GREECE AND WORLD: Europe Has Bet The Farm

From Mark Grant, author of Out of the Box

Things that go Bump in the Night

Europe is heading for a showdown and in a number of places; that much can be acknowledged with certainty. The first, and perhaps the most important, is the stand-off between France and the European Commission. The EU budgetary office is demanding that France reduce its deficit to 3.00% for 2012 while the projection is for 4.50% so that the Commission is threatening France with large fines. Mr. Hollande ran his campaign upon a reduction in the retirement age, more generous pensions, shorter work hours and more governmental spending so that the budgetary miss is likely to be larger than forecast; somewhere around 5.2% in my estimation. France then finds itself, one way or another, with a larger budgetary deficit and if the EU then imposes fines and sanctions Paris may thumb its nose at Berlin/Brussels in what could be a rather nasty affair with unknown consequences. Mrs. Merkel in one corner and Mr. Hollande in another slugging it out will not make for harmonious relations. Then there are the issues of Greece and Spain and the Socialist reaction is bound to be very different than the Austerity imposition as demanded by Germany. Jawohl!

“After all, one can’t complain. I have my friends. Somebody spoke to me only yesterday. And was it last week or the week before that Rabbit bumped into me and said Bother!”

-Eeyore

The new EU fiscal pact is becoming something of a deviated piece of humor as Spain is being released from its constraints and Greece is now only constrained by the fear and loathing of the country removing its hand from the honey pot. “Keep Eating,” is the resounding cry from all of the European politicians as they are truly frightened of the old bear not following orders. It may well be that the new political dandy in Greece is correct; Europe may soon be begging for Greece to take the money under almost any terms as they do not wish to dance the jig of contingent liabilities becoming real ones and having to be accounted for in actuality with all of the pending losses that this would entail. What will they say in Berlin; “Mein Gott, waren wir nur ein Scherz“(My God, we were just kidding.) If Greece defaults or leaves the Eurozone then the ECB will be broke and have to be re-capitalized, the IMF will take one serious financial hit, the EIB will be seriously impaired and while the Greek bonds are mostly held by governmental bodies now the municipal debt, the derivatives, the bank loans are still to be found in securitizations of many of the large European banks and American banks who will be forced to recognize thier losses. Charades is so much fun until someone comes up with the answer.

The real debt of Greece is approximately $1.30 trillion and as contingent morphs into actual the impending explosion may become reality. This amount of money is 40.60% of the entire GDP of Germany because it is a small country that now has a giant debt given its population. Europe has, in fact, bet the farm and the decision now rests entirely with the Greek electorate. The European Union has played its hand badly and reality is very close to biting off the hand that fed it! I want to repeat this for you, I want you to understand the gravity of what Europe is facing; Europe has BET THE FARM and the croupier is about to roll the dice. We are all facing a momentous instant in time and all of the noise in the background is quelled by the showman announcing the main event; Let’s Roll.