Why Europe Is Still In Peril, In Two Charts

A lot of analysts, including myself, have given the European situation a rest since last year. There were certainly some signs that the ECB and IMF had slowed (if not stopped) the deterioration by providing liquidity backstops to the addled banking system. But perhaps that was just the calm before the storm.

In truth, things were still was probably just as perilous as ever up until yesterday when the ECB and IMF decided to start a banking panic by enforcing a haircut of up to 10% on bank depositors. That was literally the stupidest thing that anyone has done since the Euro crisis began, and while it may not lead to utter disaster, there is a significant chance that it will. Not only is it excruciatingly unjust (it’s theft!), it is also incredibly suicidal. Many, many Spaniards, Italians, Greeks and Portuguese will have looked at the Cyprus haircut in horror, and wondered “Am I next?” Some of those will withdraw their money from the bank and stuff it in a mattress or into tangible assets, furthering stressing the already-fragile and highly-leveraged European banking system. Even a 1% drop in European deposits would lead to over €100 billion of withdrawals.

The background to this is soaring European unemployment:

EuroUnemployment

The people running the European financial system and engineering the bailouts and austerity (ECB, EU, IMF, Germany) have ploughed on through with more and deeper austerity even as European countries (other, of course, than Germany) have run up to higher and higher unemployment levels. Spain and Greece are above 25%. Italy is above 10%, and Portugal above 15%. Hiking taxes and cutting spending is leading to more and more people in unemployment oblivion. That isn’t healthy. Let’s not forget what happened to Germany the last time when over 25% of its people found themselves unemployed:

Chart-German-Unemployment-and-Nazi-Links

If bank runs materialise across Europe next week, the unemployment situation is most likely to worsen even further. If that happens, expect more and more unemployed, underemployed and angry Europeans to start voting for increasingly radical political parties. This is suicidal. Europe needs to not only reverse the awful, stupid Cypriot haircut, but also to put fiscal consolidation on hold (it has, lest we forget, so far been counterproductive) and start worrying about unemployment levels.

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30 thoughts on “Why Europe Is Still In Peril, In Two Charts

  1. “Not only is it excruciatingly unjust (it’s theft!),…”

    This is an example of DIRECT thievery, no doubt, but, the other things they do [governments and banks, in particular] are insidious forms of INDIRECT theft; indirect only in the fact that such a circuitous route allows all the rationalizing and co-parasitism of the lessor institutions that are allowed to sink their proboscis deep into the citizenry in order to exact their share of the booty.

    • “Not only is it excruciatingly unjust (it’s theft!)”

      Those moral hard working citizens, who obeyed laws, worked, saved their labour value, will gladly help their nation in time of need.

      It is just like the National disaster tax Australia paid. One off National emergency clean up bill. We just paid it.

      It will blow over. I don’t see any problem. However I feel some people will panic and stuff mattresses ( I would suggest a Safe, but if you forget the code in a panic you could be killed). How much will this stress the banking system? Who knows.

        • I don’t agree with it but human nature suggests people will shrug and feel angry just like a parking ticket, but pay it. This is a precedent for world wide wealth redistribution.

          Either move cash into equities or assets, or lose it. It is kind of a wealth effect boost.

  2. This analysis is exactly correct, and agrees with Stratfor.

    The irony is that the EU was established to provide stability, right? But the more they strive for the stability they want, the more they nourish the next revolution.

    • Yes… It’s like a form of Murphy’s Law… That is actually the “second law of thermodynamics”.
      In any closed system, disorder, or entropy always increase with time. This results from the fact that there are always many more disordered states than there are ordered ones. Thus we can’t go back in time to fix things.. Best summed up by the Humpty Dumpty rhyme “all the kings horses and all the kings men couldn’t put Humpty together again”.

    • The purpose of the EU was to produce larger profits for the elite. Seems to have been a great success.

      Anybody with an economics IQ over 25 understood that there was no chance this [monetary union without political union] could be successful in the manner they propagandized.

      It was a scam, plain and simple…sort of like the Fed’s 2% counterfeiting target.

      • When the Euro came out I was suckered into thinking it would compete with the US dollar. I studied finance (But not European Politics- Big mistake) So the general non finance population thought they would be richer.. Great for getting treaties passed.

        The Euro won’t last. That is why I bought William Banzai’s Europocalypse. It should appreciate. Fine art indeed.

  3. Pingback: Why Europe Is Still In Peril, In Two Charts | Fifth Estate

  4. The smoke screen created by the TBTF debate has cleared and the real intent of the powerful and greedy is revealing what the debate has always been.. “TLTS” To little to survive…. A rationalization used by tyrants and madmen throughout human existance.

  5. Forcing depositors to take a hair cut is clearly wrong in that it breaks the conditions on which deposits were originally made. On the other hand I’m not 100% sympathetic with depositors.

    What depositors want is interest, and that can only be obtained by lending their money on in ways that are not 100% safe. And when that risk doesn’t pay off, depositors expect taxpayers to rescue them.

    Conclusion: depositors have been ripped of over the last 48 hours in Cyprus, but depositors themselves have been in the business of ripping others off for decades.

    • I agree, but I feel the interest rate paid over inflation, should be exposed to haircuts, not savings at CPI rates of interest to provide safe keeping (Robberies increase when mattress stuffing occurs)

      Risk versus reward. Spend it, or lose it.

      I ironically worked at the Bank of Cyprus in Australia, and starting from scratch, it was difficult to find suitable projects to invest in, to ensure the safety of depositors money, but ironically we had to offer a higher rate to attract deposits. People want interest, and they do have to accept that higher interest equals higher risk. The 19th century had many a bank collapse and banks were competitive. You had conservative and wild cat banks.

      I believe this will all blow over. There will be no bank runs, because withdrawals will be limited!

      • Spend it, or lose it.

        Americans are doing that…. More are also choosing early retirement.. IRS lets you retire at 55 years old. Most government employees can retire at 55 with 20 years service…. Part of the take it now before it is gone syndrome caused by fear..

    • When you get down to the heart of the matter, you begin to see that everything about banking is a scam [and this is not to say that everything about it is necessarily bad].

      You have to understand what money is. When you transform labor-value into its money-form, you enable all kinds of shenanigans to take place. Although it might be nice if you could have a banking system that worked well [or, a gorgeous woman who was down-to earth :], we are talking about human beings here, and that means creatures who have used their intelligence, first and foremost, to game every system.

      Putting the greediest among us in charge of over-seeing the grandest abstraction of them all [labor-value to money], seems like a less than brilliant idea, but, just the same, one that has been embraced throughout the ages.

      Understanding why this is, is the simple part. Confronting the reality it portends, not so easy.

  6. They finally have opened Pandora’s box. And out came black swans flapping their wings in anticipation.

    How much randomness can you add to a system until it is getting unstable?

    Now Europe’s depositors are learning that bank deposits are no longer safe from confiscation. Official safeguards of bank deposit protection up to 100,000 EUR have become non-values.

    How will depositors from Portugal, Spain, Greece and the rest of Europe react?

    What happens, if there isn’t a majority for the haircut in the Cypriot parliament?

    Will investors from the US, Asia and the Arab World still see the Euro as a stable investment?

    If a tiny country like Cyprus (0.14% of EU’s GDP, see http://en.wikipedia.org/wiki/Economy_of_the_European_Union ) is a systemic risk for the Euro zone – how stable is the whole Euro zone?

    What are the ramifications for the price of gold and silver?

    Interesting times we are living in…

    • You can bury gold. Put it at the bottom of a lake, store it in a barn, behind a wall. Unlike paper money which may get wet, eaten by earthworms or chewed by mice. At least you can make pretty jewelry out of it an woo your loved one. That counts for something, at least some peace for a while.

  7. Pingback: Why Europe Is Still In Peril, In Two Charts | Liberty Hall

    • Even if Cyprus parliament is refusing a depositors’ haircut EU probably will to buy out Cyprus.
      What would our American friends say about a shiny new unsinkable Russian aircraft carrier in the Mediterranean? ;)

  8. Now we know why the international banking system and its member national banks prefer inflation to direct consfication. Based on the price increase of raw goods used in my business, U.S. inflation is at least 5% and probably more so around 7%. But the masses just think, “Ahh, prices are always going up.” Slowly but surely I think the majority will realize that price inflation is the cost of welfare/warefare that cannot be maintained via direct taxation. But we have a ways to go. The fools are now touting an increase in the minimum wage. No matter the trumped up studies they show one cannot defy logic and the rules of the market and the price mechanism.

    In the end, no one benefits except those at the very top. So you raise the minimum wage and increase welfare benefits. Since you don’t have the guts to raise taxes, you simply create money. The poor are back where they started, maybe poorer.

  9. “Not only is it excruciatingly unjust (it’s theft!),…”
    You can call it that but let’s look at this from another angle.
    It’s true that it is called a ‘deposit’ but is it really?
    If you have something valuable and you want to keep it in a safe place you rent a deposit box managed by a reputable company, right? You PAY for the safe keeping and it is YOU who bear the responsibility because it was YOU who had chosen the company!
    Why should be a banking deposit be any different?
    And if you want to be on the receiving side of the story, and you demand interest for your money, then treat it as an investment, not as a “deposit”.

      • Politicians would argue they have policy back flips all the time. “Trust me I am a Politician. You know I am a pathological liar. Fool you”.

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