The fallen and the almost fallen in Europe, what's to come?

After several years living the crisis, the European citizens are asking themselves how far the situation will worsen. Unemployment levels are at record highs across the zone. Spain (27.2%), France (11.5%), Italy (11.6%), Greece (27.2%), Portugal (16.9%) and the whole eurozone with 12% are in a desperate situation.

The misery index in the area remains at highs at 13.8 pts and the Eurozone Consumer Confidence just improved in April from ‘comatose’, at 23.50, to ‘dramatic’ at -22.30. Joseph Trevisani, WorldWideMarkets’ Chief Market Strategist, explains in this article why the Europeans are so bad and what’s to come.

Trevisani together the FXstreet.com team also provide a ‘risk rating’ on European countries possibilities to fall into bailout.

The fallen and the almost fallen; Greece, Portugal, Ireland, Cyprus, Italy and Greece, what’s to come?

By Joseph Trevisani, Chief Market Strategist at WorldWideMarkets.

The European debt crisis began in early December of 2009 with the admission by the new Greek administration of George Papandreou that government debs had reached €300 billion. Markets, particularly the currency markets, treated the news like a thunderclap on a summer evening. The euro was knocked flat dropping 3.3% by the end of the month.

In January came the further revelation that the Greek budget deficit in 2009 deficit was 12.7% of GDP not 3.7%. It would eventually reach 15.4%. Rating agencies downgraded Greek sovereign paper and interest rates on Greek debt began to soar, almost tripling to 12.45% just after the first bailout of €110 billion was approved by Greece’s European partners in May.

The euro reflected the surprise and turmoil of the crisis. It dropped 19.5% against the dollar, from 1.4760 on December 10th to 1.1877 seven months later.

The shock of the debt crisis and its catastrophic effect on Europe could have been predicted. The inherent problems of the European Monetary Union (EMU), a monetary and interest rate union without a financial or political structure had been pointed out by many commentators. But the logical and cogent warnings about the dangers of the EMU were ignored by politicians and subsumed by the ease of the euro adoption, its superficial economic benefits and its immediate acceptance into the first rank of world currencies.

The best illustration of the deliberate blindness of the European promoters of the single currency was Greece’s admittance to the euro in 2001.

It is impossible to believe that the German and French foreign and finance ministries, their central bankers and the European Central Bank (ECB) did not know or strongly suspect the financial manipulations that the Greek government used to meet the requirements for initial euro membership or its subsequent serial financial falsehoods.

I imagine that buried in the archives of many European ministries are reports outlining just how impossible were the figures presented by Athens in 2001 and after.

If the ministries knew did they not inform their governments? And if the governments were aware why did they permit Greek membership to go ahead and not call the Greeks on their figures once Greece was inside the EMU.

To ask the question is to misunderstand the fundamental fact about Europe, the European Union, the EMU and the euro.

Related:
• Joseph’s bio
• 2009′s flashback interview: “The crisis has brought the ECB back to earth and the euro as well”

The European Union and the European Monetary Union are political entities. Their purpose was and is to prevent another European War by binding Germany to the economic interests and within the political organization of its neighbors.

The European Community was conceived in the aftermath of World War Two. From its earliest existence as the European Coal and Steel Community of 1953, through the Treaty of Rome which set up the European Economic Community (EEC), to the Maastricht Treaty in 1992 which established the European Union, the goal of the designers of the organization was European political unity.

Until the implementation of the EMU and the euro, the various national governments of the community retained almost complete control of their domestic economies. Indeed many saw improvement in their economic performance as the EEC and the EU eliminated some of the inefficiencies of customs and labor regulations across the continent. It was only with the monetary union clauses of the 1992 treaty which came into effect in 1999 and 2001 that the joining countries of the euro lost control of their monetary policy.

At first the benefits of the euro seemed paramount. Interest rates fell, credit flowed into the poorer countries and the buoyant world economy of the early part of the last decade carried all doubts before it. But the faulty design of the EMU and its weak grounding in the democratic politics of its constituent states had never been tested in adversity.

In the eyes of the governments and elites of the countries adopting the euro, the united currency was simply the next logical step in the overall plan for the unification of Europe. None of the promoters of the united currency thought it necessary to obtain democratic approval for their project and few of the implementing governments though it wise to seek it.

But unlike the common market and earlier reforms, with the euro a qualitative change had taken place, though few seemed to realize it at the time.

Until then the European project had had relatively little effect on the daily life of people in the member nations. Their laws, politicians and economies still responded in time honored fashion, and the electorate still controlled the politicians who controlled the economic life of the country.

Under the euro that all changed. The change was masked until the debt crisis. The past three years have made it inescapably clear that Greeks, Italians and Spaniards no longer control their own economies. Their politicians, in the name of European unification and the euro, have become subservient to Brussels bureaucrats, international financiers and the political leaders in Berlin and Paris.

What began as a European financial crisis over sovereign debt inevitably became an economic crisis as the solutions imposed by the creditor nations forced the debtors into recession. It has now become a political crisis as the national governments that have imposed these austerity measures are called to account by their own electorates, electorates that were, by and large never consulted on the idea of monetary union in the first place.

We are approaching the generational break point. The people and leaders that knew and suffered the horrors of the Second World War and set up the EU to prevent another are leaving the scene. Their children and grandchildren have different concerns. Their parents’ bloody past is history. What they see is the life and prosperity that have always known being leached away by the creation of an impersonal bureaucracy dominated by Germany, by the euro and served by their own politicians.

In the bailed out nations of Europe, Greece, Portugal, Ireland, Spain and Cyprus unemployment averages 19.6% (Greece 26.0%, Portugal 17.5%, Ireland 14.2%, Spain 26.3%, Cyprus 14.0%). In Germany it is 6.9%, in France 10.2%, in Austria 4.8% and in Finland it is 8.1%. There is no better barometer of popular discontent with the European political system.

The answer to the question whether the euro survives is not complicated.

Unless the euro can deliver prosperity to all of its seventeen member nations, the euro will eventually be voted out by the people of Greece or Portugal or Italy or Spain or somewhere else. The shell of European unity is hollow, once cracked it falls to pieces.

Of all the European mistakes in pursuit of unification the refusal to consult their own people on the euro will prove to be the most costly of all.

The fallen and the almost fallen in Europe, what's to come?