The cat’s out of the Euro bag!

Over ten years ago when Britain was thinking about joining the Euro and Eurosceptics like me were thought to be mad and Europhiles like Kenneth Clarke and Michael Heseltine were regarded as sane, I wrote a pamphlet under the heading of EU Cannot Be Serious! The Democracy Movement helped me distribute the 500,000 copies and I like to think that they helped to change opinion.

Yesterday I noticed a very telling paragraph in the November issue of Don Coxe’s excellent Basic Points.  He describes beautifully the way Europe’s leaders have kept voters from expressing their opinions for such a long time.

‘What really upset Sarkozy, Merkel at al. was the idea of putting terms of a eurodeal to the voters.  The euro was a confection of the elites and they have been congratulating each other for years on its wondrous qualities.  It was only put to the electorate of a few members – not including the Germans – and barely survived.  The members of the Eurozone ruling class tend to be more comfortable with each other – despite personal rivalries – than their voters.  They graduate from the best universities and are virtually unanimous that the route to repealing Europe’s bloody past is with supranational institutions that, through one-time constitution-style agreements, are placed permanently above and beyond the direct control of voters.’

Now to the present.  It was made clear during recent negotiations that there was a distinct possibility that Greece could leave the Euro and try to make its own way to economic recovery.  It has also become obvious that it is a near certainty that Greece will default on its debts.

Everyone knows that the European banks are loaded to the eyebrows with the sovereign debt of Greece, Ireland, Portugal, Spain and Italy.  With their very high banking leverage this means that almost all of them will soon be broke if they are not already.

These three simple and obvious conclusions lead me to wonder what kind of corporate treasurers and finance directors looking for homes for their company’s money would invest in any periphery sovereign debt and/or deposit funds with a European bank.  If they lost the company’s money how would they explain their thinking?  Would they lamely say (remember Iceland!) that they were trying to obtain a slightly better yield?  What possible excuse could they make?

I believe that the market will in its usual predatory way continue to pick off the weaklings and it will not be long before France joins the club and is also in danger.  It will become increasingly difficult to raise funds in periphery sovereign debt issues.  Yields will rise higher and higher to a level that will in the long run bankrupt the weaker economies.  Hopefully it will only take a few weeks of this kind of torture before politicians realise that printing more money (with all of its problems) is an alluring alternative.

Jim Slater