Is Euroland on Verge of Disintegration?

[DQ here: a couple of caveats to go with this post.

First, the claim, in the first paragraph, that the Brexit campaign was promoted and financed by the most influential banks of the City of London, is not completely accurate. As far as I’m aware and as I documented in the run-up to the referendum, City of London banks were among the biggest funders of Campaign Fear. As the Telegraph notes, they have taken a massive u-turn since the referendum. It was the hedge fund community in the City that was most pro-Brexit from day one.

Second, later on in the article Engdahl mentions that as a result of its myriad schemes to keep the banks and sovereigns afloat, the ECB has a total balance sheet of over  €1.5 trllion. In reality, it’s a lot bigger than that. The last I heard it had surpassed the €4 trillion mark].

By F William Engdahl and cross-posted from New Eastern Outlook

The decision last year by a majority of British voters to exit the European Union was more than a simple vote of the people. The Brexit campaign was promoted and financed by the most influential banks of the City of London and by the British Royal House. Far from the end of Britain, Brexit is far more likely to be the beginning of the end of the disastrous Euro single currency experiment.

Since the global financial crisis of 2008 little significant has been done by Brussels or the governments of the 19 member Eurozone countries to bring the largest banks of the Eurozone into a healthy stable state. On the contrary, even venerable mega-banks like Germany’s Deutsche Bank are teetering on the brink.

In Italy the world’s oldest bank, Monte Paschi di Siena, is on state life-support. That is but the tip of an iceberg of Italian bank bad debts. Today Italy’s banks €360 billion of bad loans or 20% of Italy’s GDP, which is double the total five years ago.

It gets worse. Italy is the fourth largest economy in the EU. Its economy is in dismal shape, so bank bad loans grow. State debt is almost as high as that of Greece, at 135% of GDP. Now, since the 2013 Cyprus bank crisis, the EU has passed a stringent new bank “bail-in” law, largely under German pressure. It stipulates that in the event of a new banking crisis, a taxpayer bailout is prohibited until bank bond-holders and, if necessary as in Cyprus, its bank depositors, first “bail-in” or take the loss. In Italy, many holders of bank bonds are ordinary Italian citizens, with some €200 billion worth, who were told bank bonds were a secure investment. No more.

German Austerity Medicine Killing Patient

A major problem is that the Eurozone economies have been forced to impose the wrong medicine to deal with the 2008 financial and economic crisis. The Eurozone crisis has been wrongly  seen as states spending too wildly and labor costs rising too high. So, under again German pressure, the Eurozone countries in crisis such as Greece, have been forced to impose draconian austerity, slash pensions, cut wages. The result has been even worse economic recession and rising unemployment, rising bank bad loans.  By 2015 Greece’s GDP had declined by more than 26%, Spain’s GDP by almost 6%, Portugal by 7%, and Italy’s GDP by almost 10% compared with 2008.

Austerity is never a solution to a state economic crisis. The example of the German economic crisis that erupted in 1931 in depression, unemployment and a banking crisis as a consequence of the severe austerity policies of Chancellor Heinrich Brüning ought to be clear enough to German authorities whose historical memory seems to have amnesia today.

Across the Eurozone more than 19 million workers are jobless. Greece, Italy, Portugal and Spain have a total of an unprecedented 11  million  unemployed  workers. In France and Italy unemployment is over 13% of the labor force. In Spain it is 20%, and in Greece a staggering 25%. This is the state of economic affairs more than 8 years after the 2008 crisis. In short there has been no economic recovery in Euroland. Since 2009 the European Central Bank (ECB), the bank of the Euro, has made unprecedented moves to try to stabilize the banking crisis. They have only postponed the inevitable, not improved the situation

Continue reading the article

 

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