The ‘GIIPS’ should leave the euro, writes Clem Chambers, CEO of ADVFN.com and author of the Amazon best-selling investment guide, ‘101 Ways to Pick Stock Market Winners’. It’s the pensions of the top brass – or rather fear of losing them – now holding the Eurozone together.
In all logic, Greece should leave the Euro. So should Spain. The same goes for Portugal and most likely, Ireland too.
This would not be anywhere near as traumatic as most people seem to think. Why should entering a new currency – the new Peseta, or Drachma, or Escudo – be more traumatic than going in to the Euro in the first place?
Granted, holders of the debt would take a bath – but then, they already have.
A ‘euro exit’ would certainly solve the problems of the aforementioned stricken nations.
Germany would hate it though. Suddenly the euro’s value would skyrocket against the world’s other currencies and Germany would be left being not so competitive, after all.
It’s Germany as much as the ‘GIIPS’ who can’t afford having weak members leave the Euro.
Germany can’t leave the single currency either, because a new Deutsche Mark would be very strong, causing the prudent nation to be immediately thrown into recession by a currency that would rocket, just as the Swiss Franc did.
Germany needs the GIIPS to keep the euro down so it, like China, can prosper against the background of an artificially weak currency.
Meanwhile, the GIIPS don’t want to leave the euro. Why? Because if they left they could get back to tax, spend and inflate. Low interest rates, low inflation and low growth is not so attractive. Interest rates of 7% and 7% inflation is effectively the same thing but with real growth.
The same, that is, if you are earning, and are not one of the army of government functionaries or social dependants.
The folk in control are looking for economic stability – for their own fat and hopefully euro-denominated pensions. Continental- scaled bailouts are not for the banks but for the generation of state workers faced with the choice of clinging to the euro or seeing their pensions shredded by a return to the old ways.
As the public sector has grown to overshadow the wealth creating sector in Europe, more and more people have clambered into the lifeboat of public sector entitlement. The financial crisis has holed that boat, however, and now it’s sinking.
Pensioners are, of course, regularly fleeced by government. It’s where the money is. From the Ponzi promises of state pension contributions that don’t go into a pension pot, to the stealth taxing of pensions, to rule changes that, in effect, confiscate pension pots, governments around the world consistently resort to pension raids. The latest “raid” is the regime of false interest rates held artificially low across Europe and the US – technically, it’s known as financial repression.
By forcing savers to accept non-commercial interest rates, a government effectively transfers the value of the capital to itself. The list of such tactics is long. So it’s not surprising then that governments of countries who would most benefit economically from unhitching themselves from the euro are loathed to do so.
They understand the process of a “pension raid” well enough and do not want it to happen to them on any of the levels it can occur – especially not by the redenomination of their entitlements into a new currency that’s bound to be devalued.
This is the gravity that holds the Eurozone together. It will take a lot to break it.
Meanwhile, the grinding consequences might turn out to be beneficial, both economically and politically – in the long run.
Unless there are sudden and dramatic developments, the next phase will begin when Europe has unified itself enough that budgets of Eurozone nations have some element of central control.
This will be the moment of truth for Europe and the Euro.