Day of rage in Greece as more stringent cuts loom – Europe – World – The Independent.
Day of rage in Greece as more stringent cuts loom – Europe – World – The Independent
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Tag Archives: Germany
Europe’s Got A New Crisis, And This Time The ECB Can’t Solve It – Business Insider
Similiarities Between Obama And Hitler
The similarities are terrifying, the conclusion inevitable. On March 23, 1933, the German Parliment met to consider passing a bill that Adolf Hitler had created called the Enabling Act. It was officially called the ‘Law for Removing the Distress of the People and the Reich.’ Why were the German people in such distress? Because their government was in utter chaos, and the German leaders wanted to reassure the people that everything would be ok. The only fly in the ointment was that the Nazis had, behind the scenes, caused the distress themselves by creating the crisis, so that they could step in and solve it. Sound familiar?
America under Obama is now a democratic Republic in name only
Hitler promised the German people that the government would “make use of these powers only insofar as they are essential for carrying out vitally necessary measures…The number of cases in which an internal necessity exists for having recourse to such a law is in itself a limited one.” So the German congress voted on the bill, with the end result being the legal destruction of the German Democratic Republic. The bill gave Hitler enormous, unprecedented powers to do as he saw fit for the government of the German people. It was the act that offically created a legal dictator who was answerable to no one. The people cheered, andNational Socialism became the law of the land from that day forward. source – The History Place
Powerful speeches to hypnotize and control the eager masses who came to hear them speak
Today, Barack Obama is changing times and laws in America, giving himself unprecedented powernever before seen. His ObamaCare bill. now the law of the land, empowers him to create his own private army, forces citizens to abide by unconstitutional laws, and will use the IRS in much the same way that Hitler used his brown shirts to make people get in line behind his policies. Many Americans
will awake to late to the fact that Obama has subverted the United States Constitution, and stolen our precious liberties and freedoms. That’s why Obama’s followers are encouraged and taught to follow and have faith in Obama the man, and not in our God or in our country. This is exactly the ploy that Hitler used to great and terrible effect in Nazi Germany..
Rep. Dingell admits that the goal of ObamaCare is to ‘control the people’.
Some people would balk at the comparisonbetween Hitler and Obama, saying it was unfair. After all, Hitler started WWII and killed 11,000,000 Jews and Gentiles in death camps, and Obama has done nothing like that. Well, it’s only unfair if you compare Hitler at the end of his rule to the beginning of Obama’s. But if you compare Hitler and Obama at the beginning of their rise to power, it’s extremely fair.
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Similiarities between Adolf Hitler & Barack Hussein Obama
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Both Hitler and Obama held rallies in outdoor stadiums to excite and inflame the people’s passions. Frequently women would faint or break into tears. | |
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Both Hitler and Obama wrote ghost-written autobiographies prior to the start of theri run for political office. Hitler wrote Mein Kampf (My Struggle), and Obama wrote Dreams Of My Father. Both men then wrote a second book talking about their goals for German and America. Hitler wrote A New World Order, and Obama wrote The Audacity of Hope. |
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Both Hitler and Obama originally had last names that were changed later in life. Hitler used to be Schickelbruber, and Obama’s last name was Soetoro. | |
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Both Hitler and Obama hid their real identies. Hiter had a Jewish ancestry, and Obama a Muslim one. But unlike Hitler, Obama flaunted his Muslim roots in his start as a politician in order to defuse the inevitable firestorm. His ploy of “hiding in plain sight” worked very well. |
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Both Hitler and Obama’s supporters followed them blindly, and without question | |
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Both Hitler and Obama used political power and coercion to conceal and hide their birth certificates from coming to public view. Hitler made his disappear, and Obama is unwilling and unable to produce his long-form birth certificate. | |
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Both Hitler and Obama advocate using young people as a driving force to create an “army” of youth dedicated to their Ideals. Hitler had his Hitler Youth, and Obama his Obama Youth Brigade. |
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Both Hitler and Obama were known for their tremendous oratorical skills | |
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Both Hitler and Obama received Messianic comparisons, and both men had songs of adoration written about them and for them. | |
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Like Hitler, Obama rules in direct disregard to the will and wishes of the people. | |
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Like Hitler, Obama has an obvious distaste for the Jews, and sides with the Muslims every chance he gets. | |
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Both Hitler and Obama were able to mezmerize the people even when it was obvious that what they were saying was not true. | |
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Both Hitler and Obama used domestic terrorists to launch their careers. Hitler had his Brown Shirts from his beer hall days, and Obama had people like Bill Ayers, Bernardine Dohrn, and Rashid Khalidi. | |
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Like Hitler, Obama advocates using murder as a means of population control. | |
Still think it’s an unfair comparison? You won’t after watching this -
Obama youth pledging allegiance to Obama and promoting his agenda
http://nowtheendbegins.com/pages/obama/obama-and-hitler-similarities.htm
Germany: “Islamists Want to Bring Jihad To Europe”
http://www.gatestoneinstitute.org
German Intelligence Chief Gerhard Schindler has issued a warning saying that Europe is at great risk of terrorist attacks by Islamic extremists.
In a wide-ranging interview with the German newspaper Die Welt, Schindler said the German foreign intelligence agency, the Bundesnachrichtendienst (BND), is particularly concerned about the threat posed by homegrown terrorists, individuals who are either born or raised in Europe and who travel to war zones like Afghanistan, Pakistan, Somalia or Yemen to obtain training in terrorist methods.
Schindler said: “A particular threat stems from Al Qaeda structures in Yemen. They want to bring Jihad to Europe. Among other tactics, this involves the ‘lone wolf’ model, which involves individuals who are citizens of the targeted country and who go abroad for training. We know that this is strategy is currently high on Al Qaeda’s agenda, and we are accordingly attentive.”
Schindler’s comments came just days after Spanish authorities arrested three suspected al Qaeda terrorists who were allegedly plotting an airborne attack on a shopping mall near Gibraltar, the British overseas territory on the southernmost tip of Spain.
Schindler’s warning also comes amid the backdrop of a high-security court trial of four suspected Al Qaeda members which began in the German city of Düsseldorf on July 25. German public prosecutors say the defendants — three home grown Islamists born in the German state of North Rhine-Westphalia and one Moroccan national — were planning to stage a “sensational terror attack” in Germany.
Also known as the “Düsseldorfer Cell,” the defendants are also accused of plotting to assassinate the former commander of German Special Forces (KSK Kommando Spezialkräfte) as well as to attack the US Army base in the Bavarian town of Grafenwöhr.
German authorities began monitoring the group in early 2010, when the American Central Intelligence Agency alerted German police to the fact that the Moroccan, Abdeladim el-Kebir, 31, had entered Germany after having been trained at an Al Qaeda camp in Waziristan along the Afghanistan-Pakistan border in 2010.
German public prosecutors say El-Kebir, also known as Abi al-Barra, was the ringleader of the Düsseldorfer Cell and, following orders from an unidentified senior Al-Qaeda operative, in November 2010 began working on a plot to blow up public buildings, train stations and airports in Germany. After several months of surveillance by German police, El-Kebir was arrested in April 2011.
Before his arrest, El-Kebir also recruited three accomplices he knew from his student days in the German city of Bochum: a 32-year-old German-Moroccan named Jamil Seddiki, a 21-year-old German-Iranian named Amid Chaabi, and a 28-year-old German named citizen Halil Simsek. The three were arrested in Germany in December 2011.
Prosecutors say that Seddiki was in charge of producing explosives while Chaabi and Simsek were responsible for communications with the al Qaeda leadership.
During testimony in court, it emerged that all four defendants led inconspicuous lives. Simsek, for example, who was born in the German city of Gelsenkirchen, earned a degree in mechanical engineering from the University of Bochum.
He had wanted to become a German police officer but his application was rejected for medical reasons. Chaabi, who was born in Bochum, was studying Information Technology at the University of Hagen when he was arrested. Seddiki, a high school graduate, was working as an electrician.
Prosecutors have compiled 260 ring-binders containing evidence gathered by investigators; the prosecutor’s arraignment runs to 500 pages. The main accusation against the men is that they set up a terrorist cell and prepared to commit murder.
Federal Prosecutor Michael Bruns told the court that the defendants “planned to carry out a spectacular and startling attack” in Germany and that the defendants “wanted to spread fear and horror.”
The trial is expected to run for 30 days; a verdict is expected in November. If the four accused men are found guilty, they face up to ten years in prison.
(In November 2011, a federal court in Brooklyn, New York indicted el-Kebir on charges of conspiring to provide Al-Qaeda with explosives and training. If extradited and convicted, el-Kebir faces a maximum sentence of life imprisonment.)
Underscoring German officialdom’s anxiety over home grown Islamic terrorism, the German state of Lower Saxony recently published a practical guide to extremist Islam to help citizens identify tell-tale signs of Muslims who are becoming radicalized.
Security officials said the objective of the document is to mitigate the threat of home-grown terrorist attacks by educating Germans about radical Islam and encouraging them to refer suspected Islamic extremists to the authorities — a move that reflects mounting concern in Germany over the growing assertiveness of Salafist Muslims, who openly state that they want to establish Islamic Sharia law in the country and across Europe.
The 54-page document, “Radicalization Processes in the Context of Islamic Extremism and Terrorism,” which provides countless details about the Islamist scene in Germany, paints a worrisome picture of the threat of radical Islam there.
According to the report, German security agencies estimate that approximately 1,140 individuals living in Germany pose a high risk of becoming Islamic terrorists. The document also states that up to 100,000 native Germans have converted to Islam in recent years, and that “intelligence analysis has found that converts are especially susceptible to radicalization…Security officials believe that converts comprise between five to ten percent of the Salafists.
German army’s crisis role widened
Posted by The Extinction Protocol: 2012 and beyond
August 17, 2012 – BERLIN – The German military will in future be able to use its weapons on German streets in an extreme situation, the Federal Constitutional Court says. The ruling says the armed forces can be deployed only if Germany faces an assault of “catastrophic proportions,” but not to control demonstrations. The decision to deploy forces must be approved by the federal government. Severe restrictions on military deployments were set down in the German constitution after Nazi-era abuses. The court says the military still cannot shoot down a hijacked passenger plane – fighter jets would have to intercept the plane and fire warning shots to force it to land. After World War II the new constitution ruled that soldiers could not be deployed with guns at the ready on German soil, the BBC’s Stephen Evans reports from Berlin. The court has now changed that, saying troops could be used to tackle an assault that threatens scores of casualties. The judges had in mind a terrorist incident involving armed attackers in public places. German troops have been deployed abroad since the war, but it has been a gradual process. German warplanes have been used in the Balkans and troops are on the ground in Afghanistan, protecting construction workers, but able to return fire if attacked. –BBC
Spain And Italy Are Toast Unless Germany Allows The ECB To Print Trillions Of Euros
Published by
The Economic Collapse
The financial chess game in Europe is still being played out, but in the end it is going to boil down to one very fundamental decision. Is Germany going to allow the ECB to print up trillions of euros and use those euros to buy up the sovereign debt of troubled eurozone members such as Spain and Italy or not? Nothing short of this is going to solve the problems in Europe. You can forget the ESM and the EFSF. Anyone that thinks they are going to solve the problems in Europe is someone that would also take a water pistol to fight a raging wildfire. No, the only thing that is going to keep Spain and Italy from collapsing under the weight of a mountain of debt is a financial nuke. The ECB needs to have the power to print up trillions of euros and use that money to buy up massive amounts of sovereign debt in order to guarantee that Spain and Italy will be able to borrow lots more money at very low interest rates. In fact, this is probably what European Central Bank President Mario Draghi has in mind when he says that he is going to “do whatever it takes to preserve the euro”. However, there is one giant problem. The ECB is not going to be able to do this unless Germany allows them to. And after enduring the horror of hyperinflation under the Weimar Republic, Germany is not too keen on introducing trillions upon trillions of new euros into the European economy. If Germany allows the ECB to go down this path, Germany will end up experiencing tremendous inflation and the only benefit for Germany will be that the eurozone was kept together. That doesn’t sound like a very good deal for Germany.
Right now, the yield on 10 year Spanish bonds is above 7 percent and the yield on 10 year Italian bonds is above 6 percent.
Those are unsustainable levels.
The only thing that is going to bring those bond yields down permanently to where they need to be is unlimited ECB intervention.
But that is not going to happen without German permission.
Meanwhile, the situation in Spain gets worse by the day.
An article in Der Spiegel recently described the slow motion bank run that is systematically ripping the Spanish banking system to shreds….
Capital outflows from Spain more than quadrupled in May to €41.3 billion ($50.7 billion) compared with May 2011, according to figures released on Tuesday by the Spanish central bank.
In the first five months of 2012, a total of €163 billion left the country, the figures indicate. During the same period a year earlier, Spain recorded a net inflow of €14.6 billion.
If those numbers sound really bad to you, that is because they are really bad.
At this point, authorities in Spain are starting to panic. According to Graham Summers, Spain has imposed the following new capital restrictions during the last month alone….
- A minimum fine of €10,000 for taxpayers who do not report their foreign accounts.
- Secondary fines of €5,000 for each additional account
- No cash transactions greater than €2,500
- Cash transaction restrictions apply to individuals and businesses
How would you feel if the U.S. government permanently banned all cash transactions greater than $2,500?
That is how crazy things have already become in Spain.
We should see the government of Spain formally ask for a bailout pretty soon here.
Italy should follow fairly quickly thereafter.
But right now there is not enough money to completely bail either one of them out.
In the end, either the ECB is going to do it or it is not going to get done.
A moment of truth is rapidly approaching for Europe, and nobody is quite sure what is going to happen next. According to the Wall Street Journal, the central banks of the world are on “red alert” at this point….
Ben Bernanke and Mario Draghi, with words but not yet actions, demonstrated this week that they are on red alert about the global economy.
Expectations are now high that Mr. Bernanke’s Federal Reserve and Mr. Draghi’s European Central Bank will act soon to address those worries. But both face immense tactical and political challenges and neither has a handbook to follow.
So what happens if Germany does not allow the ECB to print up trillions of new euros?
Financial journalist Ambrose Evans-Pritchard recently described what is at stake in all of this….
Failure to halt a full-blown debt debacle in Spain and Italy at this delicate juncture – with China, India and Brazil by now in the grip of a broken credit cycle and the US on the cusp of fresh recession even before the “fiscal cliff” hits – would tip the entire global system into a downward spin, triggering the sort of feedback loop that caused such havoc in late 2008.
As I have written about so frequently, time is running out for the global financial system.
Even Germany is starting to feel the pain. This week we learned that unemployment in Germany has risen for four months in a row.
So what comes next?
There is actually a key date that is coming up in September. The Federal Constitutional Court in Germany will rule on the legality of German participation in the European Stability Mechanism on September 12th.
If it is ruled that Germany cannot participate in the European Stability Mechanism then that is going to create all sorts of chaos. At that point all future European bailouts would be called into question and many would start counting down the days to the break up of the entire eurozone.
If Germany did end up leaving the eurozone, the transition would not be as difficult as many may think.
For example, most Americans may not realize this but Deutsche Marks are currently accepted at many retail stores throughout Germany. The following comes from a recent Wall Street Journal article….
Shopping for pain reliever here on a recent sunny morning, Ulrike Berger giddily counted her coins and approached the pharmacy counter. She had just enough to make the purchase: 31.09 deutsche marks.
“They just feel nice to hold again,” the 55-year-old preschool teacher marveled, cupping the grubby coins fished from the crevices of her castaway living room sofa. “And they’re still worth something.”
Behind the counter of Rolf-Dieter Schaetzle’s pharmacy in this southern German village lay a tray full of deutsche mark notes and coins—a month’s worth of sales.
I have a feeling that it would be much easier for Germany to leave the euro than it would be for most other eurozone members to.
The months ahead are certainly going to be very interesting, that is for sure.
Europe is heading for a date with destiny, and what transpires in Europe is going to shake the rest of the globe.
Sadly, most Americans still aren’t too concerned with what is going on in Europe right now.
Well, if you still don’t think that the problems in Europe are going to affect the United States, just check this news item from the Guardian….
General Motors’ profits fell 41% in the second quarter as troubles in Europe undercut strong sales in North America.
America’s largest automaker made $1.5bn in the second quarter of 2012, compared with $2.5bn for the same period last year. Revenue fell to $37.6bn from $39.4bn in the second quarter of 2011. The results exceeded analysts’ estimates, but further underlined Europe’s drag on the US economy.
Profits at General Motors are down 41 percent and Europe is being blamed.
The global economy is more tightly integrated than ever before, and there is no way that the financial system of Europe collapses without it taking down the United States as well.
And considering the fact that the U.S. economy has already been steadily collapsing, the last thing we need is for Europe to come along and take our legs out from underneath us.
So what do all of you think about the problems in Europe?
Do you see any possible solution?
Please feel free to post a comment with your thoughts below….
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Is Eurozone crisis spreading to Germany? investor confidence declines for 3rd consecutive month
Posted by The Extinction Protocol: 2012 and beyond
July 17, 2012 – BONN, GERMANY – German analyst and investor sentiment dropped for a third consecutive month in July, a survey showed on Tuesday, providing further evidence that the euro zone crisis is taking its toll on morale in Europe’s largest economy. But the ZEW think tank, which conducts the monthly poll, said expectations may have now hit bottom and that the outlook for the rest of the year should prove stable. The main reading from the ZEW poll of economic sentiment slid to -19.6 from -16.9 in June, coming in slightly above the median forecast in a Reuters poll of 38 economists for a drop to -20.0. The index measuring current conditions fell to 21.1, the lowest level since June 2010, and compared with 33.2 last month. “The latest stock market stabilisation, the ECB’s rate cut, the weaker euro exchange rate and lower oil prices have all not succeeded in brightening up German investors,” said ING economist Carsten Brzeski. “(The survey) will clearly add to growing concerns about the strengths of the German economy. However, throughout the financial crisis, the ZEW index has been a euro crisis thermometer rather than a good leading indicator for German growth.” ZEW President Wolfgang Franz said the decline in expectations for the end of 2012 was flattening out gently. “This could possibly be an early sign of an encouraging development in 2013,” he said, but added that the risks should not be underestimated. “Besides the weak demand from the euro zone for German exports, the German economy is also burdened by weakening growth dynamics in other important partner countries,” he said. ZEW economist Michael Schroeder said he would not be surprised if Tuesday’s data had hit the bottom line in terms of expectations. “Our forecast is until year-end and for this year from now on it is more or less stable. From now on the (economic) development should be stable until the year end,” he said. German retailers have been feeling the effects of the debt crisis engulfing much of Europe – department store chain Karstadt said on Monday it would cut 2,000 jobs and the chief executive of Metro, the world’s No. 4 retailer, said earlier this month the debt crisis was hurting demand. -Reuters
Debt desperation: France joins Germany to sell T-Bills at negative yield
Posted by The Extinction Protocol: 2012 and beyond
July 9, 2012 – EUROZONE – France joined a handful of euro-zone countries Monday in selling short-term debt at negative interest rates as investors seek alternatives to expensive German and Dutch debt. Earlier in the day, Germany’s six-month borrowing costs again turned negative at an auction, after the European Central Bank slashed its key policy and deposit rates to unprecedented levels last week. The negative yield at Monday’s German auction, the lowest on record in this maturity segment, means that investors effectively pay the German state for the privilege of holding its debt. The Dutch State Treasury Agency had already sold Treasury Certificates, or short-term debt, at negative yields. Now the French government is doing so as well. Germany sold 3.290 billion euros ($4.041 billion) of six-month Treasury bills, known as Bubills, at an average yield of -0.0344%. This is not only below the 0.0070% reached at the previous auction June 11 but also lower than the -0.0122% seen at an auction Jan. 9. France sold EUR3.917 billion of 13-week Treasury bills at an average yield of -0.005%, down from 0.048% a week ago, and it sold EUR1.993 billion of 24-week Treasury bills at an average yield of -0.006%, down from 0.096% last week. Yields on France’s 50-week Treasury bills also came very close to zero, being allocated at an average yield of 0.013%, down from 0.163% a week ago. The German Finance Agency’s EUR4 billion offer attracted EUR5.480 billion in bids. The solid demand signals that many investors are still willing to forego returns in exchange for safety. While German yields have turned negative several times in the secondary market, this is the second time so far this year that borrowing costs were negative at a German debt auction. -WSJ
80,000 Earthquakes A Month: What’s Shaking The Planet?
Posted by truther
Next time someone asks you what’s shaking, just answer the Earth. You won’t be wrong.
Every month the earth is shaken by approximately 80,000 earthquakes; in fact, at a rate of 2 earthquakes a minute, there is an earthquake taking place somewhere while you read this article.
However, thankfully many of these go undetected because they hit remote areas or have such small magnitudes that they are practically imperceptible.
Now new European research, headed by the Karlsruhe Institute of Technology (KIT) in Germany, is investigating these subtle seismic rumblings, in the hope that they will give us clues about the behaviour of all types of earthquakes, including the more destructive earthquakes that occur at shallower depths.
The rumblings being investigated belong to the tectonic tremor, a less hazardous form of seismic activity that occurs far deeper into the earth’s core than the devastating earthquakes that occur much closer to the earth’s surface.
One major difference between tectonic tremor and earthquakes is that tectonic tremor causes relatively weak ground shaking and is not cause for immediate concern.
‘Both earthquakes and tremor have the same cause. They result from the relative movement on fault surfaces, a result of the motion of the tectonic plates,’ explains seismologist Dr Rebecca Harrington, who heads a research group at KIT. ‘While earthquakes at our research site in California typically occur at depths of up to 15 km below the surface, tectonic tremor signals are generated at depths ranging from approximately 15 to 35 km.’
We know little about tectonic tremor because they were only discovered about a decade ago. This knowledge gap prompted KIT researchers to collect tectonic tremor seismic data in California, which is now being evaluated in order to better understand this relatively new seismic phenomenon.
While seismologistsadmit that we are still a long way from being able to predict earthquakes, we have however improved our ability to estimate the danger posed by earthquakes by understanding what happens on a fault during a seismic event.
According to Dr Harrington, research of tectonic tremor may play an important role in understanding fault behaviour: ‘We understand very little about what happens on a fault when it ruptures. The tectonic tremor generated on the deep part of a fault may provide clues about the behaviour on the more shallow parts of a fault where more damaging earthquakes occur.’
California is an excellent place to start research as tectonic tremor was first detected in subduction zones in the Pacific Northwest in North America and in Japan. Subduction zones are the areas where one tectonic plate moves under another tectonic plate. Since their discovery seismologists have discovered that tremor occurs in many other places, including the San Andreas Fault in California. The San Andreas Fault marks the boundary where the Pacific Plate and the North American Plate drift past each other; during this process earthquakes are generated.
Earthquakes from a North Pole perspective
Credit: NASA
Back in mid-2010, KIT researchers working together with scientists from the University of California, Riverside, and the US Geological Survey, Pasadena, installed 13 seismic stations near Cholame, located approximately halfway between San Francisco and Los Angeles. Each seismic station was then equipped with a broadband seismometer in a thermally insulated hole in the ground, a small computer and a solar panel for power. The broadband seismometers used are extremely sensitive to small ground motions and were therefore considered ideal for detecting tremor and small earthquakes. The data recorded over a 14-month period is currently being analysed at KIT.
Work however began before the installation of the seismic stations. Because tectonic tremor signals have a unique character that differs from earthquakes, they were more difficult to detect using traditional automated techniques. To overcome this challenge, KIT researchers first developed a new algorithm for the automatic isolation of tectonic tremor. Using their new technique, they found over 2,600 tremor events that are now being studied in detail. ‘In addition to detecting tremor, we will determine their size or magnitude of the individual events. In order to do so, each of the tremor events must be precisely located,’ says Dr Harrington.
Earthquakes from a South Pole perspective
Credit: NASA
KIT geophysicists are also comparing the tremor and earthquake recordings in California with earthquake recordings at the Mount St. Helens volcano, located in the Cascadia subduction zone in the US state of Washington. Between October 2004 and January 2008 the Mount St. Helens volcano continuously erupted with a gradual extrusion of magma which resulted in the gradual building up of a new lava dome. This gradual eruption prompted a series of earthquakes on newly formed faults from which data was collected.
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The Disastrous Consequences of a Euro Crash
Posted by truther
It wasn’t long ago that Mario Draghi was spreading confidence and good cheer. “The worst is over,” the head of the European Central Bank (ECB) told Germany’s Bild newspaper only a few weeks ago. The situation in the euro zone had “stabilized,” Draghi said, and “investor confidence was returning.” And because everything seemed to be on track, Draghi even accepted a Prussian spiked helmet from the reporters. Hurrah.
Last week, however, Europe’s chief monetary watchdog wasn’t looking nearly as happy in photos taken in front of a circle of blue-and-yellow stars inside the Euro Tower, the ECB’s Frankfurt headquarters, where he was congratulating the winners of an international student contest. He smiled, shook hands and handed out certificates. But what he had to tell his listeners no longer sounded optimistic. Instead, Draghi sounded deeply concerned and even displayed a touch of resignation. “You are the first generation that has grown up with the euro and is no longer familiar with the old currencies,” he said. “I hope we won’t experience them again.”
The fact that Europe’s top central banker is no longer willing to rule out a return to the old national currencies shows how serious the situation is. Until recently, it was seen as a sign of political correctness to not even consider the possibility of a euro collapse. But now that the currency dispute has escalated in Europe, the inconceivable is becoming conceivable, at all levels of politics and the economy.
Collapse of Currency a ‘Very Likely Scenario’
Investment experts at Deutsche Bank now feel that a collapse of the common currency is “a very likely scenario.” German companies are preparing themselves for the possibility that their business contacts in Madrid and Barcelona could soon be paying with pesetas again. And in Italy, former Prime Minister Silvio Berlusconi is thinking of running a new election campaign, possibly this year, on a return-to-the-lira platform.
Nothing seems impossible anymore, not even a scenario in which all members of the currency zone dust off their old coins and bills — bidding farewell to the euro, and instead welcoming back the guilder, deutsche mark and drachma.
It would be a dream for nationalist politicians, and a nightmare for the economy. Everything that has grown together in two decades of euro history would have to be painstakingly torn apart. Millions of contracts, business relationships and partnerships would have to be reassessed, while thousands of companies would need protection from bankruptcy. All of Europe would plunge into a deep recession. Governments, which would be forced to borrow additional billions to meet their needs, would face the choice between two unattractive options: either to drastically increase taxes or to impose significant financial burdens on their citizens in the form of higher inflation.
A horrific scenario would become a reality, a prospect so frightening that it ought to convince every European leader to seek a consensus as quickly as possible. But there can be no talk of consensus today. On the contrary, as the economic crisis worsens in southern Europe, the fronts between governments are only becoming more rigid.
The Italians and Spaniards want Germany to issue stronger guarantees for their debts. But the Germans are only willing to do so if all euro countries transfer more power to Brussels — steps the southern member states, for their part, don’t want to take.
The Patient Is Getting Worse
The discussion has been going in circles for months, which is why the continent’s debtor countries continue to squander confidence, among both the international financial markets and their citizens. No matter what medicine European politicians prescribe, the patient isn’t getting any better. In fact, it’s only getting worse.
For weeks, investors and experts demanded a solution to the Spanish banking crisis, preferably in the form of a cash infusion from the two Luxembourg-based European bailout funds, the European Financial Stability Facility (EFSF) and the European Stability Mechanism (ESM). When Madrid finally decided to request what could ultimately amount to almost €100 billion ($125 billion), the experts realized that this would suddenly send Spain’s government debt shooting up from 70 to 80 percent. As a result, interest rates started rising instead of falling.
The experience of the last few days describes the entire dilemma faced by European politicians trying to rescue the euro: A step that was intended to provide relief only exacerbated the problem.
The same thing happened with the next proposal, which made the rounds last week. Italian Prime Minister Mario Monti wanted the European bailout funds to intervene on behalf of Spain and Italy to bring down their borrowing costs.
But that would have required the affected countries to submit to a program of reforms, a path Monti and his Spanish counterpart, Mariano Rajoy, want to avoid. They would prefer to have the money without conditions. But the German government is unwilling to accept this, which puts Europe at its next impasse. Furthermore, the rescue strategists’ resources are limited. Although the Luxembourg bailout funds still have more than €600 billion in uncommitted resources, it is already clear that the money would be used up quickly if what many experts now believe is unavoidable came to pass, namely that not just the Spanish banking industry but in fact the entire country required a bailout. The bailout funds would be completely overtaxed if Italy also needed help.
Even ECB Has Largely Exhausted Resources
Until now, the defenders of the euro have been able to resort to the massive funds of the ECB, if necessary. If things got tight, the monetary watchdogs could inject new money into the market.
But now even the ECB has largely exhausted its resources. It has already bought up so much of the sovereign debt of ailing countries that any additional shopping spree threatens to backfire, causing interest rates to explode instead of fall. At the same time, the conflict between Northern and Southern Europe in the ECB Governing Council is heating up. Last week, the head of Spain’s central bank managed to convince the ECB to ease its rules to allow Spanish banks to use even weaker collateral than before in exchange for borrowing money from the ECB. This could set off a tiff with the central bankers from the donor countries, who are loath to look on as the risks in the central bank’s balance sheet continue to grow.
Indeed, the European leaders seeking to save the euro are in a race against the clock. The question is whether the economy in Southern Europe will recover before the euro rescuers’ tools are exhausted, or whether it will be too late by the time the recovery arrives. It’s a question of growth and the economy, but also of character. How willing are the Spaniards and Italians to accept reforms and hardship, and how willing, on the other hand, are the donor countries of the north to provide assistance and make sacrifices?
Not willing enough, say many experts. As a result, the world is imagining the unthinkable: the withdrawal of several Southern European countries from the monetary union, or possibly even the general collapse of the euro zone. It isn’t easy to predict how such a tornado would affect the global economy, but it’s clear that the damage would be immense.
It’s also clear, says Hamburg economist Dirk Meyer, that the timetable for a euro exit in the affected countries would begin on a Monday, or “Day X.” Over the weekend, the governments would have issued the surprising announcement that banks would remain closed on Monday. The bank holiday would be needed to include all savings and checking accounts in the operation.
On Tuesday, the banks and savings banks would begin stamping their customers’ bank notes with forgery-proof ink. Capital transactions would be monitored. Black market prices would quickly develop in what the scenario defines as an “unofficial, virtual currency market.” Another bank holiday would be needed to convert accounts and balances to the new currency. But at least another year would pass before new bank notes could be printed and distributed. The stamped euro banknotes would remain legal tender in the meantime.
But these are merely the technical consequences of a monetary reform. The economic consequences, which many German companies are now assessing, would be more serious. What happens if, in addition to Greece, other countries have to leave the euro zone? What will be the consequences if Spain, Portugal or Italy reintroduce their own currencies? Experts in the finance departments of some companies are already envisioning the possible scenarios.
For instance, they are examining whether the “euro” is explicitly defined as the agreement currency in contracts with customers from problem countries, so that they don’t suddenly find themselves being paid in drachmas or escudos for their products. They are also looking into whether the costs incurred by a possible currency crash would be tax-deductible. And they are examining the potential need for write-offs if claims against business partners from southern countries are suddenly denominated in new currencies on their balance sheets. “The demand for consulting services has risen considerably in recent months,” says Gunnar Schuster, an attorney with the law firm Freshfields Bruckhaus Deringer.
Germany Would Be Hard Hit
Germany, the great exporting nation, would be especially hard hit by monetary reforms in the southern countries. Exports to Italy and Spain alone are valued at about €100 billion a year. Although sales of cars, machinery, electronics and optical devices would not be eliminated altogether in the event of a euro collapse, there would be sharp declines, because customers in Southern Europe could no longer afford German products.
As soon as lira or pesetas were in circulation once again, the currencies would be devalued against the euro. Some expect their value to decline by 20 to 25 percent, while others believe that as much as 40 percent is likely. German goods would automatically become more expensive and would hardly be competitive anymore.
When BMW CEO Norbert Reithofer warns that a collapse of the euro “would be a catastrophe,” and says that he “doesn’t even want to imagine” the possible consequences, he isn’t just thinking about declining exports. Reithofer fears that regionalism could return to Europe, and that countries could reintroduce customs barriers to protect domestic industry. And the current uniform environment protection rules would be replaced by a large number of national regulations. All of this would plunge the German export economy into a crisis.
The consequences would be extensive for companies that don’t just sell products to Southern Europe, but also maintain branches there or hold partnerships in local companies. The German industrial conglomerate ThyssenKrupp, for example, earns about €1.6 billion in revenues in Spain, where it also employs 5,500 people, mostly in elevator production. Even more important to the company is Italy, where it makes €2.3 billion a year, mostly with the production of stainless steel.
ThyssenKrupp’s business in Italy and Spain makes up 9 percent of total sales, which illustrates the importance of the two countries in terms of profits. If a reintroduced lira and peseta were devalued against the euro, the amount of money that the subsidiaries transferred to the parent company in the western German city of Essen would shrink.
A look at the statistics of Germany’s central bank, the Bundesbank, illustrates the amounts of money at stake for the economy. They show that in 2010, German companies achieved sales of about €218 billion in Italy, Spain, Portugal, Greece, Ireland and Cyprus, with Italian subsidiaries alone accounting for €96 billion. The value of foreign direct investment in these countries is about €90 billion.
German companies would also benefit from a euro crash, because labor costs would decline in their Portuguese or Spanish factories, but on balance the consequences would be negative. After the last appreciation of the currency in Germany, when the deutsche mark was flying high in the mid-1990s, the export economy suffered the consequences for years.
Massive Shock for Banking Sector
The effects of a euro crash on the financial sector would be hardly less devastating. If Southern European countries left the euro zone, customers would raid their accounts in those countries, says Christopher Kaserer, an expert on capital markets at the Technical University of Munich. This could lead to “a bank run that Spanish and Italian banks would not survive.” And because financial companies in these countries are closely intertwined with the rest of the euro zone, customers would also be lining up in front of German banks. “Without capital controls, this sort of a situation could spin out of control,” says Michael Kemmer, head of the Association of German Banks. Economists anticipate that German banks would also have to be closed.
But even if there were no major bank run, the withdrawal of several countries from the euro zone would shake the European banking system to its very foundations, analysts with the major Swiss bank Credit Suisse have calculated in a study.
According to the study, if Ireland, Portugal, Spain and Italy joined Greece in leaving the euro, 29 largeEuropean banks would see a total capital shortfall of about €410 billion. “If the peripheral countries withdraw from the euro zone, a few of the large, publicly traded banks would come to a standstill,” reads the analysts’ sobering conclusion. In their predictions, the experts did not even take into account the likelihood that France would come under pressure if Italy withdrew from the euro.
Banks in the crisis-ridden countries would be especially hard-hit, but so would investment banks likeDeutsche Bank. According to Credit Suisse, the market leader in Europe’s largest economy, which prides itself in having survived the financial crisis without government assistance, would face such heavy loses that it would suffer a capital shortfall of €35 billion.
Whereas Greece is now almost irrelevant for Deutsche Bank, Italy and Spain account for a tenth of its European private and corporate banking business. The bank estimates the credit risks in these countries at about €18 billion (Italy) and €12 billion (Spain).
Large insurance companies are also active in Spain and Italy. Allianz, for example, holds Italian government bonds with a book value of €31 billion, which could create losses for the German insurance giant if Italy withdrew from the euro and had trouble paying its debts. Allianz also holds direct investments in banks in debt-ridden Southern European countries.
Companies, sensing the potential risks, are already doing as much as they can today to prepare for a European monetary storm. For instance, they are financing deals in the peripheral countries locally, so as to avoid currency risk. Investment bankers report that companies are receiving loans almost exclusively from banks in their own countries. Where cross-border transactions are unavoidable, banks are engaging in hedge transactions. IT systems are being prepared for a Europe with multiple currencies. And whenever they can, banks are establishing liquidity reserves or depositing money with the ECB.
In the real economy, companies are also doing what they can to prepare for a worst-case scenario. If possible, they are only doing business in the crisis-ridden countries that they can finance locally. Investments in Southern Europe are being scaled back, and instead companies are trying “to accelerate growth outside the euro zone, such as in the emerging economies of Asia and Latin America,” says one investment banker. This explains why mergers and acquisitions have virtually ground to a halt in Europe.
It’s understandable that companies want to protect themselves from a euro crash. But if things get serious, all of these efforts could be worthless, because the consequences of a monetary disaster would spread across the entire economy like a tidal wave.
Economists with the Dutch bank ING have calculated that in the first two years following a collapse, the countries in the euro zone would lose 12 percent of their economic output. This corresponds to the loss of more than €1 trillion. It would make the recession that followed the bankruptcy of investment bank Lehmann Brothers seem like a minor industrial accident by comparison. Even after five years, say the ING experts, economic output in the euro zone would still be significantly lower than normal.
The consequences would also be catastrophic in Germany, as the German Finance Ministry concluded in a study commissioned by Finance Minister Wolfgang Schäuble, a member of the center-right Christian Democratic Union (CDU). The recovery and economic miracle would abruptly come to an end, and instead banks and companies would start collapsing like dominoes, after having to write off receivables and investments.
The German Finance Ministry’s prognosis is even grimmer than that of the ING experts. According to their scenarios, in the first year following a euro collapse, the German economy would shrink by up to 10 percent and the ranks of the unemployed would swell to more than 5 million people. The officials were so horrified by their conclusions that they kept all of their analyses confidential, for fear that the costs of rescuing the euro could spin out of control. “Compared to such scenarios, a rescue, no matter how expensive it is, seems to be the lesser evil,” says one Finance Ministry official.
Costs of Crash for Germany Could Be More than €500 Billion
The dream of balanced budgets would be dead for years. Government debt would rise sharply as tax revenues declined and government spending, on everything from bank bailouts to unemployment insurance, increased. Hundreds of thousands of jobs could be outsourced to other countries, and thousands of companies could go under.
According to a scenario by the major Swiss bank UBS, if the financial risks resulting from the decline in exports, the necessary bank bailouts and the company bankruptcies are added together, the total cost to the German economy could amount to a quarter of Germany’s gross domestic product — well over €500 billion.
And this doesn’t even reflect the biggest financial risk, which remains hidden. In the last two years, the ECB has bought up more than €200 billion in sovereign debt from crisis-ridden countries. It would have to write off some of that debt in the event of a euro crash, which would also spell losses for the ECB’s largest shareholder, Germany’s Bundesbank central bank.
The so-called Target2 balances pose another threat. Through this internal payment system in the euro zone, the Bundesbank has accumulated about €700 billion in claims against the central banks of countries like Greece, Spain and Italy. This is more than five times the Bundesbank’s own capital.
“If the monetary union collapsed, these claims would turn into thin air,” says Hans-Werner Sinn, head of the Munich-based Ifo Institute for Economic Research. “Then the Bundesbank would have to write off this amount.” Given that central banks are not normal enterprises, though, Sinn’s conclusion is debatable. This is because central banks have different accounting options. It is conceivable, for example, that the Bundesbank could replace the Target2 asset on its balance sheet with an equalization claim against the German national budget. This would balance the equation on paper.
As long ago as 1948, the Bank Deutscher Länder (Bank of the German States, the forerunner of the Bundesbank) resorted to this accounting trick when, for example, it gave every German citizen 40 deutsche marks following monetary reform. Some of these claims have been on the central bank’s books for decades.
But this time the amounts in question are different. It will likely trigger skepticism among international trading partners if the central bank simply conjures the claims from the Target2 system out of its books. It would jeopardize the reputation of the bank’s executive board members as stability oriented monetary watchdogs, and possibly even the image of the new currency.
A Conundrum for Investors
Not surprisingly, German depositors and investors are worried. What happens to their assets once the dust has settled and the euro zone has been replaced with a multitude of currencies in Europe once again?
In the short term, the prices of almost all even slightly risky securities would plunge, predicts Andrew Bosomworth. He runs the German portfolio management division of Allianz subsidiary PIMCO, one of the world’s largest asset management firms. Should the euro collapse, which Bosomworth still considers unlikely, he expects investors to suffer losses for several reasons. “First, they would suffer currency losses with almost all securities that were converted back to national currencies following a euro withdrawal,” says Bosomworth. “Second, they would have to expect countries and companies to default more frequently on their bonds.”
Asset managers see only two ways to protect themselves against a crash of the euro zone: to invest the money in tangible assets or to get it out of Europe. “Investors should nationalize their investments, with a focus on emerging economies,” advises Bosomworth.
German citizens haven’t recognized yet what an abyss they are facing. If the euro collapses, not only will many people lose their livelihoods, but German retirement pensions will also be threatened. The economic success of the last few years would be destroyed, and Germany would fall back into the crisis status of the 1990s.
On the other hand, if the German government gave in to the Southern Europeans’ pressure to communitize debt, the risks could even be greater. Instead of an uncontrolled euro crash, Germany could be confronted with an uncontrolled transfer union. Year after year, the Germans would have to transfer sums in the double-digit billions to Southern European countries.
Time Remains to Save Euro
The worst can still be prevented, and Europeans still have the ability to save their common currency without overtaxing the solidarity of the donor countries.
But it is a massive task. Europe’s politicians must surrender power to Brussels to supplement their common currency with the political union that’s been missing until now. At the same time, the Italians and the Spaniards would have to prove that they could successfully reform and modernize their economies.
So far, it has seemed as if the quarreling nations of the old continent would prove equal to the challenge, as has so often been the case in their postwar history. As experienced Brussels observers know, solutions are only reached in Europe when the continent has run out of options.
But apparently the euro crisis is now so dire that it could even sweep away the oldest European certainties. Even die-hard European politicians now believe that it is no longer inconceivable that the monetary union could soon have fewer members than before. “To push Europe forward, we have to reform the euro,” says Luxembourg Finance Minister Luc Frieden. “This doesn’t just apply to the management of the monetary union, but, if necessary, to its geographic composition, as well.”
Reported by SVEN BÖLL, DIETMAR HAWRANEK, MARTIN HESSE, ALEXANDER JUNG, ALEXANDER NEUBACHER, CHRISTIAN REIERMANN, MICHAEL SAUGA, CHRISTOPH SCHULT AND ANNE SEITH
