Euro Is Screwed
Brekke and David Galland
by David Galland: Weíre
All Comrades Now
On April 22,
Eurostat, the statistical arm of the European Union, released
figures on EU member statesí government deficits and debt for
20062009. The European Commission requires member states to
report certain data every April.
of the reportís release could not be more problematic for Greece,
which has been in discussions with the IMF and other EU states over
possible bailout assistance. In a note to the report, Eurostat expressed
reservations about Greeceís accuracy in its numbers from last year,
is expressing a reservation on the quality of the data reported
by Greece, due to uncertainties on the surplus of social security
funds for 2009, on the classification of some public entities and
on the recording of off-market swaps. Following completion of the
investigations that Eurostat is undertaking on these issues in cooperation
with the Greek Statistical Authorities, this could lead to a
revision for the year 2009 of the order of 0.3 to 0.5 percentage
points of GDP for the deficit and 5 to 7 percentage points of GDP
for the debt. [emphasis mine]
If these "reservations"
prove correct, it will catapult Greece into the debt-to-GDP leader
at 122.1%, leap-frogging Italy, which is currently at 115.8%.
most telling is the reportís title, "Euro area and EU27 government
deficit at 6.3% and 6.8% of GDP, respectively." Recall
that the EUís Stability and Growth Pact mandates a budget deficit
ceiling of 3.0%, and we see that the 16 euro area members are, in
aggregate, in gross violation of the pact. Even more alarming is
the rate of change in the aggregate budget deficit figure from 2008
to 2009, growing 230%.
the aggregate euro area debt-to-GDP ratio climbed from 66.0% in
2007 to 78.7% in 2009, a stunning rise. If this annual rate of growth
continues, the euro area debt-to-GDP ratio will zoom past 100% in
two years, a level at which many think it begins to exert significant
strain on fiscal budgets and spending.
on the whole, paints a picture of an experiment in currency sharing
and cross-border "normalization" of fiscal order that
has gone terribly wrong. The old saying that a camel is a horse
designed by committee seems to be underway here. It will be amusing
to watch into what sort of "animal" the EU morphs in the
As one would
expect on reading news that is less than cheery for the eurozone,
the U.S. dollar has been moving up, sending gold lower. So, perversely,
you have gold and the euro moving together.
While the current
rebound in the dollar may be discomfiting to some gold investors,
especially in that gold has been facing headwinds again, in our
scenario of a broad-based crisis in the global fiat currencies,
the major currencies will come under pressure individually before
coming under pressure collectively.
seekers reflexively run from the euro to the U.S. dollar, which
in turn sends a signal to the trading community to sell gold for
no better reason than the historical inverse connection between
the dollar and gold. This is only temporary, as you can see in the
following chart plotting the euro against gold over the last troubled
This is all
just part and parcel of the secular trend that will lead to the
end of the fiat currency experiment as the world wakes up to the
full implications of the institutionalized monetary abuse engendered
by a fiat system. As is so clearly evidenced in the drama now playing
out in Greece, when a government is forced to solve its debt problem
by issuing more debt, the end is nigh.
With the global
economy still in the tank, concurrently layering on yet more taxes
in order to try and keep the whole mountain of cards from blowing
its top like Icelandís Eyjafjallajökull volcano will only prove
counterproductive in the extreme.
This is no
time to be complacent, or cavalier, about your financial affairs.
Now is the time to be both cautious and, selectively, opportunistic.
Because along with risk, big market moves also bring big opportunities.
imminent, big market moves is the forte of David Galland, Doug Casey,
and the other editors of The Casey Report. Every month, they
investigate economic trends in the making and find the best investment
opportunities arising from them. Learn more about their accurate
predictions and how you can profit Ė click
May 3, 2010
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