Will The Greek Tragedy Collapse The Euro Zone In Stages ?

March 25 - Greece Independence Day
March 25 – Greece Independence Day (Photo credit: Aster-oid)

May 12

AMP Thesis ( as discussed at our seminars ) : The  Euro Crisis will go on for years and the uncertainty and headlines haunt the financial news and thus your investment choices for years :

German Finance Minister Wolfgang Schaeuble dares Greece to quit the euro, investors and economists are mapping out what he and fellow policy makers need to do to save the single currency if his bluff is called.

Emergency lending and bond buying from the European Central Bank coupled with recapitalizations and deposit insurance for lenders and broader powers for the region’s rescue fund are among the prescriptions for insulating Spain and other cash- strained nations from what Citigroup Inc. calls a “Grexit.”

Pressure for contingency plans are mounting as Greece’s electoral quagmire forces euro-area officials to publicly revive the once forbidden topic of whether a nation can leave the single currency. Schaeuble told today’s Rheinische Post newspaper that the euro area could handle a Greek departure as “the risks of contagion for other countries of the euro zone have been reduced.”

“Any exit would need to be done as part of a package to reduce disruptions,” said Mohamed El-Erian, chief executive officer at Newport Beach, California-based Pacific Investment Management Co., which manages the world’s largest bond fund. “At this stage, it’s very easy to find things wrong with any approach that is proposed.”

Lehman Moment

The risk is if Greece leaves and the save-the-euro response flops the world economy could face a sovereign-version of Lehman Brothers Holdings Inc.’s collapse. That makes Schaeuble’s confidence sound all too similar to former U.S. Treasury Secretary Henry M. Paulson’s optimism that the U.S. financial system could withstand the 2008 loss of Lehman Brothers, only to witness the deepest global recession since World War II and a 40% slide in the Standard & Poor’s 500 Index in six months.

“If there’s no contagion who cares about Greece, but I wouldn’t be so sure and if I were Germany I’d not be willing to risk it either,” Jim O’Neill, chairman of Goldman Sachs Asset Management, said in a May 9 interview. “If a Greek exit had unforeseen consequences for contagion across countries it would have been a huge mistake.”

Friday Credit rating agency Fitch put the whole of the eurozone on notice that were Greece to leave the currency bloc as a result of its current crisis, the remaining countries could find their sovereign ratings at risk.

It said it was likely to put all euro area ratings on negative watch if Greece were to leave and that those countries which currently have a negative outlook on their ratings would be at most immediate risk of a downgrade.

It said those countries were France, Italy, Spain, Cyprus Ireland, Portugal, Slovenia and Belgium.

Rising Odds

Containing those threats would be vital because the cost of a broader break-up would be “very large” given the region’s financial, trade and strategic links, said Willem Buiter, the London-based chief economist at Citigroup, who last week raised his estimate on the chances of a Greek departure to 75% by the end of 2013 from 50%.

Buiter and colleague Ebrahim Rahbari wrote in a report published yesterday that the ECB would use its “potentially infinite” resources to restart its sovereign bond-buying program suspended in April and enact another round of long-term lending akin to the 1.02 trillion euros of three-year low-cost loans issued to banks around the turn of year.

A new interview transcript

Tracks (Bomb the Bass and Jack Dangers album)
Tracks (Bomb the Bass and Jack Dangers album) (Photo credit: Wikipedia)
a new interview – you can read my MO.com interview at http://www.mo.com/Jack-A-Bass-and-Associates
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Jack A. Bass B.A. LL.B is one of Canada’s foremost economists and forecasted the dramatic rise in the price of gold and the fall in natural gas prices. He has completed (graduating at the top of his class) the securities course as part of a large American retail broker. His public service work inclu…

Moody’s Set To Downgrade European Banks

European Central Bank from up.
European Central Bank from up. (Photo credit: Wikipedia)

April 17 – please read this article with yesterdays forecast of a Europe sinking

Under pressure from banks, Moody’s Investors Service said Friday that it is delaying until early May its highly anticipated decision on whether to downgrade the credit ratings of 114 banks in 16 European countries.

Moody’s announced the review in February, saying it was needed in light of the banks’ weak conditions and the tough environment in which they’re operating.

It had planned to start unveiling the decisions this week.

Moody’s said in a statement it is “taking an appropriately deliberate approach during this review process and will conclude when it is confident that all relevant information has been received and processed.”

While Moody’s hasn’t said whether and to what degree it will cut various banks’ ratings, officials at multiple top European banks said they expect their grades to be knocked down at least one notch.

The looming downgrades have ignited a scramble among some lenders and investors who fear the development could fan the smoldering crisis.

In recent weeks, as Moody’s has neared its decisions, big banks have been lobbying the ratings agency not to slap them with multi-notch downgrades, according to people familiar with the matter.

“It’s going to add to the funding pressure on these banks,” said Simon Adamson, a banking analyst with research firm CreditSights Ltd.

Many bankers and outside experts hoped the sector–battered by losses on bad loans and investments in risky European government bonds—had turned the corner when the European Central Bank recently dished out roughly €1 trillion of inexpensive, three-year loans to at least 800 banks. Those loans largely eliminated the risk that a bank would abruptly collapse due to liquidity problems.

But the benefits provided by those loans has started to fade. Across Europe, bank shares have been pounded by renewed concerns about Europe’s financial health—a rout that continued Friday with a steep selloff in Spanish and Italian banks

Europe Still Sinking – Nouriel Roubini’s Grim Forecast : A Greek Depression

Constituency for the European Parliament elect...
Constituency for the European Parliament election in 2009 Español: Mapa por el Elecciones al Parlamento Europeo de 2009 Français : Circonscriptions aux élections européennes en 2009 (Photo credit: Wikipedia)

 ( AMP Repeats : Europe Still  Stinking – while awaiting the return of the Weimar Republic)

April 16

or The European Emperor Has No Clothes  due to :


Capital Shortage


No Growth Economies

Central Bank Intransigence

If you don’t believe me –  (and  I can share that  ” The European  Emperor Has No Clothes ” is my standard opening when I speak on Economic Forecasts ) read what Nouriel Rounbii has to say about the ongoing crisis and – a prediction of the pain to come:

– Since last November, the European Central Bank, under its new president, Mario Draghi, has reduced its policy rates and undertaken two injections of more than €1 trillion of liquidity into the eurozone banking system. This led to a temporary reduction in the financial strains confronting the debt endangered countries on the eurozone’s periphery ( the PIGS – Greece, Spain, Portugal, Italy, and Ireland), sharply lowered the risk of a liquidity run in the eurozone banking system, and cut financing costs for Italy and Spain from their unsustainable levels of last fall.

At the same time, a technical default by Greece was avoided, and the country implemented a successful – if coercive – restructuring of its public debt. A new fiscal compact – and new governments in Greece, Italy, and Spain – spurred hope of credible commitment to austerity and structural reform. And the decision to combine the eurozone’s new bailout fund (the European Stability Mechanism) with the old one (the European Financial Stability Facility) significantly increased the size of the eurozone’s firewall.

But the ensuing honeymoon with the markets turned out to be brief. Interest-rate spreads for Italy and Spain are widening again, while borrowing costs for Portugal and Greece remained high all along. And, inevitably, the recession on the eurozone’s periphery is deepening and moving to the core, namely France and Germany. Indeed, the recession will worsen throughout this year, for many reasons.

First, front-loaded fiscal austerity – however necessary – is accelerating the contraction, as higher taxes and lower government spending and transfer payments reduce disposable income and aggregate demand. Moreover, as the recession deepens, resulting in even wider fiscal deficits, another round of austerity will be needed. And now, thanks to the fiscal compact, even the eurozone’s core will be forced into front-loaded recessionary austerity.

Moreover, while über-competitive Germany can withstand a euro at – or even stronger than – $1.30, for the eurozone’s periphery, where unit labor costs rose 30-40% during the last decade, the value of the exchange rate would have to fall to parity with the US dollar to restore competitiveness and external balance. After all, with painful deleveraging – spending less and saving more to reduce debts – depressing domestic private and public demand, the only hope of restoring growth is an improvement in the trade balance, which requires a much weaker euro.

Meanwhile, the credit crunch in the eurozone periphery is intensifying: thanks to the ECB long-term cheap loans, banks there don’t have a liquidity problem now, but they do have a massive capital shortage. Faced with the difficulty of meeting their 9% capital-ratio requirement, they will achieve the target by selling assets and contracting credit – not exactly an ideal scenario for economic recovery.

To make matters worse, the eurozone depends on oil imports even more than the United States does, and oil prices are rising, even as the political and policy environment is deteriorating. France may elect a president who opposes the fiscal compact and whose policies may scare the bond markets.

Elections in Greece – where the recession is turning into a depression – may give 40-50% of the popular vote to parties that favor immediate default and exit from the eurozone. Irish voters may reject the fiscal compact in a referendum. And there are signs of austerity and reform fatigue both in Spain and Italy, where demonstrations, strikes, and popular resentment against painful austerity are mounting.

Even structural reforms that will eventually increase productivity growth can be recessionary in the short run. Increasing labor-market flexibility by reducing the costs of shedding workers will lead – in the short run – to more layoffs in the public and private sector, exacerbating the fall in incomes and demand.

Finally, after a good start, the ECB has now placed on hold the additional monetary stimulus that the eurozone needs. Indeed, ECB officials are starting to worry aloud about the rise in inflation due to the oil shock.

Euporean policy is set by looking backward to the times of the Weimar Republic.

The trouble is that the eurozone has an austerity strategy but no growth strategy. And, without that, all it has is a recession strategy that makes austerity and reform self-defeating, because, if output continues to contract, deficit and debt ratios will continue to rise to unsustainable levels. Moreover, the social and political backlash eventually will become overwhelming.

That is why interest-rate spreads in the eurozone periphery are widening again now. The peripheral countries suffer from severe stock and flow imbalances. The stock imbalances include large and rising public and private debt as a share of GDP. The flow imbalances include a deepening recession, massive loss of external competitiveness, and the large external deficits that markets are now unwilling to finance.

Without a much easier monetary policy and a less front-loaded mode of fiscal austerity, the euro will not weaken, external competitiveness will not be restored, and the recession will deepen.

… without resumption of growth – not years down the line, but in 2012 – the stock and flow imbalances will become even more unsustainable. More eurozone countries will be forced to restructure their debts, and eventually some will decide to exit the monetary union.

AMP Conclusion:

1)  For the small investor speculating in forex /currencies / treasuries is too risky . Maintain 10 % in gold as insurance against the government cupidity and stupidity we see demonstrated on a daily basis and announced as political policy.

2) As our forecasts unfold markets will react , first to the fears and then to headlines – giving you bargains – IF  you are prepared.

Prepare with our new edition of Stock Market Magic : Building Your  AM Portfolio  – available from http://www.Amazon.com

Apprentice Millionaire Portfolio Books and Seminars

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