Are we on the verge of a massive financial collapse in Europe? Rumors of
an imminent default by Greece are flying around all over the place and Greek
government officials are openly admitting that they are running out of
money. Without more bailout funds it is absolutely certain that Greece will
soon default on their debts.
But German officials are threatening to hold
up more bailout payments until the Greeks "do what they agreed to do". The
attitude in Germany is that the Greeks must now pay the price for going into
so much debt. Officials in the Greek government are becoming frustrated
because the more austerity measures they implement, the more their economy
shrinks. As the economy shrinks, so do tax payments and the budget deficit
gets even larger.
Meanwhile, hordes of very angry Greek citizens are
violently protesting in the streets. If Germany allows Greece to default,
that is going to start financial dominoes tumbling around the globe and it
is going to be a signal to the financial markets that there is a very real
possibility that Portugal, Italy and Spain will be allowed to default as
well. Needless to say, all hell would break loose at that point.
So why is Greece so important?
Well, there are two reasons why Greece is so important.
Number one, major banks all over Europe are heavily invested in Greek
debt. Since many of those banks are also very highly leveraged, if they are
forced to take huge losses on Greek debt it could wipe many of them out.
Secondly, if Greece defaults, it tells the markets that Portugal, Italy
and Spain would likely not be rescued either. It would suddenly become
much, much more expensive for those countries to borrow money, which would
make their already huge debt problems far worse.
If Italy or Spain were to go down, it would wipe out major banks all over
the globe....
The following are 20 signs of imminent financial collapse in Europe....
#1 The yield on 2 year Greek bonds is now
over 60 percent. The yield on 1 year Greek bonds is now
over 110 percent. Basically, world financial markets now fully expect
that Greece will default.
#2 European bank stocks are
getting absolutely killed once again today. We have seen this happen
time after time in the last few weeks. What we are now witnessing is a
clear trend. Just like back in 2008, major banking stocks are leading the
way down the financial toilet.
#3 The German government
is now making preparations to bail out major German banks when Greece
defaults. Reportedly, the German government is telling banks and financial
institutions to be prepared for a
50 percent "haircut" on Greek debt obligations.
#4 With thousands upon thousands of angry citizens
protesting in the streets, the Greek government seems hesitant to fully
implement the austerity measures that are being required of them. But if
Greece does not do what they are being told to do, Germany may withhold
further aid. German Finance Minister Wolfgang Schaeuble says that Greece is
now "on
a knife’s edge".
#5 Germany is increasingly taking a hard line with
Greece, and the Greeks are feeling very pushed around by the Germans at this
point. Ambrose Evans-Pritchard made this point very eloquently
in a recent article for the Telegraph....
Germany’s EU commissioner Günther Oettinger said Europe should
send blue helmets to take control of Greek tax collection and liquidate
state assets. They had better be well armed. The headlines in the Greek
press have been "Unconditional Capitulation", and "Terrorization of
Greeks", and even “Fourth Reich”.
#6 Everyone knows that Greece simply cannot last much
longer without continued bailouts. John Mauldin explained why this is so
in a recent article....
It is elementary school arithmetic. The Greek debt-to-GDP is
currently at 140%. It will be close to 180% by year’s end (assuming
someone gives them the money). The deficit is north of 15%. They simply
cannot afford to make the interest payments. True market (not Eurozone-subsidized)
interest rates on Greek short-term debt are close to 100%, as I read the
press. Their long-term debt simply cannot be refinanced without Eurozone
bailouts.
#7 The austerity measures that have already been
implemented are causing the Greek economy to shrink rapidly. Greek Finance
Minister Evangelos Venizelos has announced that the Greek government is now
projecting that the economy will shrink
by 5.3% in 2011.
#8 Greek Deputy Finance Minister Filippos Sachinidis
says that Greece only has enough cash to continue operating
until next month.
#9 Major banks in the U.S., in Japan and in Europe have
a tremendous amount of exposure to Greek debt. If they are forced to
take major losses on Greek debt, quite a few major banks that are very
highly leveraged could suddenly be in danger of being wiped out.
#10 If Greece goes down, Portugal could very well be
next. Ambrose Evans-Pritchard of the Telegraph
explains it this way....
Yet to push Greece over the edge risks instant contagion to
Portugal, which has higher levels of total debt, and an equally bad
current account deficit near 9pc of GDP, and is just as unable to comply
with Germany's austerity dictates in the long run. From there the
chain-reaction into EMU's soft-core would be fast and furious.
#11 The yield on 2 year Portuguese bonds is now
over 15 percent. A year ago the yield on those bonds was about 4
percent.
#12 Portugal, Ireland and Italy now also have debt to
GDP ratios
that are well above 100%.
#13 Greece, Portugal, Ireland, Italy and Spain owe the
rest of the world about
3 trillion euros combined.
#14 Major banks in the "healthy" areas of Europe could
soon see their credit ratings downgraded. For example, there are
persistent rumors that Moody's is about to downgrade the credit ratings
of several major French banks.
#15 Most major European banks are
leveraged to the hilt and are massively exposed to sovereign debt.
Before it fell in 2008, Lehman Brothers was leveraged 31 to 1. Today, major
German banks are leveraged
32 to 1, and those banks are currently holding a massive amount of
European sovereign debt.
#16 The ECB is not going to be able to buy up debt from
troubled eurozone members indefinitely. The European Central Bank is
already holding somewhere in the neighborhood of
444
billion euros of debt from the governments of Greece, Italy, Portugal,
Ireland and Spain. On Friday, Jurgen Stark of Germany
resigned from the European Central Bank in protest over these reckless
bond purchases.
#17 According to London-based think tank Open Europe,
the European Central Bank
is now massively overleveraged....
"Should the ECB see its assets fall by just 4.23pc in value . . .
its entire capital base would be wiped out."
#18 The recent decision issued by the German
Constitutional Court seems
to have ruled out the establishment of any "permanent" bailout mechanism
for the eurozone. Just consider the following language from the
decision....
"No permanent treaty mechanisms shall be established that leads
to liability for the decisions of other states, especially if they
entail incalculable consequences"
#19 Economist Nouriel Roubini is warning that without "massive
stimulus" by the governments of the western world we are going to see a
major financial collapse and we will find ourselves plunging into a
depression....
“In the short term, we need to do massive stimulus; otherwise,
there's going to be another Great Depression”
#20 German Economy Minister Philipp Roesler is warning
that "an orderly default" for Greece is not "off
the table"....
''To stabilize the euro, we must not take anything off the table
in the short run. That includes, as a worst-case scenario, an orderly
default for Greece if the necessary instruments for it are available.''
Right now, Greece is caught in a death spiral. The more austerity
measures they implement, the more their economy slows down. The more their
economy slows down, the more their tax revenues go down. The more their tax
revenues go down, the worse their debt problems become.
Greece could end up leaving the euro, but that would make their economic
problems far, far worse and it would be very damaging
to the rest of the eurozone as well.
Quite a few politicians in Europe are touting a "United
States of Europe" as the ultimate solution to these problems, but right
now the citizens of the eurozone are overwhelming against deeper economic
integration.
Plus, giving the EU even more power would mean an even greater loss of
national sovereignty for the people of Europe.
That would not be a good thing.
So what we are stuck with right now is the status quo. But the current
state of affairs cannot last much longer. Germany is getting sick and tired
of giving out bailouts and nations such as Greece are getting sick and tired
of the austerity measures that are being forced upon them.
At some point, something is going to snap. When that happens, world
financial markets are going to respond with a mixture of panic and fear.
Credit markets will freeze up because nobody will be able to tell who is
stable and who is about to collapse. Dominoes will start to fall and quite
a few major financial institutions will be wiped out. Governments around
the world will have to figure out who they want to bail out and who they
don't want to bail out.
It will be a giant mess.
For decades, the governments of the western world have been warned that
they were getting into way
too much debt.
For decades, the major banks and the big financial institutions were
warned that they were becoming way too leveraged and were taking far too
many risks.
Well, nobody listened.
So now we get to watch a global financial nightmare play out in slow
motion.
Grab some popcorn and get ready. It is going to be quite a show.
"Though the fig tree may not blossom, nor fruit be on the vines...
Yet I will rejoice in the Lord,
I will joy in the God of my salvation.
The Lord God is my strength...."
Habakkuk 3:17-18
Home
