Wednesday, October 24, 2012

The European Debt Racket

Dictionaries define racket as a loud noise, or a deceitful business scheme often used to extort influence through the use of intimidation.  There is both a very loud noise and a deceitful business practice underway in Europe.  The racket goes by the name of the European Union and it is intimidating the various nation states with their own debt.
The Fear of the Unknown
Bailouts, infamously, have been given to Ireland and Greece, and many in Europe proclaimed victory as a result.  The bailouts are seen as sign that the European Union works.  Many in Europe, see it as a positive sign that the union is able to come together and sacrifice for the greater good: digging their neighbor out of unmanageable debt while they further indebt themselves to do it.
The bailouts, while proclaimed successful for Ireland and Greece for helping them to regain some fiscal control, have done very little to put people back to work and to decrease the unemployment rate.  In fact, Greece's unemployment rate is rising faster than Spain's, and may very well overtake Spain as the most unemployed EU nation - both nations are at about 25% unemployment.

Don't worry, the European Union is working. Data taken from Eurostat database.

Consider for a moment, what a retreat back to the drachma would do for Greece's already defunct economy.  There are EU parliament members who say that Greece would be at the mercy of the market - a ravenous pack of hungry wolves - as they see it.  The drachma, the currency once the envy of the world even centuries after ancient Greece's demise, is now a fading alternative to the Euro.  Greek, and Spanish, spirits are being ground into dust by both frightening unemployment numbers and a heavy debt burden, but they are increasingly being told that leaving the Euro will bring about far worse consequences.

Adding to the misery, Euro currency countries have been paying higher prices for oil than most of the rest of developed and developing world.  Over the past year at times, the price of oil in Euros has exceeded the price peak in 2008.  The credit rating of Greek companies is so poor that they are relying on the charitable marked-up premiums from Glencore and Vitol; they have also stopped purchases of cheaper Iranian oil due to the US lead banking embargo.  What then does the fear of the unknown hold for oil prices under the drachma or piece of eight?

Brent oil price denominated in the Euro. India has experienced a similar peak-2008 price level. China, US, Brazil and Japan however have not reached the same peak-2008 price level
Nigel Farage: "You saw the bailouts as your opportunity to take control"
Fear is being used to intimidate nations into staying within the currency union debt racket.  A massive power grab is underway in which a growing faction of EU parliament members are pushing toward the abolition of the sovereign state.  The people of the various indebted Euro nations are effectively stuck between a rock and an even larger rock - their resilience is being tested in a very dangerous manner.  A new banking union now makes the appeal of staying with the Euro more enticing, while eroding nation state influence.

Hope is deteriorated, confidence is lost and democracy is at risk.  Imagine if there were 25% unemployment in the United States - there would be rioting in the streets.  In fact, that is what we are seeing - rioting in Greece, threats of secession and military action in Spain and flight of capital.  A spectre is haunting Europe.


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