As we all know already, on Tuesday, German Chancellor Angela Merkel and French President Nicolas Sarkozy met and, in a move the financial world was dreading (but should have predicted), rejected the global push for a euro-bond.
In a move that essentially signals to the European Union, “Screw this, you’re on your own,” Germany and France have, whether consciously wanting to or not, drawn the proverbial (and political) line in the economic sand.
And with this resolve, the financial world (and Wall Street – bastion of policy ignorance) can begin preparing for the eventual demise – or at least reconfiguration – of the European Union.
The European Union, while a fantastically optimistic, enthusiastic, and forward-looking POLITICAL concept has utterly failed as an economic one.
The confidence (and genius) of its inception has been eclipsed by an utterly dismal execution.
Consequently, no matter what transpires from this day forward, the financial (and political) world MUST prepare for the major shakeup – if not complete disintegration (though this is a much less likely scenario compared with one in which the EU’s “core countries” kick out the deadbeats and reassert dominance) – of the European Union.
In short, financially – and future-wise – the EU is, well, f#cked.
Let’s look at the economic fundamentals: within the past few months, euro-curious investors have snapped up Italian and Spanish sovereign debt, pushing down yields, and, most importantly, masking the most salient fundamentals underlying the EU’s impending collapse.
Remember: the European Financial stabilisation Fund Wall Street (and the world) has praised as the “saviour of Europe” is set up to max out at 440B euro. Most worrisome for the EU, however?: Italy and Spain (JUST Italy and Spain, remember) have, in the NEXT YEAR, funding needs of ~ 840B euro.
Think about that.
That’s right. To bail out Spain and Italy (only 2 of the EU’s many troubled members) would cost the EU (essentially Germany and France, at least economically at this point), 2x the currently allotted stabilisation Fund amount.
This option, obviously, is simply untenable. Ergo, the EU, at least as it “stands” now, will soon be no more.
Look, no one loves the idea of a United-Europe as much as I do. The European Union is a politically fascinating and intellectually compelling case study in geo-continental political cooperation. Its economic execution, however, has been abysmal at best. So desperately pathetic, in fact, it makes the U.S. debt ceiling debate look educated in comparison.
Dear financial world…while I understand you want so badly for this Euro-experiment to continue (if only for your portfolio performance), I beseech you this: please prepare for the worst. Then lower your expectations.
For by this time next year, the EU may very well be no more.
Margaret Bogenrief is a Partner with ACM Partners, a boutique crisis management and distressed investing firm serving companies and municipalities in financial distress. She can be reached at [email protected]
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