French News Online - Money Section

Sovereign Default and the Death of the Euro

Euro symbol design
Designed for Europe! - Doomed to failure?

Public Anger
European voter anger shows little signs of diminishing as the continuing meltdown sparked by Mafiosi (see sidebar right) financiers who collapsed the global banking system in 2007/8, leads inexorably to sovereign defaults and Euro monetary doom.

Dithering Euroland governments have held meeting after meeting in a desperate effort to stave off a general sovereign default (a repudiation of debt service or restructuring which is effectively bankruptcy), among leading industrialised Western nations, directly linked to a crisis concocted by negligent regulators, complicit and complacent politicians and their greed-driven banker friends.

As the cost of high unemployment, austerity measures, job insecurity, pension grabs, real estate collapse, misery and discontent, wrack Europeans, a public groundswell against the Euro and the Eurozone seems to be kicking off.

2 euros
Could the Euro collapse?

Might the Euro Fall and Burn?
Might the groundswell of anger extend to the EU project itself and could the Euro really collapse? Probably not is the answer to the last question, but the membership of this currency union could be dramatically changed to include just Germany, Austria, the Netherlands and Denmark, leaving the remaining 13 member states to revert to their former currencies - the French franc in our part of the world - or some other option (see the sidebar right for the Rudo de Ruijter article)

Jean-Jacques Rosa, a liberal economist, university professor, microeconomics and strategy consultant, who leads the Master of Business Administration department at Paris Sciences Po, notes in the video below:

"the end of the single currency is the best solution and Greece only has one strategy left, that is to exit the euro and default on its debt".

You can watch this video featuring Jean-Jacques Rosa (in French)
Click here to pop-up a video window.

Support for the Euro is Shrinking
Meanwhile opinion polls suggest popular support for the Euro is shrinking. The polls reflect rising popular discontent over the currency due mainly to the harsh and socially disruptive remedies imposed since the credit bubble burst. Between 29% and 39% of French respondents, according to polls, want to leave the Euro. Between 42% and 50% of French employees and 38% and 48% of French employers hold the same view. In June 2010, a survey conducted in Europe by a US polling institute reported that in response to the question:

"Is the Euro a good thing for the economy?"

The answer "no" was shared by 67% of respondents in France, 60% in Portugal, 56% in Spain, 55% in Germany and 53% in Italy.

French Francs
Return to the French Franc?

Return to the Franc?
Jacques Sapir, a French economist and supporter of a return to the Franc, recently shocked a France 3 TV audience when, citing figures released by European monetary authorities, he said that it will cost a further 1000 billion euros to recapitalise all the banks in the European system, an amount that had to be raised by the end of 2011. This he said, comes on top of the trillions of taxpayer cash already spent by governments - which to all intents and purposes have been captured by the bankers - to keep the system afloat. In so doing governments have effectively privatised profits and socialised losses, a win-win for the bankers but a huge burden for us and several generations of our children.

You can watch this video featuring Jacques Sapir (in French)
Click here to pop-up a video window.

Jacques Sapir also reminded his audience that the origins of the current banking and sovereign debt crisis were not financial. It all started, he said, when a credit bubble stoked by US bankers saw US homeowners unable to meet mortgage obligations mainly because the loans initially advanced to them were sub-prime and knowingly unredeemable. Sapir contends the planned recapitalisation of European banks is unsustainable and predicts that a final financial crash will occur in the winter of 2011/2012. He does not however explain what might then happen but others have noted that no-one is head-scratching over HOW banks became undercapitalised, they just seem to accept, as a religious article of faith, especially in Europe, that banks have a right to be recapitalised.

French digital media and print magazines are increasingly churning out 'what if' articles about the survival chances of the Euro and how and when France might leave the currency union.

The main political protagonist campaigning hard for France to quit the Euro is the Front National party , which under its new leader Marine le Pen, is in the ascendancy and causing serious wobbles to the ruling UMP rightwing alliance. Others include smaller splinter parties and pressure groups such as Debout La République, led by the fiercely anti-Euro politician, Laurent Pinsolle.

In mid February Rudo de Ruijter of le Blog Économique et Social writing on the Marianne website described this as one possible alternative - (see sidebar story right)

Sovereign Nation Default
In a gloomy January 19 note Willem Buiter, Chief Economist at Citibank, analysed the deterioration in public finances of the world's major advanced economies, arguing conditions suggest

"... there are no absolutely safe sovereigns."

Buiter said the risk of sovereign default is "manifest" in Western Europe, particularly Greece, Ireland, Portugal and Spain, and sovereign credit issues will weigh on many countries, including the United States and Japan, as well as their banks …. Buiter identified countries outside the Euro area - United Kingdom, Japan, Hungary and the United States - as also vulnerable, facing higher cost of capital if they fail to address their public debt burdens. He wrote:

"It is in our view only a matter of time before the US sovereign will only be able to fund itself through debt issuance at significantly higher interest rates, reflecting either inflation risk from eventual monetization of public debt and deficits, or sovereign default risk, or both,"

When even the giant US economy is described as a "sovereign default risk" i.e. a possible bankrupt, how much worse can things get?

Greece the Scapegoat?
In May 2010 the well-known Swedish economist Dr. Stefan de Vylder, responding to a question as to whether Greece was the main culprit in the Euro crisis, said:

"Greece has until now been the ideal scapegoat, with a huge fiscal deficit which the previous governments tried to cover up with creative bookkeeping and outright cheating. But it was the membership in the currency union that made it possible for Greece to benefit from low interest rates, a rising Euro and easy access to cheap credit. Without the Euro, no such tremendous bubble would have developed in Greece (or in Ireland or Spain). And the ECB and other EU authorities failed completely to warn against the danger of the twin deficits - fiscal and current account balances - which characterise most of the EMU countries. It is definitely not fair to single out Greece as the big culprit. The crisis we are witnessing is a crisis for the entire EMU project, which from the very beginning was based more on political prestige than on a sound economic analysis."

Europe's politicians, led vigorously by French President Nicolas Sarkozy and more reluctantly by German Chancellor Angela Merkel, have reiterated several times now that the Euro will not disappear; the single currency and the Eurozone are integral to the EU project; and both, they insist, will be protected " to the death".

Sceptics wonder how close the two leaders really want to come to a death experience before they find themselves swept aside by the enormous tsunami the financial markets are now stoking up.

	Links
	Sovereign Default
	Jean-Jacques Rosa video interview
	Jacques Sapir interview
	Debout La République
	Laurent Pinsolle
	Marianne website
	Willem Buiter - Citibank, comments on sovereign default

	Worth the Read...
	Government Figures a Worry?
	Reasons why we ought to be wary about figures governments produce when assessing the true extent of the mess we are in. The 91 banks stress-tested in the European system in 2010 were reported to require only € 3.5bn in recap funds, by central banking authority's CEBS, ECB and EC. As the Wasatchecon report points out, the maths was up the spout. Full story... click here

	EU Bailout Decisions
	Or try this for an analysis of the latest EU decisions regarding bailout for the EU's sovereign debt problems. Full story... click here

Story: Ken Pottinger
editorial@french-news-online.com