Letters by a modern St. Ferdinand III about cults

The 'experts' said that Greece did not matter. These apologists cited Greece's small economy, 10 million population [1/3 the size of Beijing]; and its peripheral nature to the German dominated Euro bloc. So much for being experts. In 18 months the Euro has fallen from $1.46 to $1.28. This is just the beginning of the Euro's path to being a Zeuro. No 'expert' today can make a coherent argument as to why the Euro is worth more than the US dollar. European per capita income, living standards and assets per household are 30% less than in the US. The Americans have their own bankruptcy issues of course. But the game is further along in communal Europe. In the Euro zone of 17 disparate states with little in common, real debt levels are well above the government stated ratios of 90-130% of GDP. If you add in the $1 Trillion plus in promises to bail out Greece, Spanish banks and Franco-German banks with poor assets in Spain and Italy, the average debt to GDP ratio is well above 150% - even for France and Germany.

So Greece did matter. The big brains were wrong. This bankrupted state, which lied to get into the Euro-zone to hide its debts under a DM-Euro currency union, and to receive monies from European 'Stabilization Funds'; was apparently not big enough to matter. Or, as the Keynesians argue, it has not received enough 'fiscal stimulus' from the Franco-German core, itself a collection of 2 nations verging on insolvency. The fact that Greece will exit the Euro currency bloc is simply a foretaste of more to come. First Greece, then eventually France. The road to the Zeuro passes through Madrid and Rome, but terminates in gay Paris.

The only way to 'hold' the fixed exchange rate disaster which is the Euro 17, is to literally print $3 Trillion to $5 Trillion Euros. A fantastic sum. The ECB will have to print this much money to 'save' Greece [$250 billion]; Spanish banks [$500 billion]; Italian banks [$500 billion] and Franco-German banks with exposure to non-performing assets in Spain, Italy and Eastern Europe [$1 Trillion at least]. Along with financing Greece, and various national banks, the ECB will have to print money to replace lost fiscal power, or to substitute for the inability of Euro governments to go to debt markets and sell their bonds at high rates of interest to fund their extravagant socialist paradises.

This gap in 'funding' the socialist welfare nirvana in the core Euro countries is easily $1 Trillion over the next few years. The Euro 17 spends $6.5 Trillion per annum, or 55% of total GDP. The ECB is going to have to print money; give it to the banks; who will then in turn 'lend' it to national governments. This process has been going on of course for 20 years. This is why Europe is in such a mess. So the smart people will answer that more of what fails needs to be tried [maybe with a little more emotion and rhetoric]. Clever words will be used to categorize this fraud such as 'quantitative easing', or 'economic stimulus creation'. Little pieces of pretty coloured paper untethered to a metallic standard will at some point in time, become worthless.

Four questions remain about the Zeuro zone.

How long will it hold together ?

How many trillions of Euros will be printed ?

What will the real inflation rate be ?

What are the real-world consequences from this failed experiment at political and monetary socialism ?

Greece will be forced to exit the Zeuro zone. Spain will be next. Why ?Spain has $332 billion of liabilities to the Euro central bank [ECB], $125 billion already committed to the Euro-stabilization fund, and another $99 billion for the wonderfully named 'Macro Financial Asset Fund', and various guarantees for other bank and European funds, all of which totals over $600 billion. Spain's public debt-to-GDP ratio is only 69%, but add in these other guarantees and commitments and the real number is well over 130%. This is before the needed bailouts of their banks. If Greece is bankrupt what is Spain?

France's 'official' debt-to-GDP is 86%; but as with Spain, when you include France's commitments to the ECB, the ESFS, ESM, EIB and other programs, the number is about 150%. Besides these transnational and financial supports, the French state is a committed socialist construct with welfare, transfers, agro supports, pensions and public spending to buy votes and produce obedient knaves that consume 56% of GDP. There is no chance of 'austerity' or spending cuts within France, especially with Hollande and the far left radicals [in post-moderm terms these are now called 'centrists'], in power. The French have not balanced a budget since 1974. It is highly unlikely that a higher tax and spending regime under Hollande will acquaint itself with fiscal and market reality. Borrowing costs in France will rise, putting more pressure on the Euro. The Economist recently wrote:

"...France has not balanced its books since 1974. Public debt stands at 90% of GDP and rising. Public spending, at 56% of GDP, gobbles up a bigger chunk of output than in any other euro-zone country – more even than in Sweden. The banks are under-capitalized. Unemployment is higher than at any time since the late 1990s and has not fallen below 7% in nearly 30 years, creating chronic joblessness in the crime-ridden banlieues that ring France's big cities. Exports are stagnating while they roar ahead in Germany. France now has the euro zone's largest current-account deficit in nominal terms. Perhaps France could live on credit before the financial crisis, when borrowing was easy. Not anymore. Indeed, a sluggish and unreformed France might even find itself at the center of the next euro crisis."

If Spain defaults on its debt or on its obligations to the sundry Euro bailout funds; or cannot bail out its banks without massive [read $500 billion or more] of freshly printed beautiful pieces of paper [which some call money]; then we will see French banks default. Not only is the socialist political-economy of France unsustainable and insidious, but the entire nexus of government and banking, a cozy relationship full of corruption, greasy palms and political settlements, will unravel. When it does happen the Euro will be dead.

The 'crisis' in Europe is just beginning. In 2013 many states have to roll over sizeable amounts of debt. Depending on what happens in Spain the interest rates for this debt must rise and do so considerably. Nations like France can ill afford more interest payments and will be squeezed. One should not expect any austerity worth the name in France or Spain. In Euro-Janus-face speak, austerity means 1-2% of GDP in spending cuts. What the Euro states need is 20-30% reductions in spending and flatter, more intelligent tax structures to attract capital and jobs. It will never happen. The only question for the Euro is when does it die ? What year will it be buried ? That is the only debate.