Biderman on Europe.
Europe is in big trouble, and the trouble is getting worse, much worse listening to all the news lately. Why it is getting worse is that it is now apparent that neither the left nor the right has a workable solution to the two major Europeans issues, overspending and declining economic activity. By the left, I mean the existing political structure of government dominated economies. By the right, I mean a German style austerity program.
In my opinion the real problem is that the creation of the Euro in 2000 has allowed each member of the Eurozone to spend more than it makes regardless of what actually is going on in the local economies.
What Europe spends big bucks on is cradle to grave support by the state. The prevailing belief is that everyone deserves to be taken care of. The key word here is DESERVES. Therefore, borrowing to pay bills even if you cannot afford to pay back the debt is obviously the JUST way to go. Video below.
Golem delivers another great summary of what is actually going on in Europe. The only growth around is the growth of counter party risk….
There are so many reasons for believing that the European ‘recovery’ plan is not working now and will continue to not work no matter how long we are forced to subsidize it. Today we can add one more reason – Mr Francois Hollande is now the favourite to beat Mr Sarkozy and become France’s next President.
The very prospect that Mr Hollande might replace Mr Sarkozy is enough for all the European markets to head straight down. Germany and Spain are both down over 2.7%. Why should this be so? Because Mr Hollande has made it clear he will ‘renegotiate’ France’s role in Europe’s various bail out plans. Any such renegotiation would leave Europe’s bail-out fund fiction in tatters.
Mr Hollande evidently does not believe the pious fiction that underpins almost the whole European and in fact global fiction of recovery, namely that there is now, or will be soon – quite soon, fairly soon, just over the next hill… some growth. Growth is what is supposed to allow Greece to become solvent, allow Spain to cope with the bursting of the dam of regional debt that is presently engulfing its banks and forcing its CDS rates to unsustainable levels. Mr Hollande is the first but will not be the last to say that the growth plan is not working. The Dutch Parliament yesterday collapsed because they too could not agree to go along with the fiction. We do not have growth. What we have are cuts in public spending while we have increases in public funds being siphoned away to pay for more and yet more bank bail outs.
The Economist on why Europe’s leaders should think the unthinkable.
THE Irish left the sterling zone. The Balts escaped from the rouble. The Czechs and Slovaks left each other. History is littered with currency unions that broke up. Why not the euro? Had its fathers foreseen turmoil, they might never have embarked on currency union, at least not with today’s flawed design.
The founders of the euro thought they were forging a rival to the American dollar. Instead they recreated a version of the gold standard abandoned by their predecessors long ago. Unable to devalue their currencies, struggling euro countries are trying to regain competitiveness by “internal devaluation”, ie, pushing down wages and prices. That hurts: unemployment in Greece and Spain is above 20%. And resentment is deepening among creditors. So why not release the yoke? The treaties may declare the euro “irrevocable”, but treaties can be changed. A taboo was broken last year when Germany and France threatened to eject Greece after it proposed a referendum on new bail-out terms.
Full article here.
Follow up on Golem’s piece from yesterday on that “forgotten” 1 Trillion Euro hidden German problem. From Golem XIV.
More questions about the stability and probity of German banking this morning following on from the rumour of the €1 Trillion hole in German banks.
This from the 21st March Wall Street Journal,
Deutsche Bank AG changed the legal structure of its huge U.S. subsidiary to shield it from new regulations that would have required the German bank to pump new capital into the U.S. arm.
The subsidiary is called Taunus Corp. It is the 8th largest Bank holding company in the US. Being listed not just as a bank but a Bank Holding Corp. has a very special perk, it allows the Holding Company to borrow from the Fed in times of crisis. Which Deutsche did.
Remember, that the only reason Goldman Sachs still exists, is that as the collapse of Lehmans engulfed Wall Street, Goldman was allowed to become a Bank Holding Company. It had never been one till that moment. Till then Goldman had been a Broker Dealer. And it was not alone in suddenly desiring to become a Bank Holding Company. As this article by Edward Harrison points out so did GE Capital hitherto a hedge fund, American Express (a credit card company), GMAC (GM’s car financing arm) and Genworth Financial (an insurance company) all suddenly thought they should be come Bank Holding Companies. Sinners, all of them, they all changed their faith to gain salvation. Full article here.