Tuesday, June 7, 2011

The joke that is Euro

The EU bailout package for Greece, Ireland and Portugal is basically a self-serving mechanism, so that the banks in the creditor nations ( In France & Germany) can get paid back. It has less to do with the wellbeing of the average Greek or Irish citizen and everything to do with the politicians and bankers. This is a classic example when profits are privatized and losses and risks are passed on to the public.
Now there is a grab for the public service utilities in those broke countries. The public utility services like transportation or other basic infrastructures  will be put up for sale and eventually  privatized.  While it is not a bad thing per se, ( there is no free lunch) the cost will now be so high that it will inflict more pain to the general population.  With less or no income and higher cost, the lower 90% of the population is being squeezed dry to the point of social unrest. We see it already happening in Greece and in Spain. This trend will only grow in the months to come till a tipping point is reached.
But will this money grab save the Banks in Germany / France / USA ? I very much doubt it. The crisis is/was  1st created by the politicians who promise and give all sorts of freebies to the public in order to get elected and grab the power. Now the Banks in Europe and their institutions (ECB, IMF, and the EU) are making a bad situation worse. In order to save the Banks which are actually broke and are leveraged 50 times, ECB and EU are taking the bad loans from the hands of the banks and putting it in the hands of the public.

I quote the following from Zerohedge : We estimate that the ECB has exposure to struggling eurozone economies (the so-called PIIGS) of around €444bn – an amount roughly equivalent to the GDP of Finland and Austria combined. Of this, around €190bn is exposure to the Greek state and Greek banks. Should the ECB see the value of its assets fall by just 4.25%, which is no longer a remote risk, its entire capital base would be wiped out."

From Open Europe:
"The ECB’s attempts to paper over the cracks in the eurozone may have temporarily softened the impact of the crisis, but have exacerbated the situation in the long-term. The ECB has dug itself into a hole and now we are seeing that there is no easy way out.”

“Huge risks have been transferred from struggling governments and banks onto the ECB’s books, with taxpayers as the ultimate guarantor. There’s a real risk that these assets will face radical write-downs in future with eurozone governments and banks teetering on the edge of bankruptcy. This amounts to a hidden – and potentially huge – bill to taxpayers to save the euro.”

And here we are wondering how come Euro is at its high vs. USDollar. This is a joke on us and this joke is going to end badly. However, all crises are an opportunity and I see an opportunity to short the Euro and other risk assets by end of August 2011. Technically, Euro can still exceed $1.50 in a short while but I think in a year’s time Euro will be at par or below US Dollar. Not that US Dollar is a paragon of virtue but because Euro at its present state does not have much future.

When the Lords and Barons of Europe (Both new and old types) come back from their summer vacation this August end, they might see their peasants revolting and their castles (banks) are burning down.  We better be ready to roast the marshmallows in that fire.