{"id":3030,"date":"2013-04-11T17:09:29","date_gmt":"2013-04-11T15:09:29","guid":{"rendered":"https:\/\/clusterfamilyoffice.com\/blog\/?p=3030"},"modified":"2013-04-11T17:09:29","modified_gmt":"2013-04-11T15:09:29","slug":"la-eurozona-ha-muerto-viva-europa","status":"publish","type":"post","link":"https:\/\/clusterfamilyoffice.com\/en\/la-eurozona-ha-muerto-viva-europa\/","title":{"rendered":"The Eurozone is dead: Long live Europe."},"content":{"rendered":"

\"\"The Eurozone as such has no future, given that the final decision of the solvent northern countries is to break away and for each country to fend for itself. Consequently, without that much-vaunted European solidarity promised by politicians \u2013 which has proved to be as vast as it is impossible \u2013 the economic disparities between the heart of Europe and the periphery are only set to widen. And it should be clear to everyone that the very foundation of the single currency and the Eurozone was precisely that economic convergence which has now turned into a growing and unstoppable divergence. Without such convergence of the macroeconomic figures of each state, it is not possible to share a single currency, a single central bank or a single monetary policy<\/strong>. And ideologues such as Mitterrand and Helmut Kohl knew that the Europe they dreamed of would have to be economically convergent, or it would never come to pass.<\/p>\n

The process of European regression is further reinforced by the fact that, for a couple of years now, and in a very subtle way, public debt \u2013 which is so closely intertwined between peripheral states and banks across the eurozone \u2013 has been falling discreetly but drastically. Consequently, the risk of cross-border contagion from insolvency, in the face of falling prices for peripheral bonds, is \u2013 and will continue to be \u2013 increasingly low. Who is buying up this local sovereign debt that foreign investors are gradually offloading? Logically, it is being snapped up by the local banks in each country, in exchange for the ECB continuing to exchange those sovereign bonds for fresh cash at the counter. This free-for-all is subtly conditional on the principle that, increasingly, \u2018every man for himself\u2019 \u2013 in other words, each national banking system must bear the burden of its respective state\u2019s debt. Thus, in the event of bankruptcy, the contagion is manageable.<\/p>\n

The situation has therefore been changing over the last two years, and the Cypriot \u00abcorralito\u00bb has marked another turning point by publicly demonstrating that \u00abbail-outs\u00bb will henceforth be \u2018bail-ins\u2019. In other words, bailouts will no longer be funded with European money but with local funds, drawn from the pockets of the inhabitants of each country in difficulty. As if these were entirely independent states, with no ties or supranational union to what was once called the Eurozone. Consequently, external aid from the other European partners will tend to disappear \u2013 as was inevitable \u2013 since it was based on real money from the four rich countries and on the absurd promises of money that does not exist from the rest of the poorer Europeans.<\/p>\n

The euphemism used on this occasion is \u00abdirect recapitalisation\u00bb of the banking sector. The Eurogroup reached an agreement to this effect in Dublin this week, under which the ESM (or MEDE<\/a>), it will be exempt from a large part of its \u00abbail-out obligations\u00bb towards peripheral banks. The legally established order is now to first confiscate the assets of shareholders, preference shareholders, holders of senior debt, depositors and other holders of banking products. Other uncertainties, such as the retroactive nature of this agreement or the restrictions on the use of ESM funds, will not be resolved before June. Consequently, the gloom and legal uncertainty in Europe\u2019s periphery remain such that one would be well advised to make a run for it. And the big unknown remains the order in which people\u2019s assets will be affected when it is Spain\u2019s turn and there is not enough money from shareholders, preference shareholders (whose holdings are now worth almost nothing), bondholders and depositors. A word of warning.<\/p>\n

Let us therefore stick to the facts:<\/p>\n

    \n
  1. The economies of the Eurozone are diverging more and more every day<\/strong>, given that debt and mistrust regarding their insolvency are dragging them \u2013 and us \u2013 down into irremediable misery. Meanwhile, Germany and its satellites continue to post figures that, whilst bleak \u2013 as in the rest of the developed world \u2013 are nonetheless enviable, which distances them ever further from the free fall we are experiencing.<\/li>\n
  2. The holders of the peripheral countries\u2019 unpayable public debt are increasingly domestic<\/strong>. Thanks to the LTROs and other covert \u2018free-for-alls\u2019 by the ECB, local banks have been hoarding national debt, thereby subtly but steadily sparing the rest of the countries from suffering the disastrous consequences of defaults, debt write-downs or falls in bond prices (rises in the respective risk premiums) of peripheral debt. Consequently, the risk of the much-feared and formidable contagion across the entire Eurozone has been steadily diminishing, clearing the way for a resolution via bankruptcy, default or whichever euphemism is currently in vogue.<\/li>\n
  3. The shortfalls arising from bank and\/or sovereign insolvency in each peripheral country will be covered by the savings and investments of their own residents<\/strong>. The way forward is now clear. Each town will pay for its own excesses by having the money seized directly from its banks \u2013 in short, from wherever it is and there is enough<\/a><\/strong>.<\/li>\n<\/ol>\n

    At this point, you will find it very enlightening to read this extract from the article in which Martin Wolf of the Financial Times gave us a preview of his <\/span>Euroscepticism<\/a><\/strong> A couple of years ago now: <\/span><\/p>\n

    \u201c<\/span>The eurozone, as designed, has failed. It was based on a set of principles that have proved unworkable at the first sign of a financial and fiscal crisis. It has only two options: to move forwards towards a closer union or backwards towards at least partial dissolution. This is what is at stake. The eurozone was supposed to be an updated version of the classical gold standard. Countries with an external deficit receive private financing from abroad. If such financing dries up, economic activity shrinks. Unemployment then drives down wages and prices, causing an \u201cinternal devaluation\u201d. In the long run, this should result in sustainable balances in the external payments and fiscal accounts, though only after many years of hardship. In the eurozone, however, much of this borrowing flows through banks. When the crisis strikes, liquidity-starved banking sectors begin to collapse. Credit-constrained governments can do little, if anything, to prevent this from happening. This, then, is a gold standard on financial sector steroids. The role of banks is central. Almost all the money in a contemporary economy consists of the liabilities of financial institutions.\u00a0In the eurozone, for example, currency in circulation accounts for just 9 per cent of broad money (M3). If this is a genuine monetary union, a deposit in any eurozone bank must be equivalent to a deposit in any other bank. But what happens if the banks in a particular country are on the verge of collapse? The answer is that this presumption of equal value no longer holds<\/strong>.\u00a0A euro in a Greek bank is no longer the same as a euro in a German bank<\/strong>.\u00a0In this situation, there is not only the risk of a run on a bank but also the risk of a run on the national banking system<\/strong>. This is, of course, what the federal government has prevented in the US.<\/em>\u201c<\/span><\/p>\n

    Without a banking union, and with the intention that each country should bear its own debt and repay it using its citizens\u2019 money, the single currency is no longer \u2018single\u2019. A euro held in a Cypriot bank is not, and will never be, the same as a euro deposited in a Spanish bank or one deposited in a German bank. Only 40 cents remain of the Cypriot euro, and even those are frozen in their own \u2018corralito\u2019. The Spanish euro is not yet frozen, but it may well have to bear the brunt of the cuts to cover the debt that neither the Spanish state nor its banking system can repay. In contrast, the German euro will not only remain intact, but its exchange rate against the US dollar or other currencies that have been blithely printed will tend to rise. As you can see, Nowadays, the euro is no longer a single currency; its value and freedom of movement vary considerably depending on the country in which it is held<\/strong>. Naturally, there are other factors that influence the future of each euro, as we explain in our latest article<\/a>. It is therefore essential the way we treat him<\/a><\/strong> to the management of our assets today.<\/p>\n

    It therefore seems clear that the Eurozone project and its single currency have entered a process of decline, the outcome of which may be the Europe of old: a cultural and ancestral Tower of Babel, capable of both the best and the worst. Capable of waging cruel wars to the point of dragging the rest of the world into its misery, except that nowadays weapons and violent invasions have been replaced by financial domination and subjugation of the weakest and least solvent nations. We are leaving behind a utopian and unviable Eurozone to return to the old, diverse and divergent Europe.<\/p>\n

    Finally, I\u2019ll leave you with a word of wisdom from Sir Arthur Conan Doyle, which I think is very relevant to the situation Brussels is currently facing:<\/p>\n

    \u201cOnce the impossible has been ruled out, what remains, however improbable it may seem, must be the truth\u201c.\u201c<\/strong><\/p>","protected":false},"excerpt":{"rendered":"

    La Eurozona como tal no tiene futuro, puesto que la decisi\u00f3n final de los pa\u00edses solventes del norte es la de apartarse y que cada palo aguante su vela. De ese modo, sin esa tan cacareada solidaridad europea prometida por los pol\u00edticos, que ha resultado ser tan ingente como imposible, las diferencias econ\u00f3micas entre el […]<\/p>\n","protected":false},"author":6,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[38,45,39,40,37,48,55],"tags":[],"class_list":["post-3030","post","type-post","status-publish","format-standard","hentry","category-actualidad","category-asesoramiento-deportistas-artistas","category-crear-mi-propio-family-offices","category-gestion-financiera","category-reflexion","category-asesoramiento-patrimonial-multi-family-office-crear-mi-propio-family-offices","category-necesito-un-family-office"],"_links":{"self":[{"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/posts\/3030","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/comments?post=3030"}],"version-history":[{"count":0,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/posts\/3030\/revisions"}],"wp:attachment":[{"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/media?parent=3030"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/categories?post=3030"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/tags?post=3030"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}