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European tremors

May 27, 2013

I recently wrote about the ticking time bomb that is the European currency. https://rpreschern.wordpress.com/2013/05/18/europe-the-final-count-down/ As I stated then there are a lot of powerful political battles fought behind closed doors at the moment. Austerity or QE? Eurobonds or national bonds? I still expect a rather strong market reaction after the German election in September as Germany seems to be key to tip the debate one way or the other. One thing is for sure. The current status quo is not sustainable and probably not desirable. Consider the following news and trends that are rather disconcerting.

Youth unemployment rates, EU-27 and EA-17, seasonally adjusted, January 2000 – March 2013 (%)

Youth unemployment in the EU

http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Unemployment_statistics

As young people lose hope in having a productive future we find social decay and rising crime in the countries affected.  In rural spain there are now roving bands of thieves stealing everything from farm equipment to produce while European officials discuss(and news focus on) the importance of open versus sealed olive oil bottles at restaurant tables.

http://www.microsofttranslator.com/BV.aspx?ref=IE8Activity&a=http%3A%2F%2Fwww.welt.de%2Fwirtschaft%2Farticle116433686%2FDiebesbanden-pluendern-Spaniens-Bauern-aus.html

http://www.telegraph.co.uk/foodanddrink/foodanddrinknews/10080827/The-great-olive-oil-farce.html

It is no wonder that the UK Independence party is growing rapidly in popularity. Speeches at the EU parliament such as the following by MEP Bloom strike a chord with many citizens across Europe.

To add distrust in the management of global financial resources, the latest scandal engulfs no other than the IMF’s latest chief, Christine Lagarde from France.

lagarde

http://www.dailymail.co.uk/news/article-2329449/French-minister-says-IMF-boss-Christine-Lagarde-resign-charged-connection-270million-fraud-embezzlement-scam.html

As for the French economy, it appears that Abenomics has not been beneficial to (French) manufacturing outside of Japan…

France new car registrations

Merci, Mrs. Abe & Hollande. From Grant William’s “Do the Math”  http://www.youtube.com/watch?v=Osq1yxSFVG0&feature=player_embedded

Conclusion

The point I am trying to make is that Europe is at a cross roads. The German elections in September will likely tip the opposing ideological forces one way or another. Bank bail outs(nationalization) via money printing or bankruptcy via depositor confiscation? Eurobonds or sovereign bonds? QE or austerity? Either way, I expect rather strong capital movement in global markets following the German election as monumental decisions in Europe lie ahead.

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