europe’s economic crisis has spread from the periphery to the core.
Hello on Tue, 12th Jul 2016 7:39 pm
I wish it were true what the article says. But it’s zerohedge. Meaning it’s pretty much the opposite.
So I assume strong economic recovery is radiating from the north to the south.
JuanP on Tue, 12th Jul 2016 8:42 pm
When the EU and the USA cease to exist they will look at the dissolution of the USSR with envy. Most Americans and Europeans have no frigging idea what is in store for them. The EU never had a future and anyone who thought they did was living in Lalaland!
joe on Wed, 13th Jul 2016 4:05 am
I know a polish girl who told me that after 30years work in the USSR her grandparents were able to buy her a pair of sneakers with the wealth of their pension thanks to the events of the end of the ussr and adopting capitalism.
Between the EU and US there is still most of the world economic power and wealth, and the system has become insolvent. Germany is emerging as the sole beneficiary of the euro. The Dollar is the sole beneficiary of globalisation, but the production benfits accrue to China the financial benefits accrue to the 1% who treat the law as their possesion. Communism arose from the abuses by the 1%, I dont see that they have learned from their mistakes. A generation of western youth is growing up knowing they have no future. Thats a recipe for disaster. Its what happened in the USSR.
Anonymous on Wed, 13th Jul 2016 4:46 am
Really joe? Is that what happened to the USSR? Because in the real world, the uS wrecked the USSR’s economy by getting its ‘saud’ puppets to flood the world with oil. Had it not been for the USSR’s over-reliance on a single commodity, tied to world markets, and controlled by the amero-zionists, there is little likelihood the USSR would have collapsed in the manner it did.
The no future part, I can agree with. The endless treadmill of consumer debt-fuel ‘growth’ is something ‘we’ cant afford any longer. But Countries dont collapse just because some people are upset about things are currently organized. If that were the case, the amerikan terror empire would have imploded long ago. When economies collapse, whether by design (USSR’s case), or some other factor, that’s when you start to see the status-quo shaken up. But as long as economies are more or less functional, they can endure a lot of stress.
Davy on Wed, 13th Jul 2016 5:09 am
Good point Joe, it seems modern civilization is no different from civilizations of old.
Davy on Wed, 13th Jul 2016 5:18 am
“Germany Is About To Sell Zero-Coupon 10 Year Bonds For The First Time Ever”
http://www.zerohedge.com/news/2016-07-12/germany-about-sell-zero-coupon-10-year-bonds-first-time-ever
“When the financial media says that governments get paid to issue negative yielding debt, that is not exactly true: most sovereign issuers still pay out a cash coupon, a modest as it may be, while they pocket the negative amortization on a bond issued above par for the life of the bond resulting what ultimately ends up being a negative yield for the buyer net of all cashflows at maturity. However, the lower – or more negative – yields get, the less the need for an issuer to actually pay a cash coupon: after all with a negative yield, it is essentially superfluous. Still, while no sovereign has issued bond with negative cash coupons yet, some are starting to issue zero-coupon ten years: bonds which pay no cash coupons at all. This is precisely what Germany is about to do in a few hours. According to Bloomberg, on Wednesday morning Germany will sell 10-year bonds with a zero coupon for the first time, as a rally in fixed-income securities pushes investors to forgo annual interest payments in order to hold the safest assets.”
joe on Wed, 13th Jul 2016 10:45 am
Here comes the inflation. If you are european, prepare to pull down your pants and get f**ed.
When you have votes like Brexit, and an Italian debt crisis, Greeks littlerally going to charity for medicine becuase the state iscso broke it cant provide, then a country is on its last legs.
Some people say its because Europe needs political union. I say its because Europe is too poor and has no resources except Germany (industry) and Britain (finance). France has gone down the toilet, now even the refugees dont want to live there. Deutchebank could be the next Lehmans and still refugees arrive by the million.
Thats a real recipe for stability.
I bet their sorry they took out Gaddafi now.
Anonymous on Wed, 13th Jul 2016 2:56 pm
No Joe, ‘they’ are not the least bit sorry they murdered Gaddafi.
MikeX11.2 on Wed, 13th Jul 2016 3:08 pm
Keynes, Ignore Keynes at your own risk.
The EU is the HAYEK FAILURE SQUAD.
They’ve kissed Hayek’s Rear End, and they haven’t recovered. SHOCK.
There’s a reason you don’t go to 100 Year old Failure Economic Models!
Build Public Works Projects across the southern EU. You should have done that since 2007.
Nine Years of Failure.