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And the Walls Came Tumbling Down
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The financial news coming from Washington, London, Frankfurt, Paris, Brussels and other financial and political capitals these past few months has been grim.  In the United States, its AAA credit rating was lost for the first time in 70 years and, combined with the 9.1% unemployment rate, a struggling housing market, a falling stock market and the continued debate over spending and the national debt, things look like they are going from bad to awful.  Over in Europe, its sovereign debt crisis continues to undermine the confidence not just of Europe but of the global economy.  And it is going from awful to potentially catastrophic.  More and more we are reading and hearing about the possible break-up of the Euro or, more ominously, the European Union itself. 

The headline from business media outlet CNBC on August 4 screamed “Will Germany Save the Euro from Collapse?” The lead paragraph in the story stated “The euro will collapse as a currency unless lawmakers, and especially Germany, can agree a common European tax regime and restructure some sovereign debt, a leading market analyst told after the European Central Bank intervened in the markets.”  And an August 22 article in The Australian states “EUROPE and the single currency are closer than ever to collapse. Yet redemption remains a possibility if only the political will and leadership existed to drive through essential radical reforms. So says no less an eminence grise than Jacques Delors, the 86-year-old founding father of the modern-day European Union and European Commission president from 1985 to 1994. ‘Open your eyes: the euro and Europe are on the edge of the abyss. But to prevent the fall the choice seems simple: either member states accept increased economic co-operation or they transfer additional powers to the (European) Union,’ he contends.”

In between August 4 and 21 a simple Internet search reveals hundreds if not thousands of news stories reporting on the possible collapse not just of the Euro, but of the EU itself.

While no betting man or woman is actually betting against the collapse of the Euro or the EU itself, currently, more and more are betting against Greece, betting that it will leave the Euro – by default or by design – and that a few other countries, including Portugal, might be right behind it.

Even after a hefty bailout last year, the Greek economy could contract by up to 5.2% this year according to The Wall Street Journal, despite Greek government predictions that it will ‘only’ contract by 3.8%, a disaster in and of itself.  According to the WSJ, “Greece’s finance ministry Friday denied such a dire outlook--rejecting both that the economy would shrink by 5.2% this year and that the deficit would rise to between 8.0% to 8.5% of GDP. ‘We strongly deny this,’ a finance ministry official said. ‘These estimates do not conform with any of the forecasts by the Bank of Greece, our statistics service or with data available to the finance ministry.’” I would expect nothing less from the Greek Government.

At the same time, Finland was able to secure itself quite a sweet deal.  Finland agreed to the second bailout of Greece but on condition that it receive collateral.  According to the UK’s Telegraph, “European Union members, including Austria, The Netherlands, Slovakia, Slovenia and Estonia, have spoken out against Greece's agreement to pay Finland around €1bn collateral if the Nordic country backs the bail-out. In the wake of the deal, which was announced on Tuesday, they want similar agreements too. Ivan Miklos, Slovakian finance minister said: ‘I consider it unacceptable for any country not to have collateral when other countries have it.’”

I don’t blame them.  But this presents another problem for the unity of the EU. Again, the Telegraph: “The Austrian Finance Minister Maria Fekter told reporters: ‘The Finns have negotiated with the Greeks that they get 20 percent of collateral in cash from the other member states. If every country demanded 20 percent, the entire package would blow up.’”

And therein lies the distinct possibility that indeed, the walls may yet come tumbling down.  The EU has prided itself on working on consensus (as does NATO and as Macedonia is made painfully aware of each and every day by pronouncements from talking heads that “Greece in is in the club and you are not.”).  But that very consensus is cracking more and more every day.  The little Dutch boy may have put his finger in the dike to try to stop the leak (the first Greek bailout) but more and more leaks are appearing all the time (the Finnish request for collateral being but one).  Given this trend, my best bet is not only that Greece will be forced to leave the Euro sooner, rather than later, but that the EU itself will have to, at a minimum, reinvent itself into something else (see above quote from Jacques Delors).  All of this, of course, has ramifications for Macedonia but since Greece is not allowing you in the club anytime soon, perhaps that is a blessing in disguise.

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Jason Miko
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