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  1. Wealth
July 30, 2012

How to Really Save the Euro?

By Spear's

The ECB tries to pretend it is saving the euro by buying more PIGS bonds of questionable value and recoverability

Politicians only wake up to the need for action when a crisis is truly upon them, and the eurozone is in a real crisis. Greece is bust and beyond salvation and Germany seems ready to let it go. Spain is in a different crisis, but the real figure for the money to bail it out is nearer €600 billion. Italy is next in line in the queue of PIGS seeking free truffles.

And this is not to mention France and its increasingly absurd president, who stands up with Merkel to say that they will save the euro but refuses to deal with the major structural and fiscal problems France has in the pipeline. If that is not enough for the markets to digest, the unpalatable truth is that Germany cannot afford to bail them all out, even if it wanted to.

Draghi at the European Central Bank wakes up and says he will also do everything necessary to save the euro as he realises that there is not much point in the ECB if the euro blows up. His first call this week is to visit his nemesis, the Bundesbank, which knows a thing or two about central banking and fiscal and monetary rectitude, and is still smarting at the creation of the upstart ECB which replaced it and its beloved Deutschmark. Then Merkel has to persuade a deeply sceptical Bundestag and hope that the Karlsruhe Constitutional Court does not find in September that bailing out the PIGS is not in the best interests of Germany and its constitution.

Meanwhile, Hollande runs about trying to save 8,000 lost jobs at Peugeot, saying it is not acceptable that its board of directors decided that they couldn’t go on losing the shareholders money forever by making cars no-one wants, while his audit office tells him he needs to make €65 billion of cuts, just as he engages reverse gear and reduces the retirement age from 62 to 60!

So, what is the likely outcome to all these shenanigans? The politicians will use the existing EFSF to kick the can further down the road. This fund only has €550 billion to lose. The money it put into the second Greek bail-out has been basically lost, which is what happened to the money it put into the first bail-out.

No surprises there, but it means that this fund cannot bail out both Spain and possibly Italy, but it will be used sparingly to do the minimum to alleviate the crisis for a time, hopefully until after Germany’s next election, while the ECB tries to pretend it is saving the euro by buying more PIGS bonds of questionable value and recoverability.

None of this will resolve the ongoing crisis, as it fails to do with the fundamental issues of the imbalances of many types within the eurozone itself. So, the PIGS, probably minus Greece, will trot on as best they can until they run out of cash once again and there is no more slop left in their troughs.

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The more the politicians do to save the euro with bail-outs while not addressing the fundamental issues, the bigger the losses will eventually be, in two or three years’ time. Meanwhile, Merkel will pursue a political and fiscal union that nobody wants and nobody any longer believes in. Europe is truly in a crisis, created by the dreaming constructivist, rationalist, flat-earthers who wanted to end wars in Europe by harmonising everything away into some Utopian equality, with the euro as their flagship policy.

The trouble is that their policies will probably achieve the opposite of what, in their folly, they wanted to create. That is the tragedy of the deeply undemocratic Maastricht Treaty they foisted on the people of Europe without proper debate, and often in defiance of the few referenda that did occur in the fringes.

Thank goodness for our constitutional monarchy, unwritten constitution, elected Parliament, independent judiciary and central bank and our own currency. These things took a thousand years to put in place, and are not for surrender to a bunch of brainless bureaucrats in Brussels.

Enjoy your holidays while you still can!

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