The Beginning of the End...?

The currency wars continue. At time of print and within 24hrs of The EU's trillion Euro QE announcement the Euro has fallen 3% and the fall is continuing. Markets cheered another mammoth paper creating mechanism out of Europe while the US Dollar bull market continues to rocket upwards putting even more pressure on world international debt. But this is not the subject of this blog. Hidden in the small print of the EU announcement is what might be the political shocker of the decade(s). Germany, the strongest economic power in Europe and the force behind the creation of the European Union, is clearly having second thoughts about the decades old dream of of a "United States of Europe". 

Financial Times: "After strong pressure from Germany, it was agreed that national central banks would assume most of the responsibility for losses from any default or restructuring of their national debt, breaking with the eurozone tradition set by previous sovereign bond-buying schemes. There will be, however, risk-sharing on 20 per cent of the assets, largely debt issued by European institutions bought by national central banks." Simply said, Central banks in the EU would be responsible for 80% of debt creation in their own countries. So if the Greek Central Bank creates liquidity (through bond purchases), it is responsible for any losses created.

To be frank, money creation in places like Greece, Portugal, Ireland, Italy and Spain are not worth the toilet paper they are printed on. Greek debt, for example is 175% of GDP. The other countries are slightly better, but not by much. As has been mentioned in previous blogs, when it comes to national Interests, its "every central bank for itself". This now has been clearly demonstrated by CB's in the US, Japan, Switzerland and now Germany. Now that Germany has evidently signalled that it will no longer be responsible for European debts, the rush to sell the Euro is the logical conclusion. For Europeans, the purchase of non Euro currencies in Europe like the Swiss Franc and Danish Krone is the obvious follow on. Both these countries now have negative interest rates (Denmark -0.2% and Switzerland  -0.75%) as they try to prevent the rush on their currencies.

Michael Kemmer, chief executive of the German Bankers Association comments: "The effects of QE would be “marginal”, but there would be a “noticeably increased risk of asset price bubbles, of mistaken risk assessments and misdirected investment”. Couldn't agree more.

Add to the teacup that the economic implosion of Islam is adding mass immigration to "multicultural" Europe, new anti-immigration parties being fuelled by Jihadist culture and the emergence of historical animosities of European countries for each other...The European teacup must surely runneth over.

If you think you have it tough, read history books - Bill Maher

Life is tough, but its tougher when you're stupid - John Wayne