Monetary union has left half of Europe trapped in depression
January 18th, 2009 Events are moving fast in Europe. The worst riots since the fall of Communism have swept the Baltics and the south Balkans. An incipient crisis is taking shape in the Club Med bond markets. S&P has cut Greek debt to near junk. Spanish, Portuguese, and Irish bonds are on negative watch. Dublin has nationalised Anglo Irish Bank with its half-built folly on North Wall Quay and 73bn (65bn) of liabilities, moving a step nearer the line where markets probe the solvency of the Irish state. A great ring of EU states stretching from Eastern Europe down across Mare Nostrum to the Celtic fringe are either in a 1930s depression already or soon will be. Greeces social fabric is unravelling before the pain begins, which bodes ill. Each is a victim of ill-judged economic policies foisted upon them by elites in thrall to Europes monetary project either in EMU or preparing to join and each is trapped. As UKIP leader Nigel Farage put it in a rare voice of dissent at the euros 10th birthday triumph in Strasbourg, EMU-land has become a V��r-Kerker a prison of nations, to borrow from the Austro-Hungarian Empire. This week, Rigas cobbled streets became a war zone. Protesters armed with blocks of ice smashed up Latvias finance ministry. Hundreds tried to force their way into the legislature, enraged by austerity cuts. Trust in the states authority and officials has fallen catastrophically, said President Valdis Zatlers, who called for the dissolution of parliament. In Lithuania, riot police fired rubber-bullets on a trade union march. Dogs chased stragglers into the Vilnia river. A demonstration outside Bulgarias parliament in Sofia turned violent on Wednesday. These three states are all members of the Exchange Rate Mechanism (ERM2), the euros pre-detention cell. They must join. It is written into their EU contracts. The result of subjecting ex-Soviet catch-up economies to the monetary regime of the leaden West has been massive overheating. Latvias current account deficit hit 26pc of GDP. Riga property prices surpassed Berlin. The inevitable bust is proving epic. Latvias property group Balsts says Riga flat prices have fallen 56pc since mid-2007. The economy contracted 18pc annualised over the last six months. Leaked documents reveal despite a blizzard of lies by EU and Latvian officials that the International Monetary Fund called for devaluation as part of a 7.5bn joint rescue for Latvia. Such adjustments are crucial in IMF deals. They allow countries to claw their way back to health without suffering perma-slump. This was blocked by Brussels purportedly because mortgage debt in euros and Swiss francs precluded that option. IMF documents dispute this. A society is being sacrificed on the altar of the EMU project. Latvians have company. Dublin expects Irelands economy to contract 4pc this year. The deficit will reach 12pc of GDP by 2010 on current policies. This is not sustainable, said the treasury. Hence the draconian wage deflation now threatened by the Taoiseach. The Celtic Tiger has faced the test bravely. No government in Europe has been so honest. It is a tragedy that sterlings crash should have compounded their woes at this moment. To cap it all, Dell is decamping to Poland with 4pc of GDP. Irish wages crept too high during the heady years when Euroland interest rates of 2pc so beguiled the nation. Spain lost a million jobs in 2008. Madrid is bracing for 16pc unemployment by years end. Private economists fear 25pc before it is over. Spains wage inflation has priced the workforce out of Europes markets. EMU logic is wage deflation for year after year. With Spains high debt levels, this is impossible. Either Mr Zapatero stops the madness, or Spanish democracy will stop him. The left wing of his PSOE party is already peeling off, just as the French left is peeling off to fight leuro dictature capitaliste. Italys treasury awaits each bond auction with dread, wondering if can offload 200bn of debt this year. Spreads reached a fresh post-EMU high of 149 last week. The debt compound noose is tightening around Romes throat. Italian journalists have begun to talk of Europes Tequila Crisis a new twist. They mean that capital flight from Club Med could set off an unstoppable process. Mexicos Tequila drama in 1994 was triggered by a combination of the Chiapas uprising, a current account haemorrhage, and bond jitters. The dollar-peso peg snapped when elites began moving money to US banks. The game was up within days. Fixed exchange systems and EMU is just a glorified version rupture suddenly. Things can seem eerily calm for a long time. Politicians swear by the parity. Remember John Majors soft-option defiance days before the ERM blew apart in 1992? Or Philip Snowdens defence of sterling before a Royal Navy mutiny forced Britain off the Gold Standard in 1931. Dont expect tremors before an earthquake and there is no fault line of greater historic violence than the crunching plates where Latin Europe meets Teutonia. Greece no longer dares sell long bonds to fund its debt. It sold 2.5bn last week at short rates, mostly 3-months and 6-months. This is a dangerous game. It stores up roll-over risk for later in the year. Hedge funds are circling. Traders suspect that investors are dumping their Club Med and Irish debt immediately on the European Central Bank in repo actions. In other words, the ECB is already providing a stealth bail-out for Europes governments though secrecy veils all. An EU debt union is being created, in breach of EU law. Liabilities are being shifted quietly on to German taxpayers. What happens when Germanys hard-working citizens find out? Related posts: 1. European <http://waronyou.com/topics/european-union-is-growing-into-the-mediterranean-union-and-once-on-the-african-continent/> Union is growing into the Mediterranean Union (and once on the African Continent) 2. Morgan <http://waronyou.com/topics/morgan-stanley-warns-of-catastrophic-event-as-ecb-fights-federal-reserve/> Stanley warns of catastrophic event as ECB fights Federal Reserve 3. The Folly Of A <http://waronyou.com/topics/the-folly-of-a-depression-thesis/> Depression Thesis 4. Surveillance <http://waronyou.com/topics/surveillance-culture-sneaks-up-on-europe-despite-resistance/> culture sneaks up on Europe, despite resistance 5. The Real Great <http://waronyou.com/topics/the-real-great-depression/> Depression <http://waronyou.com/topics/monetary-union-has-left-half-of-europe-trapped-in-depression/> http://waronyou.com/topics/monetary-union-has-left-half-of-europe-trapped-in-depression/
