Sign up with your email address to be the first to know about new products, VIP offers, blog features & more.

The Great Reset: Europe

The Euro was the child of politicians, not economists. It was seen as huge, allowing trade with each other free of restrictions as an integrated Europe no longer subject to internal wars. The unintended consequence was a clash of different non-homogenous cultures strapped into one currency, into one monetary policy. The low-interest rates of Germany became available to all and the enormous stockpiles of capital flowed freely into the easy lifestyle of the Mediterranean countries.

“The Euro triggered a tsunami of wasteful fiscal spending in Greece and Portugal, the loss of export markets for family-owned Italian firms dependent on lira devaluations and an epic construction bubble in Spain whose denouement has devastated its banking system and cajas. Ireland has mirrored Spain.” Read here for more

Now the southern economies are strapped with a mountain of unpayable debt and unsustainable budgets. Production costs need to drop up to 30% to be competitive with the northern counterparts. Internal adjustment through wage cuts, pension reductions, and benefit cutbacks will not work. The populace is turning increasingly and inappropriately socialist while those responsible for the financial mismanagement seem to go unscathed. A coordinated exit from the euro and an immediate devaluation is inevitable. Those institutions that benefited so greatly from the old order need to face the inevitable losses.

“Exit is the cleanest way to “re-balance Europe” and end the deflationary bias in the system. This may mean “crystalising losses” but they already exist in any case.”

“Unilateral exit states would spring a “Saturday surprise”, suddenly reverting to the Drachma, Escudo, etc. Euro notes would be stamped with national insignia. Capital controls would be imposed, with a bank holiday.”

“Local jurisdiction debt would be switched to the new currency under Lex Monetae. More than 90pc of Greek, Portuguese and Spanish state debt is under national law.” Read here for more

The partial breakup of the Euro is not the end. It is the beginning. The history of capitalism is full of panics. Currency exits have happened before and devaluations are commonplace. Quick and immediate pain and a reset to growth is the answer. The current path of denial and grinding agony is not. Read here for more