The Euro Is In Crash Territory

I paint a word picture here about the EU backed up with a couple of photos that paint pictures of a thousand words hopefully showing that much of the EU is in deep recession, even depression. The euro and Germany are a major cause of that as this paper shows; The Euro debt crisis and Germany’s Euro Trilemma

My section later on the rise and fall of empires might be of special interest.

The EU today...

The EU’s new euro 1.8tn budget and rescue package includes E750 billion for the worst-hit pandemic countries. That amount proposed by the European Commission in July 2020. Those countries urgently needed the money but it was not to be dispersed until 2021. Since then there has been internecine wrangling about the conditions for dispersal by the heads of the European Council and their latest summit again kicked the can down the road - this time about compliance with EU law and order rules - giving recalcitrant states money and two years before the next review instead of addressing and fixing the problem now. They ignored the fact that one of the four conditions underpinning a sound currency is for the rule of law to reign supreme!

Those leaders patted themselves on the back with one saying that summit “had the same feel” as June 1988, one that launched to start of the euro! If that is deemed a success one wonders what their definition of failure is.

But having achieved that further fudge the money is still not yet available to be dispersed! The EU will be able to borrow money for the first time to partly finance that E750 billion. That should raise more red flags about the dangers ahead. How will it be paid back? The EU has long wanted to have its own taxation powers and such borrowing is a stepping stone to that. Add another tax burden to already overtaxed citizens means their ability to spend and restore desperately needed economic growth becomes even more impossible!

A survey by McKinsey showed that around half of Europe’s SMEs - the lifeblood of the European economy - doubt they can survive for another 12 months.

And to show their concern for those living in poverty - made worse by their policies - the leaders of Germany and Italy met recently in this monarch's palace in Germany near the capital, Berlin. Germany is also the de facto leader of the EU and still refuses to resolve its euro trilemma mentioned above.

 

These are the goals and values of the EU. They include many warm words; "sustainable development based on balanced economic growth and price stability, a highly competitive market economy with full employment and social progress, combat social exclusion”.

The results;

Bar chart of % of people at risk of poverty or social exclusion (2018), by region showing More people at risk of poverty in Italy

Meanwhile in the real world of Switzerland - outside the EU politically but in the centre of it geographically and affected by it economically - I make other observations about what is going on, or in the EU's case, not going on.

Whether the EU’s GDP figures eventually showed it or not my observations showed the EU was in a recession long before the virus came along.

Yet another of the EU’s many presidents - Mrs Lagarde of the ECB - recently told the world what it did not know - that the virus pandemic would cause...

"A Highly Unusual Recession"

Trucks on the road are one of my economic indicators of recession and I took this photo in January 2019, long before the virus hit the EU in March 2020...

I live near that autobahn (interstate/motorway) just outside Zürich, Switzerland. Although we are not in the EU our road and rail systems are essential for the EU and this is one of Europe’s main crossroads that runs, at this point, around 30 kms (19 miles) south of Germany's Baden-Württemberg border. B-W is the home state of Mercedes Benz and Porsche cars and many world-leading machinery makers. The lanes flowing towards us head on to south-east Germany - Bavaria, home of BMW, Audi and Siemens - Austria and many countries east from there; Poland, Czech Republic etc. Those flowing away split beyond those overhead direction signs with the right lanes heading to France then via France on to Spain in the south and north European countries such as Holland, Britain and Denmark etc. The left lanes head directly off south to Italy.

1 2 3 4
View single page >> |

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

How did you like this article? Let us know so we can better customize your reading experience.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.
James Hanshaw 1 week ago Author's comment

Since I wrote this article Mario Draghi has become the new PM of Italy. When he was the head of the ECB he said he would do whatever it takes to save the euro. It will be interesting to see how he can now save the failed state of Italy that the euro contributed to the destruction of AND not damage the euro in doing so because the two things simply cannot be done while the euro remains Italy’s currency.

John F. Donaldson 1 week ago Member's comment

Agreed.

David Marshall 3 weeks ago Contributor's comment

The problem is not the EU or the Euro per se. The major problem is that governments across Europe stifle innovation. Aside from the UK where there is some semblance of a high-tech industry there is none on the continent, despite a small concentration of software related businesses in the Netherlands. Until major concerns become truly public and funds for investment released from the grip of small family controlled entities, the best and brightest from France, Germany and England, not to mention the less prosperous countries will continue to leave for America (recent immigration restrictions aside). From personal experience many EU technology initiatives are fraught with bureaucratic potholes while providing gravy for well oiled consultancies who nevertheless know how to mine the process more for gain than innovation.

Andrew Armstrong 2 weeks ago Member's comment

You both make good points.

James Hanshaw 3 weeks ago Author's comment

I agree but those are integrated with, and additional to, EU/euro problems, they are not separate ones. Germany - the EU's de facto leader - is a madhouse of bureaucracies and has many internal financial imbalances. One example being the two southern states, Bavaria and Baden-Württemberg, paying 75% of Germany’s internal financial transfers some that paying for the EU. 12 German states are recipient states, some in near poverty mode. Infrastructure and schools have had nothing done to upgrade or even repair them since around 1980.

Italy is a failed country soon to have its 67th government since WW2.

Germany’s top economic professors published a paper several years ago that showed the euro is too weak for Germany and too strong for Italy by a factor of 50%. That has got worse since.

I wrote more about the EU in this article a couple of years ago; seekingalpha.com/.../4263834-recession-regression-through-suppression. Things have got worse since.

If you invest in currencies my advice is to stay away from the euro. My home country has the safest one - the Swiss franc - and we have some good companies to invest in as well. James

Anne Davis 4 weeks ago Member's comment

Definitely worth a read!

James Hanshaw 4 weeks ago Author's comment

Thank you, Anne. It is a bit long but hopefully will prove of use to some. The section on Empires is based on living on 4 continents and having observed from outside the one I was born in - the British - decline yet its leaders are incapable of adjusting to being a mid sized power that continues to decline because of that.

The EU’s life has been shorter but its leaders also refuse to accept the self inflicted, negative consequences of their actions taking place under their noses. This is dangerous as they withdraw themselves into a shielded cocoon to protect themselves at the expense the people.

I hope the US does not go the same way. Tiny Switzerland’s well proven model would fix things but the last thing those “leaders” elsewhere will accept is the people being the sovereign and the highest political authority, as they are here. Bye. James