Why The EU Is Doomed
The Eurozone’s banking system, incorporating the national central banks and the ECB, bound together in a bizarre settlement system called TARGET, became the means for member nations to buy German goods on credit. Very good for Germany, you may say, but the problem was that the credit was supplied by Germany herself. It is the same as lending money to the buyer of your business in a rigged transaction. This flaw in the system’s construction is now a rumbling volcano ready to blow at any moment.
The Germans want their money back, or at least don’t want to write it off. The debtors cannot pay, and need to borrow more money just to survive. Neither side wishes to face reality. It started with Ireland, then Cyprus, followed by Greece and Portugal. These are the smaller creditors, which Germany, led by its Finance Minister Wolfgang Schäuble, managed to crush into debtor submission and are now economic zombies. The real problem comes with Italy, which is also failing and has a debt-to-GDP ratio estimated to be over 133% and rising. If Italy goes, it will be followed by Spain and France. Herr Schäuble cannot force these major creditors into line so easily, because at this stage the whole Eurozone banking system will be in deep trouble, as will the German government itself. German savers are also becoming acutely aware that they will pick up the bill.
The market effect, besides being a severe shock to all markets, is likely to be two-fold. Firstly, international flows will sell down the euro in favour of the dollar. Given the euro’s weighting in the dollar index, this will be a major disruption for all currency markets. Secondly, Eurozone residents with bank deposits are likely to increasingly seek refuge in physical gold, as signs of their currency’s impending collapse emerge, because there is nowhere else for them to go.
Whichever way one looks at it, it is increasingly difficult to accept any other outcome than a complete collapse of this ill-found political construction, originally promoted in US interests by a CIA-sponsored organisation. The euro, being dependent on political cohesion instead of original market demand, will simply cease to be money, somewhat rapidly.