Euro Until the Endsieg

Toni Straka
The Prudent Investor

Breathless but futile discussions about the creation of a new layer of debt in the form of Eurozone bonds are going nowhere. Jean-Claude Juncker, head of the eurozone group of finance ministers, now clashes with France and Germany who both reject the proposal as it would raise their financing costs. On Thursday he said in Germany's main TV news "Tagesschau" that Eurozone governments would have to finance 40% of their debts via Eurozone bonds, which would lead to a northward conversion of German yields with their weaker Euro brothers in arms.

As the Euro dream has rapidly mutated into a nightmare for Greece and Ireland, with Portugal and Spain to follow for sure, I note a fatal tendency in EU circles to hold out for the Endsieg despite all the contrary evidence pointing to a not too distant disintegration of the common currency.

The term Endsieg was first coined by immortal social-libertarian Austrian politicial critic Karl Kraus in 1918 - he was the official Austria's pain in the a.. a century ago with his weekly newsletter "Die Fackel" - and was hijacked later by Adolf Hitler's propaganda minister Joseph Goebbels.

'Endsieg' became part of the Nazi doctrine before the ultimate downfall of the Third Reich: Temporary losses (including of civilian lives) notwithstanding, the 'Third Reich' would ultimately prevail, and thus any breakdown in allegiance to Nazi ideology was not to be tolerated. This conjuration of final victory became more desperate in 1943 when allied successes forced Germany onto the defensive. Joseph Goebbels still spoke about the 'Endsieg' as late as March 1945.

The Euro propaganda ministry in the European Central Bank in Frankfurt frantically tries to implant the similar wrong belief that all is right with the Euro. What charts do they watch?

Maybe they take a look at ActingMan.com whose very nuanced Austrian view of the Euro's death spiral arrives at an entirely different, bleak, picture.

National politicians in many EU countries, whose borrowing costs will shoot to unaffordable levels after the first sovereign debt default next year, still appear to draw a complete blank on the severity of the financial crisis that finds its roots in too much credit and too much leverage. The times of cheap debt are over and bond markets have topped out with a high probability.

This complete cluelessness is repeated on the EU level. Just follow the MEP's aggregated Twitter feed to have a real-time insight into their thinking - and take your own clues.

Mutual political calls that no Eurozone member will default echo the same despair as can be heard in the calls for the Endsieg 65 years ago. The facts speak a different tongue. Europe suffers from 3 major structural problems that will not go away:

1. No resource reserves
2. An aging population
3. Highest labor costs in the world

Add in the financial crisis, the economic slump and the fact that we have yet to see a first major default among overleveraged European cross-border banks and the hope for an Endsieg on behalf of the official actors becomes comprehensible. One hopes for the Endsieg when one knows that the other option is too ugly to just think about it.

Here is a reminder that this other - yet to be named - option has a better chance than the Euro's Endsieg. Mind you these are only today's intra-EU conflicts and troubles, compacted by openeurope.org.uk in a daily email:

● Juncker calls Merkel simplistic and un-European, and accuses her of not even studying his proposal before rejecting it;
● Merkel says Eurobond was bad on economic and legal grounds, and says her quiet response is intended to bring calm into the debate;
● German coalition sources accuse Juncker of making a proposal which would have zero costs for Luxembourg;
● Germany’s five-year auction flop – the third auction flop in a row – as 10 year yields rise above 3%;
● Brian Lenihan says bondholder default is not an option for Ireland, unless it was supported by the EU;
● Strauss Kahn warns the EU crisis response was insufficient, and that the crisis would continue;
● Andrew Duff says a fiscal union is not only desirable, but it is the only way for the EU to survive the crisis;
● Peter Ehrlich comments on the conspiracy theory that German newspapers want to bring down the eurozone;
● Gordon Brown, meanwhile, predicts a huge crisis in the eurozone next year, that requires a high noon EU summit to resolve

This is the macro view and the negatives continue rolling into my inbox day after day.

Exploding unemployment rates and surging prices - official HCPI won't tell you that story - squeeze consumers already hit by austerity measures. I may not make many friends, but this is only the beginning of fiscal consolidation in a technically bankrupt Eurozone where all hope hinges on Germany despite this nations' own insurmountable problems in health and social services. It is mainly state guaranteed pensions that burden most Eurozone countries beyond financial capacity. Additionally the greying continent drowns in a growing avalanche of health costs that will not disappear.

In Germany, thousands of protesters went out repeatedly to show their anger about Angela Merkel's nuclear power policy, a shortage in affordable housing, and infrastructure projects heavily opposed by those affected by it. Germans also begin to find out that the Euro may have not been such a good idea after all and reject the idea that they have to bail out the rest of Europe. This is not going to work anyway as ALL Eurozone members except Juncker's Luxembourg will see their debt/GDP ratios rocket far beyond the 100% figure in the coming 3 years.

French unions continue to stage protests, fearing that Sarkozy's policies will otherwise lead to an erosion of welfare the way Thatcher orchestrated it in the UK 25 years ago.

The list of issues protested by sovereigns who begin to feel that Europe has so far helped its banks, but nobody else, grows with every day.

People are out of their pockets already, ex-footballer Eric Cantona's bank run initiative showed. His bank run on December 7, where savers should have taken out their bank deposits, found no followers for the simple sad reason that Europeans only have debts at the bank.

An anonymous contributor to German language hard money forum Hartgeld disclosed that 80% of his bank's customers are deep in the red by mid-month and only 10% had more than €5,000 in their checking accounts. And this is what is called wealthy Germany?

This layer of prosperity has become thinner than a hair, it appears. It may be soon gone thanks to an Endsieg strategy that leaves the people behind in favor of the banks and a Euro dream that was destined to fail from the beginning. This must not be tolerated.

Brussels has to arrive at the conclusion that not all banks are systemically relevant and let the economic downcycle work through the overcapacities in the sector. Banks are no exception to the rules of profit and loss and irresponsible support actions that saddle the sovereigns with intra-generational debt will inevitably lead to more social turmoil on the old continent.
Europe's time for a hard awakening has come.

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Cartoon: http://fr.toonpool.com/user/1949/files/greece_in_financial_trouble_741785.jpg
Via: http://www.zerohedge.com/article/guest-post-euro-until-endsieg
URL: http://www.a-w-i-p.com/index.php/2010/12/10/euro-until-the-lemgendsiegl-emg