Recession returns to ratchet up euro misery

The Telegraph ^ | 5/14/2012 | Damian Reece

[bruinbirdman]

If you thought today looked bad, tomorrow looks worse. Amid all its other woes, the eurozone is now in recession, or that’s what most experts predict will emerge from tomorrow’s official figures.

GDP is contracting, a fact that will serve to highlight the eurozone’s haves (Germany) and its have-nots (Greece, Portugal, Spain, Italy and Ireland).

The single currency is pulling apart economically. It is pulling apart financially – Italian and Spanish bond yields separated even further from Germany today – and it is pulling apart politically, a process that will only be encouraged by the realisation among voters that a single currency can engender both growth and grind.

The eurozone’s centre proved itself capable of papering over the financial deficits of Greece and its Club Med partners, culminating in February’s bailout. But it must now deal with the area’s more permanent shortfall – its democratic deficit. In France, voters’ frustrations have been expressed through Francois Hollande’s elevation but the markets are assuming he will remain close enough to the previous Merkozy orthodoxy to avoid serious dislocation.

Greece is a different matter and its rejection of that same orthodoxy means further bailouts will be withheld, pushing Athens to the euro exit door. The eurozone has to decide between keeping Greece within the currency, and thereby capitulating to a weak Greek anti-austerity coalition, or drawing a line and facing the seismic impact of monetary fracture.

Angela Merkel today said Greece would always be part of the EU, but not necessarily the euro. Greece would undoubtedly receive plenty of EU economic aid if it did leave the euro, including from the UK, so voters there may decide they can jump and hope some sort of parachute opens – probably better than the crash-landing they’re heading for at the moment

[lmr]

You know, I don’t like the doomsday scenarios and am probably more skeptical than most.

In the past when Europe has gotten this far, it seemed these types of doom and gloom stories were the ‘motivation’ to extract more from the electorate of those nations that had the means to bail out those that were in trouble. It’s almost like it’s choreographed. I’m expecting the same thing to happen this time especially after the elections in Greece, France and Germany. They are acclimating the populace to give up Austerity. I think all of this has been gamed out from the get-go. They want to print more and spend more because the European welfare state can do nothing else.

[DB]

If you can’t find someone to buy your debt, the printing presses have a very limited life.

[monocle]

If the market is totally free you are correct, but more and more governments have taken the populous route and coerced investors to take steps not in their best interests.

[lmr]

No argument there. I think the technocrats win again this time because the economic squabbles and differences between the member states will be labeled ‘nationalism’ and that is Europe’s biggest fear, especially when we’re talking about Germany. This is how the European Union and it’s banks shear it’s sheeple. They will once again be able to hide the ball in this shell game, at least for a little while.

[cornfedcowboy]

Saw a video of Art Cashin explaining that if Greece has a bank holiday, money will also leave Italy and Spain. The run on the banks of PIIGS will be almost immediate.