What happens when you try to stop one of the biggest debt spirals, which saw the world? Well, let's find out. European politicians have decided that it is time to "be punished" and severely limit the budget deficit. It was also decided that the European Central Bank is not going to engage in reckless money printing to "cover up" distressed debt of the affected countries.
It may seem incredible to many of you, but the reality is that the gap between the massive debt spiral is always very painful. Look at what happened with Greece. Greece was forced to raise taxes and to take tough measures to ensure austerity. This caused a slowdown in economic processes and reduce the tax revenue of the state that has not brought the expected reduction of the debt. Greece then had to resort to harsher regime of economy. Again been provoked "lockup" of the economy with even more disastrous consequences, and the profit tax was reduced again. Repeated repetition of the cycle led Greece to the present, to full-blown economic depression. 100,000 companies stopped their work, and a third of the population lives below the poverty line. But now Germany and France intend to apply the "Greek solution" to other countries in Europe. This policy will create all necessary conditions for maturing a "perfect storm", which means the approach of the European financial system to failure of historic proportions.
The easiest way to deal with the debt spiral — this will allow it to move freely (and gain new momentum.) That is what the United States. Of course, if the "go with the flow," that would deepen the crisis in the long term, but the transfer of the painful consequences in the present — also not very happy prospect.
Europe has decided to take the unprecedented step for the postwar era. Adopted restrictive fiscal deficit and introduced stricter sanctions against any country that has violated the rules. It was also decided that the European Central Bank will not finance the debt of troubled countries through ill-considered issue of money.
Without a doubt, this is a German solution for Europe, dependent on Germany. She is not going to pay for debt mistakes of other EU members, and makes fully experience the bitterness of the austerity of those who got into too much debt.
But such a solution can not be realized without serious consequences.
In fact, such an approach is more likely to lead to a massive financial collapse. The following are 17 signs that the European financial system rises to a collapse of historic proportions ….
# 1 As noted above, the decrease in government spending leads to a slowing economy. We already know where austerity has led Greece — 100,000 businesses have closed, one-third of the population lives in poverty, and the streets are created unrest. Now the rules are going to introduce austerity in almost all European countries.
# 2 As in Europe is slowing economic processes, the number of unemployed will rise. Already in 10 different European countries, the "official" unemployment rate is over 10 percent, while the next wave of recession has not even officially begun.
# 3 Even before the adoption of the necessary measures, the EU countries, drowning in debt will likely require trillions of euros borrowed money just to survive. But at the moment, Germany and other rich countries of northern Europe are tired of bailouts and do not plan to fund such amounts.
# 4 The European Central Bank could theoretically print trillions of euros and buy up a large amount of debt the EU, but it would be contrary to existing treaties and most of the leading politicians in Europe are categorically against it. But without such an intervention is difficult to imagine how the ECB will be able to prevent the rapid growth of long bond yields. In fact, it is not clear how, without massive ECB intervention eurozone will remain in one piece. Graeme Leach (Graeme Leach), chief economist at Institute of Directors, commented as follows:
"If the ECB does not take over the functions of higher lender of last resort, buying up government debt of the euro area, the logical outcome of the eurozone will collapse."
# 5 European leaders are hoping that the new agreement, the terms of which were agreed just to be ratified by the end of summer. In fact, most likely will take much longer than expected. German Chancellor Angela Merkel has made it clear that the measures to overcome the debt crisis will require a lot of time to implement:
"This is a process and this process will take years."
Unfortunately, Europe does not have much time left. Time is fast running out. The massive financial crisis is rapidly approaching, and the Europeans need solutions now.
# 6 Unfortunately, the merciless, the harsh reality is that not one of the fundamental problems that have befallen Europe, has not been resolved by the new "agreement", as noted Embros Evans-Pritchard (Ambrose Evans-Pritchard) in one of his articles:
There is no more common bond, no fiscal transfers, no investment in the EU coffers, not issued a banking license to the deposits in the rescue fund ESM (European Stability Mechanism), there is no change in the powers of the European Central Bank.
In other words, there are achievements that have been able to convince Asian investors that this monetary union has viable governance or even the future.
Germany focuses exclusively on the budget deficit, but it's time to realize that the crisis was not caused by fiscal deficits (except in the case of Greece). Budgets Spain and Ireland were in surplus, and the Italian had a primary surplus.
# 7 No one now does not want to lend to European banks. It is known that dozens of European banks in danger of bankruptcy, and is no longer willing to throw money into the black hole. The U.S. Federal Reserve and the European Central Bank gave them credit, but many European banks are beginning to exceed the limits of "financial guarantee" for such loans, as recently explained to an Australian news source:
"If anyone thinks things are getting better, it just does not understand the seriousness of the problem," — said an employee of the London branch Global bank. "The big banks can go broke in a few weeks."
It is understood that many banks, including French, Italian and Spanish lenders, were close to exhausting the possibilities to get financial guarantee in the form of U.S. Treasury bonds, which can be used to finance short-term loans.
Some of them were forced to give their gold reserves by loan to maintain access to U.S. dollar funding.
So will the U.S. Federal Reserve and the European Central Bank to continue to lend money to them under these circumstances?
If not, you soon, many banks will go bankrupt one after another.
Charles Wyplosz (Charles Wyplosz), a professor of international economics at Geneva's Graduate Institute, is absolutely convinced that in the near future we will witness the collapse of some large European banks:
"The work of the banks will be paralyzed, including, possibly, a number of French banks that are very dependent on Greece, Portugal, Italy and Spain."
# 8 Not only do they no longer have anyone to borrow, major banks across Europe have sharply reduced lending to consumers and businesses, as trying to meet the new requirements of the ratio of capital in June next year.
According to the well-known financial writer Embrosa Evans-Pritchard, European banks need to reduce the amount of loans by about $ 7 trillion to achieve a safe level:
European banks are faced with reduced lending to 7 trillion dollars., To bring the figures in their balance sheets according to figures the U.S. and Japan, which threatens to plunge the region into a credit crunch and chronic depression for a decade.
When banks do not have the creditors, and when the banks have sharply reduced lending to customers, this is called "credit crunch" (the policy of the state to restrict credit in the economy.) In such conditions is extremely difficult to avoid a protracted recession.
# 9 European banks are extremely overwhelmed "toxic assets" from which they are desperate to get rid of. Similar to what happened with the banks in the U.S. in 2008, the European financial institutions are busy trying to get rid of the mountains of worthless assets, the book value of which is estimated in the trillions of euros. Unfortunately, except for banks, they are almost not needed.
# 10 Bond yields in Europe is still incredibly high, and the European Central Bank has spent over 274 billion dollars to buy up European government bonds.
So far, the European Central Bank received the money out of the system (through contributions or through the sale of assets, for example), each time, introducing new money into the system by buying bonds. This step is very different from quantitative easing, which is engaged in the U.S. Federal Reserve. But at some point the ECB will run out of ways to get money out of the system, and when that happens, either the Germans allow the ECB to print money out of thin air to buy the bonds, or we will finally learn the true definition of the market value of European government bonds.
# 11 Bond yields will be even more important in 2012 because of the huge amounts of European government debt, which is projected to be allocated to future periods. For example, Italy is necessary to transfer the payment of about 20 percent of its debt during 2012.
# 12 Once the new treaty is ratified, eurozone governments will lose the opportunity to fight the crisis by increasing public spending. Well, if European governments can not spend more money in response to the coming financial crisis, and the ECB can not print more money for these purposes, then what will be the limiting factor of the forthcoming recession turning into a full blown depression?
# 13 Credit rating agencies have warned that Europe could suffer a deep credit crisis. For example, in Moody's recently made the following statement:
"While our central scenario remains that development, when the euro zone will be able to contain further spread of default, but the shock would not be avoided even in such a" positive "scenario, because in the next few months will show the negative effects of the credit rating. And the longer remains a phased approach to the policy, the greater the likelihood of more gloomy scenarios, including those that involve repeated defaults in the euro zone or the country out of the EU. "
# 14 S & P provided 15 members of the eurozone (including Germany) to the possible reduction of credit.
# 15 The share prices of many major European banks continuously decrease.
# 16 sharp outflow of funds from the banks started in some parts of Europe. For example, a recent article published on YahooNews described the situation in Latvia:
The largest bank in Latvia has stopped work on Monday to avoid the outflow of investors, thrown into a panic by rumors of imminent bank failure.
Rumors emerged at the weekend that Swedbank comprehend legal problems and problems with liquidity, forced thousands of Latvians in Estonia and Sweden on Sunday lined up to ATMs to 50.
Greek banking system is literally on the verge of collapse. According to a recent article DerSpiegel, the number of clients decreases rapidly Greek banks:
This means that the outflow of funds from Greek bank accounts is rapidly accelerating. At the beginning of 2010, savings and time deposits, concentrated in the hands of private individuals in Greece was estimated at 237.7 billion euros by the end of 2011, the amount was reduced to 49 billion since then, the recession is gaining momentum. Savings fell another 5.4 billion in September, and it is estimated that approximately 8.5 billion in October — that was the biggest monthly outflow of funds since the beginning of the debt crisis in late 2009.
# 17 There are signs that economic activity in Europe (as well as global economic activity) actually decreases. Just consider the following statistics are given in a recent article by Stephen Landman (Stephen Lendman):
In November, the level of business confidence in France fell again, the trend of the previous eight months. In October, Japanese machinery orders fell by 6.9% after a 8.2% jump rapidly in September.
South Africa also reported a reduction in production by 5.6%. In Britain, recorded 0.7% decline. Chinese exports in October fell by 1.7%, after falling 3.8% in September.
Export of goods in Korea has been declining for three months. Singapore has also been out of the game in September and October. Indonesia's exports fell by 8.5% in October, reinforcing decline of 2% in September. India's exports fell by 18.3%, reinforcing the September sluggish market sentiment.
Do you already picture emerges?
Europe got into serious trouble.