Why Eurozone's Fiscal Crisis Should Concern You

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For several weeks now, the government leaders of West Europe grappled with what to do as, beginning with Greece, country after country approaches insolvency, buried under mountains of debt.  But Americans seem oblivious, with half of the U.S. population going on a giddy buying spree on Black Friday after Thanksgiving, in stubborn denial of the European fiscal meteor that can and will impact the United States.
One after another, alarm bells are sounded.
The Economist says on Nov. 26, 2011:

A euro break-up would cause a global bust worse even than the one in 2008-09. The world’s most financially integrated region would be ripped apart by defaults, bank failures and the imposition of capital controls (see article). […] The survival of the EU itself would be in doubt.[…]

The panic engulfing Europe’s banks is no less alarming. Their access to wholesale funding markets has dried up, and the interbank market is increasingly stressed, as banks refuse to lend to each other. Firms are pulling deposits from peripheral countries’ banks. This backdoor run is forcing banks to sell assets and squeeze lending; the credit crunch could be deeper than the one Europe suffered after Lehman Brothers collapsed.

Add the ever greater fiscal austerity being imposed across Europe and a collapse in business and consumer confidence, and there is little doubt that the euro zone will see a deep recession in 2012—with a fall in output of perhaps as much as 2%. That will lead to a vicious feedback loop in which recession widens budget deficits, swells government debts and feeds popular opposition to austerity and reform. Fear of the consequences will then drive investors even faster towards the exits.”

Agustino Fontevecchia writes in Forbes, Nov. 28, 2011, that the Eurozone crisis is spreading to the private sector:

“The European situation continues to deteriorate and has now spread even to Germany, the eurozone’s economic engine, as evidenced by a failed bond auction last week.  As sovereign debt markets deteriorates, the risk of a credit crunch looms, raising the stakes for policymakers and the private sector alike.”

Wolfgang Münchau warns in the Financial Times, Nov. 27, 2011, that the Eurozone has only days to avoid a collapse:

“With the spectacular flop of the German bond auction and the alarming rise in short-term rates in Spain and Italy, the government bond market across the eurozone has ceased to function. The banking sector, too, is broken. Important parts of the eurozone economy are cut off from credit. The eurozone is now subject to a run by global investors, and a quiet bank run among its citizens.”

As a matter of fact, quiet or not, there was a bank run in the Baltic country of Latvia on September 24, 2011.
The event that triggered the bank run was the arrest of two former shareholders of Bankas Snoras AB, for embezzlement, document forgery, accounting fraud and abuse of authority. Kinda like what New Jersey’s former Democratic governor and senator Jon Corzine did as CEO of MF Global.
In Latvia, the arrests precipitated a bank run. The Latvian government stepped in. Depositors could withdraw only 50 lati (about $95) a day, as the government moved to liquidate the bank.

Indeed, Europe’s banking sector is broken.
More than a month ago, on September 21, 2011, just when European banks and their regulators were trying to reassure investors and customers that lenders have enough capital to withstand a default by Greece and slowing economic growth caused by governments’ austerity measures, Lloyd’s of London, the world’s oldest insurance market, abandoned those banks.
Lloyd’s pulled deposits from European banks because of concerns that European governments may be unable to support lenders in a worsening debt crisis. As Lloyd’s finance director Luke Savage explained,

“There are a lot of banks who, because of the uncertainty around Europe, the market has stopped using to place deposits with. If you’re worried the government itself might be at risk, then you’re certainly worried the banks could be taken down with them.”

I didn’t know about that, did you? I only learnt of what Lloyd’s of London did, two days ago. Some news media we have in the United States!
And if you think what happens in the Eurozone doesn’t affect us, think again.
Already, the Eurozone debt and banking crisis has led to the 8th biggest bankruptcy in U.S. history — that of the giant financial derivatives broker MF Global. The brokerage had used its clients’ funds to invest in European government bonds. But the investments went bust and MF Global went bankrupt, taking hundreds of millions of its clients’ dollars with it.
Who knows how many other U.S. brokerages, banks, and credit unions have invested in European government bonds?
Meanwhile, we in the United States have our own humongous national debt to worry about. The news today is that Fitch, the credit-ratings company, just downgraded its outlook for the United States to “negative.”

Update (Nov. 29, 2011):

Fox Business reports that yesterday, Standard & Poor’s cut its credit ratings (from A to A-) for many of the world’s largest banks, including Citigroup, Goldman Sachs, Bank of America, JPMorgan Chase, Wells Fargo, and Morgan Stanley.
The move follows S&P’s shift, announced earlier this month, in the methods it uses for rating the banks. Dozens of other banks were also affected by S&P’s new criteria and many of the downgrades stemmed from the affected banks’ exposure to the European debt crisis. S&P cited weaker confidence in governments’ ability to bail out struggling banks.

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7 responses to “Why Eurozone's Fiscal Crisis Should Concern You

  1. Thank you, Dr. Eowyn, for this excellent post. It is most noteworthy, as you say, that the media in the U.S. are not reporting the correlation between Europe’s financial disaster and for example, the MF Global Chapter 11 proceeding. Fraud affects the guilty and the innocent. We do not live in a vacuum and we are affected by the world economy. It is getting more frightening. And, it is most disconcerting that the media is not reporting the facts and that the media is controlled and is not unbiased. Thank you for reporting the facts, even though they are so frightening.

  2. Take a good look, because that is going to be us in a few short years.
    I really hope a lot of Americans wake up between now and next November, because I am still seeing too much complacency out there – even among many conservatives who don’t seem to grasp our perilous situation.

  3. Yeah those europeans,,,,,makin off with our money an trin to ripp us off…thanks GOD Im a black, homosexual, god lovin americant….lets nuke them

  4. They certainly are a sorry bunch. The sovreignty of the EU nations is virtually extinct, which had been undergirded by the Treaty of Westphalia. Now, the culture, the languages and traditions of these nations
    are all being eradicated by the unelected leaders in Brussels. The desperate attempts to salvage the banks indebtedness is DOA, so why on earth is the United States hanging around, waiting to go down with the EU?
    If the House passed HR 1489 which would reinstate the Glass Steagall standard, then the derivative debt which is rampant, here and in the EU, would get taxpayers here and here off the hook. We could then have congress start uttering credit as per Article 1 Section 8 of the US Constitution, for gigantic projects which would put millions back to work, and at the same time, utter credit to refloat our states financially. We could form alliances with Russia and China primarily to have them be able to issue credit for similar high tech projects under the unbrella of the treaty, our constitutional mandate and set a new Bretton Wood fixed exchange rate up, leaving the parties as SOVREIGN.
    Other nations, sovreign nations, would be able to participate in the alliance once it is under way, like Korea, Japan, and other emerging countries, and we could help Britain and the rest of Europe out of their bind.
    Their system, that is the oligarchical monetaris system centered in the City of London, under the umbrella of the Rothschild banking empire, now known as the INter Alpha Banking Group, consisting of several branches, the Banco Santander, the Royal Bank of Scotland etc and the FED over here, with their connections to the treasuries of each country, who are acting contrary to the interests of the citizens, but for the bank cartels.
    So, don’t shed a tear for the Rothschilds, they have eaten the meal, figuratively speaking, now they have to pay up. Don’t feel too badly for the poor old banks, two million dollars most likely from MF just turned up in London through JP Morgan and Goldman Sachs, and our courts don’t seem to be able to get their hands on it because the English Bankruptcy Law differs from ours.
    Let’s forge ahead with the Great Pacific Alliance, the king is dead, long live the King as they say in good ol’ England.

  5. In retrospect the definition of “economy” is often confused with “the market” and a virtual economy that takes place every second or less in trades. This kind of activity is lucrative perhaps for Wall st. and the Investment Bankers, but the reason we need CREDIT is for investment in real productivity, per head per square kilometer. This is what creates wealth. Getting NASA back together again as the massive science driver it once was before President Obama decided that since we already visited the Moon why bother to do it again? and get NAWAPA underway, a massive water management plan that was approved by JFK and Robert Kennedy, who both were assassinated together with the creativity of the human species. Now to mention anything creative and enormously difficult to do is viewed as “impractical”. We have to think generations ahead.
    Germany is shutting down it’s nuclear power plants which will destroy their manufacturing capability.
    I guess they will do just fine opening a chain of Mickey Dees all over the Rhineland. Their engineering capability will collapse without power. The reason why the US is in such trouble is because there are not enough nuclear power plants, the greenies have become the genocidalists. They don’t have any intention of saving mankind from extinction, and they devise projects that are hopelessly expensive, like windfarms. Here in CA there are hundred if not thousands of windmills rusting away, unused. They kill birds, drive people crazy with the noise and don’t work right. The government handed out lots of money to their cronies for this stuff, like with Solyandra and their solar panels scam. In the UK they pay the owners of windfarms NOT to run them.
    The EU greenie affliction is causing self destruction over their and they want the US to go green, i.e. self destruct too. The other thing with the EU that we don’t need to be part of any longer is the NATO renegade killing operation. Let’s wait and see what happens at the next NATO meeting in December, and what the Russians in attendance will say. NATO is ready to launch an attack on Syria, or sit back and wait for Netanyahu to attack Iran so that the NATO war machine can get going and take out six billion people or so with their World War Three idea. There are German warships, Russian warships and US war ships in the Mediterranean, all hanging out around Syria.
    NATO and the EU are not good bed fellows for the US at this moment. Russia is showing that WW3 is not what they have in mind for their nations future, and China is in agreement. They are infinitely saner than the EU thingummyjig which is made up of these leaders like Chancellor Merket and President Sarkozy who just go round and round in circles talking about money that doesn’t exist and never will because of the austerity measures they are promoting.
    It won’t work there neither will it work in the USA.
    We need to get out from under the oligarchs, and get on with being American, the unique sovreign nations we are destined to be. Otherwise we will find ourselves engaged in military conflict that will result in thermonuclear repercussions.
    We have to get our clenched fists out of the cocnut.

  6. Fox Business reports that yesterday, Standard & Poor’s cut its credit ratings (from A to A-) for many of the world’s largest banks, including Citigroup, Goldman Sachs, Bank of America, JPMorgan Chase, Wells Fargo, and Morgan Stanley.
    The move follows S&P’s shift, announced earlier this month, in the methods it uses for rating the banks. Dozens of other banks were also affected by S&P’s new criteria and many of the downgrades stemmed from the affected banks’ exposure to the European debt crisis. S&P cited weaker confidence in governments’ ability to bail out struggling banks.

  7. Now we see and hear that “Central Bank” has to be the FED is handing out even more low interest “loans” to European banks to ease the strain of low confidence in the EU to be able to manage it’s own affairs. Who exactly are the guys in charge of the EU in their newly built HQ Palace. Whoever gave them the authority to tell the Irish, the Greeks, the Italians, the Portuguese, etc how they should live after the concept of the Euro has proved not to have been well thought out enough to cover the discrepancy between the manufacturing capability of large industrialized countries and the littler ones. Like taking away Greece’s cotton growning business from them that actually made a profit, saying that it’s interfering with subsidized cotton growing activity in Africa? By stopping Greece being able to provide all it’s own dairy products, which it was, before the EU tariffs took root. Now they are importing milk into Greece from somewhere like Belgium at huge cost. The way that Union is run is really odd. Like the huge Helio solar panel project that is being build in Greece with their money, money that should be spent on deveoping their economy, to provide power for other EU countries?
    This all at the direction of the heads of Banking Cartels, their way of running he world by controlling currency and wiping out individual nation’s sovreignty is not in accordance with the TREATY OF WESTPHALIA.
    Sure there is a way to build on the Treaty of W. but onloy for the purpose of sovreign nations coming together over projects like a Earth Space Protection plan, to protect us from rogue missile attacks and from meteors and other dangerous object that randomly cause danger to our planet. The Banking Cartels have had years since Glass Steagall was repealed under President Clinton at the urging of Larry Summers to show that the monetary system is worth being subjected to. The result? Total chaos in the money markets, look at MF. Their book keeping was so disorganized they can’t find out what money was mingled with what other money and where it was all sent, and is continuing to be sent, under bankruptcy protection. Corzine hasn’t yet agreed to being interviewed by Congress. We should get the RETURN TO PRUDENT BANKING ACT passed forthwith. We need to put Ben Bernanke on notice that the American people were never consulted before this latest loan spree, neither were we consulted about all the othe money that was siphoned out of our Republic’s future, to finance exactly what? The accounting practices of the monetary system countries, ie Rothschild Banking, was discussed in Cannes and it was decreed that the way the “assets” are valued should be streamlined and equalized to prevent future confusion
    This is what President Obama, President Sarkozy and Chancellor Merkel managed to get consensus on.
    The assets are based on the productivity of the workforce globally, and the Trans Atlantic community is hell bent on imposing draconian austerity. Tea and crumpets anyone?


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