23 April, 2012

The Final Countdown In Europe

As you know, I’ve been pessimistic about the Eurozone for more than a year. I’ve been telling you for that long that a Greece collapse and default were inevitable (I was right). The only questions were whether the rest of the Euro leaders could come up with a default plan for Greece that would a) be acceptable to the creditors, and b) provide a soft enough landing for Greece that would avoid an overall Eurozone collapse.

Those questions still remain unanswered, but things do look a bit better than they did 6 months ago.

The second problem for the Eurozone has always been that Greece was only one part of the problem. I’ve used this chart before, but it demonstrates the problems very well. (Click for full-size)

I said this the last time I used this pic:

When Greece falls (yes, I said “when”, not “if”), the effects will be felt all over Europe. It’s hard to see how some of the teetering economies there will be able to survive. Spain in particular is very weak, perhaps the weakest card on the table. One of the many problems is that everyone has been financing everyone else’s debt, like paying off one credit card with another. Eventually that stops working and the debt comes due. That time is now for Europe and the United States.

Spain is still very weak. And Spain is going to follow Greece’s course. Some bad news out of Spain this weekend:

Why the bad headlines? Put bluntly, things are accelerating in the Eurozone now. If we’re still talking about an impending or probable Spanish collapse three months from now, it will be a minor miracle. We’re not months away, but weeks, possibly days.

From Zerohedge:

Spain is about to enter a full-scale Crisis.

A few facts about Spain:

•    Total Spanish banking loans are equal to 170% of Spanish GDP.

•    Troubled loans at Spanish Banks just hit an 18-year high.

•    Spanish Banks are drawing a record €316.3 billion from the ECB

      (up from €169.2 billion in February).


Spain is telling us point blank that disaster is looming.

With that in mind, I believe we have at most a month before Spain drags down the entire EU. The Spanish economy and banking system are too large to be bailed out. The IMF and ECB know this.

Moreover, worldwide banking exposure to Spain is well over €1 TRILLION. What impact do you think that might have on the EU which has an entire banking system that is leveraged at 26 to 1 (Lehman Brothers was leveraged at 30 to 1 when it collapsed)?

The Europeans have done a decent job so far of containing the Greek crisis. This one will not be able to be contained (and if you think that Greece had nothing at all to do with what’s happening in Spain, you’re fooling yourself). Spain’s economy is too big, and the rest of Europe has their own problems.

More European news from this weekend:

The first line is bad news because Germany has been the bright spot in the European economy of late. If it falters, there’s no one else to pick up the slack. The last is bad news because Sarkozy and Merkel have essentially been the power brokers behind staving off the Eurozone collapse. If Sarkozy is replaced by Hollande (and he will be…the odds look very long for Sarkozy right now), France and Germany will not be on the same page in this crisis. If they aren’t on the same page, it’s going to get much worse before it gets better.

And if you think that the Eurozone can go into recession without having a significant negative impact on the American economy, it’s time to put down the hash pipe.

UPDATE: Just because Greece may have a soft landing, don’t think everything there is sunshine and rainbows (from ZeroHedge): It’s official & As I Foretold Years Ago, Greece Is Now In a True Depression. Also from ZeroHedge, there’s this today regarding the Eurozone: “I Do Not Believe, Any Longer, That The Catastrophe Can Be Avoided”.

Pleasant, huh?

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