The Trans European Crash

It is a work of power, but not from any one station. The Germans would call it a Kraftwerk, but this is not an express as envisioned by Florian Schneider or Ralf Hütter. No it is a subtle hidden crash, pushed by those who need the status quo, not the fallout before they leave with a huge golden handshake.

You see, people forget how things are interconnected. We forget too often that the machine is based on values that are virtual and on foundations that are a generation old, we all forget that!

It is now 2 days ago that we see an article (at http://www.theguardian.com/business/live/2015/apr/30/markets-await-eurozone-inflation-as-greece-takes-on-brussels-live-updates), the title ‘Eurozone edges out of deflation – as it happened‘ is not informative, it all seems like a collected pile of lose facts, are they connected?

They are to some extent, but not in the view people have. Let me enlighten you!

The Greek government was struggling on Thursday to complete payments to more than 2m pensioners after claiming that a “technical hitch” delayed an earlier disbursement“. I will not attack that. We all have our doubts, but we need to consider that technology glitches, it always does so at the moment it hurts the user the most. Yet the response ““Normally I only withdraw half the money at the end of the month but today I’m taking it all” said Sotiria Zlatini” gives us pause, the expected bank run is coming and this might not be the bank run, but Greeks all over Greece fear that the bank run will happen whilst some pension money is still in their bank accounts. This gives a view of 2 million pensioners holding on to their money for dear life. You see, a small element is that at this very moment that this is written the Greek government was due to pay 200 million. Had that payment been made?

If an ‘extension’ has been granted, you can be sure that this will upset the Conservatives with David Cameron and it will fuel UKIP with Nigel Farage. Two non-related entities, yet they are all connected through other strings. Yet, the news we hear from Reuters is “Greece’s next payment to the International Monetary Fund, totalling some 200 million euros in interest payments, is due May 6 because of the May Day holiday in Greece, an IMF spokesman said on Thursday“, so, because of one day, they get an additional 5 days. Do I now have your attention regarding the ‘Status Quo’? Still, the ‘technical glitch’ the Greek bank has could be for real, but now consider the 2,000,000 accounts that will withdraw all funds, how short will the Greeks be to make payment? Yet, another part of the Guardian already informs us of a third bailout negotiation, something we knew, but the timing is so auspicious, we will see if the Greeks made payment before the €7.2bn (£5.2bn) in funds are released. Perhaps a third party deal through an investment bank will see the 200 million released on May 5th, for perhaps a mere 243,546,576 dollars? Any takers at Goldman Sachs perhaps? I am not sure if that will happen, I am merely speculating!

You see, this goes a little further, it is not just the message of “Eurozone inflation picked up in April to 0%, from -0.1% in March. It brings to an end a four-month run of deflation“, which I got from Eurostat. You see, which of the 28 Euro players have rounded up their numbers? Likely more than one, so was the inflation 0%, or was it perhaps -0.048%? It is in the margins that we see the game being played, but playing it all from the margins is a dangerous game, because trimming the fat always leaves us with one player that takes the smallest slice of beef, now we are bleeding and one player goes ‘Oops!’.

We get the next piece from Germany. The statement “The number of people out of work in Germany dropped by 8,000 on a seasonally adjusted basis in April, to 2.792m. A bigger fall of about 15,000 had been expected“. I have two issues with this. the first being that these 8,000 mean 7.5 million a month less drainage on the German Treasury Coffers. These people now have a job, which is good for all parties, which means they will get extra groceries, perhaps treat themselves to a slice of cake to celebrate, which every person should do if they get themselves a job. It is the second part, the prediction ‘A bigger fall of about 15,000 had been expected‘, why? What data precipitated that thought?

You see, the people doing the forecasting as a whole have not been doing that great a job. They failed on multiple levels for years, mainly because of ‘unexpected’ conditions.

Now we get to Spain, where we see the quote “It shows that reforms work, it should help reduce unemployment much further and thus political fragility and it serves as a shining example to Greeks of what their country could have if its government finally returns to the path of virtue“, which is nice, but in this case, the given quote from Christian Schulz, economist at German bank Berenberg is one we also need to take caution with. I would like to claim this as a mere fact, because my ego would like to see Tsipras and Varoufakis cut down to size (am I too honest?). They played a very dangerous game on behalf of people who cannot afford to lose as they have nothing left, yet in my view Antonis Samaras had the right path. It was a painful path for all Greeks, but it was slowly getting Greece back. Now the Greeks face fears they never faced before. This is however not about Greece, this is about Spain. In my view Spain had nowhere left to go but up, or die. At 23%, one in four does not have a job, those with jobs work many long hours to keep their job, many products are still not getting sold because many people cannot afford it, so Spain is getting back on board, but ever so slowly and let’s face it, beating a 0.3% prediction, making 0.5% is not great, but it seems that exceeding predictions gets to be rewarded. The reality is that 0.5% is 2.5% below the currency inflation, so we have nothing to celebrate. When Spain loses even 2% unemployed persons, as they get a job, then we can make a cautious cheer. That moment is nowhere near at present. So why the optimism?

Now consider other elements, consumer spending is falling in France, Italy and a few other places. The economy slowed down in a massive way this quarter, even though in some places unemployment figures look better. The Netherlands now has the lowest unemployment rates compared to other numbers for a long period of time. Yet, the news came with the image of a lovely Dutch girl with impressive cleavage buying a backpack, which does not sway from the blow that the American economy is getting and that affects the Eurozone too.

So here we have the initial part, some EEC nations are now getting a little positivity (most less than 1%), which is better than zero or minus, but it still is a long way from serious movement away from dark times, they are still overhead for the largest extent.

Will you stand by the view that the economy is getting better? I say that this Trans European Crash is still moving along towards the assets of all citizens there. You see, every month I am wrong, it will not be because of the premise, but because some people were allowed to push forward the status quo. In the case of Greece that will be another €7.2bn, with additional funds for bailout three and four. Whomever considers that there will be no bailout four, so you better wizen up fast! Greece has almost 316 billion in debts, it will need another 7.2 to make payments now and then we will see the need for no less than 10 billion more and who knows how much for bailout number 4, which becomes a lot more important now that we see that the Greek government is out of cash. So as the Greeks are not defaulting, Europe gets the added pressure of 17-30 billion before the end of 2016 (likely no later than Q1 2016). So the Greek debt will go beyond 200% of GDP. So when you read these miracle messages of suddenly growing from 0.6% to 2.9% I worry, because someone is again getting creative with the numbers and not with the actual GDP. If the Greek GDP is doing so well, how come we see zero messages on how manufacturing is up by a lot, how unemployment numbers are down, as I see it this is a number ‘fixing’ game where Greece is kept on the edge of the Abyss in virtual representation, whilst in reality Greece took three steps forward over the edge! But those who need the Status Quo, those who invested and want their money, or give their losses to someone else are giving us a skewed picture.

This is what UKIP has been up in arms about. I can tell you now that the picture is a lot more complex than I give it, but I believe that I am right, I believe that several announcers are painting us something that is not there, that is even without the laughingly bizarre article in Forbes by Panos Mourdoukoutas on how ‘Greece’s Net Debt Is 18% of GDP, Not 175%‘, which sounds fine in theory (he uses net debt, not total debt), but why is all that taxation not collected? I see the article nothing more than the article of a Greek having a go at the Germans (oh, how original), yet in this light we also see Reuters stating ‘Ratings agencies say no default if Greece misses ECB, IMF payments‘ (at http://www.reuters.com/article/2015/05/01/us-greece-default-ratings-idUSKBN0NM3N420150501). This is partially true as I reported earlier, because missing a payment is only the track to the Grexit and Default, but not the immediate consequence.

Now we get to the jewel in that article, which links to all other parts “The only potential impact Allen & Overy’s Yannis Manuelides saw from any missed payments was that they could technically give the European Financial Stability Facility (EFSF) the option to demand immediate repayment of one of its big Greek loans. But as the EFSF is government controlled, that seems highly unlikely and it would most likely waive that option“. This is the crux, those in charge will put pressure on the EFSF to get time to settle things, which means the EFSF will not act immediately, because the governments want to make sure that there is no other option to get their money, so everything gets pushed forward. Yet not paying should have an impact on several linked numbers and it could hit Italy and France, this is the true nightmare, Greece is pushing to get both Italy and France on the edge, because that will unlock the big blocks of cash, from which Greece would ‘benefit’, in that regard we could see that Greece gets reduced to a mere slave labour nation, but that is just me stating the obvious.

This is partially the issue I feared coming. One small nation of less than 10 million gets to push the rest around because no one is muzzling the people who are not playing the game according to the rules, as many politicians are not held to account, Tsipras and Varoufakis worked under the premise, if they need not, then neither do we, which is not that ludicrous a thought, but Greece is the only one approaching 200% of GDP, giving pause to the incorrectness of their train of thought.

Station Crash

This is the point where the brilliance of ‘Kling Klang’ studios is shown, the repetitive background of the Trans Europe Express shows the status quo of the finance world, like a monotonous train engine, it is pushing the Greek situation and as we lose the ‘n’ of finance, we get that Greece becomes the debtors fiancé, a shattered relationship (perhaps battered might be the better word) that has no good ending in sight. In all this, I look again towards the Album of Kraftwerk and the brilliance how it relates here. Europe endless gives me the lyrics ‘Life is timeless’, or in this case the European’s time is lifeless. So as we watch the economists admiring themselves in the Hall of Mirrors, we see a shift, one that is NOT BECAUSE of Greece (lets remain fair here) but as they were allowed to continue, we see a shift of people now less and less willing to see Europe continue. When we see stories on how some families in UK sometimes have less than one meal a day, where Spain is in so much hardship the people are bleeding, but now Spain moves forward, in all this Greece sees itself above the law of normalcy and this will soon come to blows. Germany need only to step back and not interfere. So as Varoufakis states that Grexit advocates are ‘anti-European’, we see additional resentment towards Greece, not from the powers, l but from the voting population at large. In that form at present, National Front is still making headway in France, which spells really bad for the Eurozone. Spain becomes a second player, if it goes on like this, slowly making headway, additional fuel against Tsipras is won, yet if it goes the other way, several players will need to pull out if they wish to avoid getting hit by the debts of both Greece and Spain. You see, when one goes, the banks will want to offload the debts as fast as possible, preferably in the last hour before defaulting, leaving who owns it a mess no one will survive, which means they will try to get governments to sign long term agreements for the debts. Will it work? That is uncertain, the fact that most players desire status quo, means that it is not impossible, in the end the debt goes to millions of taxpayers, that might survive, the banks ending up with this bill will topple and go under. This is where we are!

Greece (possibly with Spain) will push France and Italy, they will push whatever is left!

Now we get to the banks and the Greek bank run, this was nicely stated in the Reuters article I mentioned earlier. Here we see “They would be more likely to default on their T-bills (than the ECB) the only problem is that they are then defaulting mostly on their own banks… and in any case a distressed exchange on T-bills would definitely be classed as a default“, this is the fear I had, yet I did not think it would go that fast, because this act leaves the Greek population without any money and this means that the Greek solution could only work outside of the Euro, super inflating a Drachma, paying people pieces of paper that had no real value, a new kind of monopoly where everyone gets cash and no cause for it is needed. Here we see the faltering logic in it, partially the logic on my side too. It can only work if Grexit is forced, which some places do not want (they want their investment) and the inflated Drachma means that retirement funds have no value whatsoever, not even the printed money that is handed for it. A virtual mess of real money and no assets. It is a currency that goes nowhere, a funding from nothing that cannot be, because any product that needs importation will not be affordable. Basically that new Drachma would be even less stable then the old shekel, a worrying thought.

Now we get the UKIP charter in a new light. UKIP will close the borders and will proclaim the European Union to be null and void in the light of the Union Jack, the only Union that England will recognise. After that Germany, Sweden, The Netherlands, Belgium et al will have no alternative left to them, just because Greece would not play ball. The UKIP view is the worrying one, because the electorates that were once an ‘outside chance to win‘ could grow beyond contender, Greece got them there, by playing the rock star game, the British people are now angry, because many of them are getting by on too little whilst team Tsipras/Varoufakis kept playing the ‘we do not care game’ loudly and squandering, it opposes the UK standard of normalcy. They will often spend money, but fess up to it and pay it back, Greece leaves the impression that paying back is not a given, which has been illuminated more than once by Yanis Varoufakis.

Yet, Europe is more than Greece and Greece is less than 5% of that entire mess, which is not voiced that often. Because at GDP, the debt of Greece seems phenomenal, but the debt Italy holds is massive, it is only because Italy does have its products to bring abroad, it has additional tourism and it has almost 60 million people is why Italy does not seem to be in as much danger. But at 130% of GDP, Italy is in trouble, the debt of Greece, if defaulted could push Italy pretty much over the Abyss too. This is the danger Europe faces as Italian Liga Nord could do worse damage to Europe, especially as it does not like the place Greece is pushing them. The Italian debt at 2.6Trillion Euro’s is nothing to be sneered at. Their debt is growing at almost 4000 Euro a second. To deal with the interest, every Italian would have to pay an additional 2,000 Euro a year. This was the danger all along, where Greece is, Italy soon will be and after that France will follow, that is the Trans Europe Crash we will face. This is why Nigel Farage wants to bail out before that bill comes, which is fair enough. If the European governments had changed their irresponsible views 5 years ago, there would be an improved path and Greece would have more time and no one would worry, but that is not the case. The train is approaching station eleven and time is no longer a luxury.

The moment we dread is coming, yet in all honesty, how hard it will hit is not known. We only know that all in Europe will suffer, those who will survive decently are those without debt, the rest will suffer for many years to come. So are you still happy you let things slide or are you ready to pass the Accountability Act? In that act, those who created the mess do not get to push it forward, they either resolve it or become liable. It is in my humble opinion the only way to get governmental budgets properly addressed.

But that might just be my view on this.

 

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