The Euro and Europe , Which will last?

A good day to all.
The debauchery of this week foretells the story of a possible burn up in the re-entering of the euro into uncharted waters. The UK government delvers its budget and Iraq is seen as the place not to do oil business. Also old news, we have new executive pope for the Vatican bank.

The Drop Ultimatum 

Cyprus has now joined the PIIGS (Porturagal, Ireland, Italy, Greece and Spain), to become the sixth country to need emergency funds to support its crumbling financial system. Germany is leaving the terms melt into Cyprus for time being as the emergency funds run low. German pins lay sealed against the collars of the ECB & IMF as no room is left for breathing.

The idea of a leaving of the Euro is more likely than maybe dear readers may imagine... Cyprus is in a few good corners for this to work. Firstly it is a small country and second Russia is a big backer in Cypriot infrastructure, though the last thing the oligarchs want is their back-door into the EU being lost. Still it seems that the church, being the largest landowner in Cyprus has agreed to help out the Cypriot government. At the same time Cyprus losing it's trading advantage from having the increased cost of currency exchange transactions will not be a pleasant move.

Cyprus wants to stay part of the euro, though the only current options at its disposal are to take a percentage of deposit holders reserves, which by far will fuel a bank run. Or try and lipo out any money that is in the economy. This evening from the democratic side of the government, mentioned the ability to raise at least funds from the nationalisation of the state pension scheme, though this is not reassurance to safety. Neither in the same interview conducted on Monday's BBC 'Newsnight' program that they are also looking at a Euro zone exit and going back to the Cyprus pound.

The stickier ends of Black Gold

Ten years after the invasion of Iraq by British and US forces, there have been many rumours that it was not for weapons of mass destruction but for the sweet blood of the world that everyone is desperate for. Well the truth of ten years on Iraq can possibly be one of the worst places to buy a lease to drill.
FT interactive map of Iraq Oil ten years on

Iraq has only seen production levels hit similar sums before the war. a few years ago oil firms were running to buy up leases, but with the low margins and excessive problems with payments by government, bad infrastructure and continuing unrest, many have chosen to pull out.

In the other view it has shown that iraq is unafraid of playing hardball over its resources and despite what many think. Iraq is incharge of its oil and many would rather face other countries beaucreacy than Iraq's.

The Endpoint

So time for the monthly forecast from Mr Gothic Economist...

http://youtu.be/-LSxpxjMQ9c?t=1m5s (a bit of music for the mood)

We may see the first ever exit of a country from the euro-zone. It could be a marvellous move, or spell continuing economic black areas for the euro. My guess is with the tiredness of Germany and it's direct position on Cyprus, the currency exit looks very possible.

Negative growth is forecast for the next two months of the year with a continuing rise in inflation and maybe an increase interest rates soon to combat this, regardless of what Mark Carney (New bank of England head) is known for. It would be a bold move; maybe bold enough to reduce the ongoing increase in the cost of living.

A continued increase in the cost of the barrel of oil. Barak Obama may have visited the middle east to cool tensions, but the only thing that is possible from that is stagnation as the best outcome.

And the new Argentinian pope will keep on watching & Playing from the Vatican Bank.

Good Evening!
http://www.youtube.com/watch?v=F0PLZzi2JJo

Autonomy...Shift to Fiscal Union and then expansion of EFTA

Apologies on not responding on the weekend as promised, though I wanted to see what the situation regarding Italy was going to turn out by mid-week. So I hope you'll agree with me that it was indeed on good decision to make, whether that be regarding sheer laziness on my part or not knowing what interesting drama to compose on here.

Italy recieved it's first batch of Technocrats on Monday with little enthusiasm given for Mario Monti, though there was a lot of cheering & celebration for the departure of the late Mr B at what power there country has, as the IMF & ECB hammer a few more nails into the default coffin.

The use of this new technocratic power may see the newest change occurring the Europe; Fiscal control. This is maybe the one thing we can thank Greece and Italy speeding up for us. With trying to implement a whole rounded Monetary policy for the € member states, while different Fiscal control occurs really can eliminate the use of it all together. The evolution of the European Union since it's beginning has seen more conformity and policy decision making unity within most of it's key members, so to make it not happen would be a real slump.

I'm not a pro € person, though to bring confidence back to the European area and secure the long term future of the € this has to happen. The break up of the euro could still occur, though it would just be threats being eliminated that may cause future problems such as Greece and Italy(though would highly doubt Italy with the sovereign debt exposure other European banks have for it).

The problem that the euro-zone faced from the beginning was the unsynchronised fiscal policies. The main outcome for the eurozone is that fiscal harmony will occur and that the remaining EU countries will most likely merge into a separate trade agreement. There already exists this and it's name is EFTA (including Lichtenstein, Switzerland, Norway, Iceland). The merge may not be taken too kindly, though with proactive market actions being the the touch of death, you have to afford to lose some power.
I will be adding to this post this week, have to run to lectures!

When the IMF reaffirms in your mind, why it is the Last Resort...

This week really marked a major time within the History of the European Monetary Union, the first stages of Greece having no more power in it's own country.


After the markets being stressed over the future of the €zone and Italy, it seemed a deal had been sealed on the weekend and the markets were looking hopeful for Monday, that was until the Greek PM flew back to Athens and announced there would be a referendum vote given to the Greek people to ask if they still wanted to be part of the euro and EU. Obviously the markets went to the panic button and Italian bond yields rose to the roof (The higher the bond yield, the higher the cost for Italy to borrow).


The last time I read of such a immediate of loss of power, was in the Oil Crisis peak of the 70s when the UK had to borrow from The International Monetary Fund. The IMF is the lender of last resort by any country's eyes, and when a combined package with the ECB was made in the last weekend of October, Greece seemed to think it had time to hold a referendum. The heads of the IMF, Germany & France just turned round and refused to give Greece any extra money this week until Greece did the right thing. Now Greece will not be trusted for a very long time...


There is without a doubt in my mind that the Greek PM did the wrong thing, he could have nearly produced the default on Tuesday. It was that serious and also he wasted a huge amount of money within the market. Not only that but when you take into consideration that Greek bond holders lost >50% of their value on their assets negotiated between the ECB & main holders, you can see why Angela Merkel, Nicholas Sarkozy & Christine Lagarde may want to hire an assassination Squad to take down George Papandreou.


Today FT.com produced an interactive map of the possibilities of the Fallout of the EU if Greece were to default, it's interesting whichever way you take it.


http://www.ft.com/cms/s/0/0a35504a-0615-11e1-a079-00144feabdc0.html#axzz1cXJyG6ms


I don't want to be 'I told you so'...but the default is only becoming more likely, November 2011 will be something European Economic history. The EU will be quite likely, kicking Greece into the dessert by the end of the month to sacrifice the few for the many. Then stage two gets under way... Italy


I'll promise I'll lighten the mood with one of my silly graphs on the weekend^^ Maybe zombies could trigger the collapse of the Eurozone? Stay tuned!