BarroMetrics Views: Why Euro Likely to Fail
Charts aside, the context for the Euro is looking bleak. The EEC is now caught between a rock and a hard place. Having decided that the EEC must keep its present form, it failed to anticipate the amount needed for the exercise – the bailout of Euro 1 trillion bought the world one month’s grace. It needs to provide what appears to be an injection of funds that the EEC members cannot provide; so, the only way out would be to resort to the US solution — the ECB’s printing press.
BUT unlike the US, the EEC has a major barrier to this solution: Germany.
Germany appears to be haunted by the experiences of the Weimar Republic. It would do all it can to decrease the possibility of inflation. But not to assist would be ‘it be the cause of EEC failure’. What does Germany gain?
Well, France as a full partner? The problem is:
- The French are running large deficits;
- The have guaranteed the Euro debt; and
- French banks have large exposure to the Italian banking system (and the Italian system looks decidedly shaky).
So, if Germany casts a look at Europe, it sees:
- A Spanish crisis that has gone from bad to worse to catastrophic.
- An Italian Banking system that good easily be infected by contagion.
- French balance sheets bordering on being out of control.
If it turns to its domestic front, it sees:
- Its polls signaling a reluctance to extend further assistance and
- A risk to own credit rating if France is down graded.
Taking all that into consideration, it’s unlikely Germany will agree to any measures that will mean it will be investing greater amounts to the EEC – at least as far as current proposals tabled. But without Germany’s support, the tabled measures will fail. That being the case: Wither EEC? And if the EEC goes, how will that impact the US and Chinese economies?