(TUSCON, AZ) – The Euro is dying. Let there be no doubt. A slowly rising economic tsunami beginning to wash over Europe, will either wipe away or significantly alter a number of institutions from Banco di Pesci in Italy (the oldest bank in the world) to Deutsche Bank in Germany (the largest investment bank in Europe) to even the Euro in its current form. All of this has been abundantly obvious to anyone paying attention to European Debt to GDP ratios since the Euro’s official inception in 1999.
- Italian referendum to leave the Euro in December and 5 more countries scheduled to also vote in 2017
- Reports that Germany began printing New Deutschemarks as early as 2011 in anticipation of a Euro collapse
- Potential for mass unraveling of global derivatives portfolios if Euro denominated debt initiates a liquidity crisis
- In the face of austerity or leaving the Euro, polls increasingly point towards a Euro breakup
- Britain’s economy improves dramatically in wake of Brexit
The five countries most commonly discussed with regards to the “Euro crisis” are Portugal, Italy, Ireland, Greece and Spain, or more commonly referred to as the PIIGS.
The five charts below detail rising Debt to GDP ratios of those five countries. Note how all five countries maintained relatively stable ratios right up until 2006 or a little bit after. Also note how, other than Ireland, none of the countries have brought down their Debt to GDP ratios in any meaningful way.
So what happened in 2006 such that five of the Eurozone countries, known as the PIIGS, decided to abandon the strict deficit and debt ratios proscribed by the Maastrricht Treaty that established the Euro? The soft sell Marxists (also known as social democrats or socialist) each lasted barely one election cycle before their populist demagoguery overcame any kind of fiscal responsibility.
Country Prime Minister Party Election date
Portugal Jose Socrates Socialist 3/12/2005
Italy Romano Prodi The Union 5/17/2006
Ireland Bertie Ahern Fianna Fail 6/26/1997
Greece Kostas Karamanlis New Democracy 3/10/2004
Spain Jose Zapatero Spanish Socialist Workers Party 4/17/2004
The common theme running through all of these five Prime Ministers is that they either ran on a well-established party platform of socialist populist demagoguery or, in the case of Bertie Ahern, tried to out “socialize” the socialists in a close election in 2007. Upon enacting the policies of these Prime Ministers, debt to GDP ratios exploded. Each country tried to raid the commons of a stable currency predicated on debt they knew they had no hope of repaying.
That reports surfaced in 2011 that Germany had already begun printing a new Deutsche Mark to replace the Euro indicates that for all of the last half decade of public pronouncements and genuflecting over “austerity” in the PIIGS, the obvious and inevitable dissolution of the Euro, had already reached the halls of power in at least one country in Europe. Thus, the bankers spent five years picking over the bones of a fatally wounded beast known as the Euro and Brexit marks little more than an electoral ratification of economic inevitability.
In watching this slow motion collapse I am reminded of the quote by Bastiat.
“The state is that great fiction by which everyone tries to live at the expense of everyone else.”
Hopefully, as the Euro implodes, socialists and soft-sell Marxists might finally pay attention to a series of votes on the horizon to leave the Euro and learn that eventually everybody else eventually tires of that expense.