Europe’s Economic Crisis Has Spread from the Periphery to the Core

We’ve noted for more than 5 years that the European crisis would spread in the following order … more or less:

Greece → Ireland → Portugal → Spain → Italy → UK

We also warned that the EU’s approach to economic problems in the periphery would lead the cancer to spread to the core. For example, we’ve repeatedly warned that:

  • Bailing out the big European banks would just transfer the risk to the people
  • Propping up stocks and asset prices won’t get Europe out of the crisis
  • Covering up fraud by the European banks would sink the economy

Now, the IMF is forecasting that Italy could be in recession for two decades … and that it’s weakness could spread to the rest of the system.

Britain is – of course -in trouble.  But it’s not just Brexit …

Europe has been stuck in a downturn worse than the Great Depression for years.  The former Bank of England head Mervyn King said recently that the “depression” in Europe “has happened almost as a deliberate act of policy”. Specifically, King said that the formation of the European Union has doomed Europe to economic malaise.

He points out that Greece is experiencing “a depression deeper than the United States experienced in the 1930s”.

The depths of Greece's depression

(Indeed, some say that the UK was smart to get out while it could.)

Even Germany’s largest bank, and the bank with the highest exposure to derivatives anywhere in the world – Deutsche Bank – is in big trouble.

Here’s its stock price:

DeutscheAnd here’s its market capitalization:

Deutsche Bank Market CapIn May, Moody’s downgraded Deutsche to a mere 2 notches above junk.

And credit default swaps – bets that a company is in risk of failing – against Deutsche have absolutely skyrocketed:

https://news.markets/wp-content/uploads/2016/02/DB5yrCDSspread-750x462.png

Deutsche Bank’s chief economist just said:

Europe is extremely sick and must start dealing with its problems extremely quickly, or else there may be an accident.

He’s calling for a $166 billion dollar bailout of European banks.

Similarly:

BlackRock Inc. Vice Chairman Philipp Hildebrand said earlier this month the European Commission should allow governments to take temporary equity stakes in their banks, similar to what the U.S. did with its Troubled Asset Relief Program during the 2008 crisis.

Europe has made bad choices since the 2008 crisis … so Europe’s economic crisis has spread from the periphery to the core.

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  • Brockland A.T.

    “… or there may be an accident…”; sounds kind of sinister.

    I’d give them my two cents but they would refuse it.

  • ICFubar

    An economy goes into stagnation, or worse a debt deflation spiral, when the private sector debt reaches a point where it can no longer expand to pay for the goods and services the economy produces. All the money printing in the world to erect a fake illusion of financial well being does not change the underlying condition that too much debt has be extended by the banks, seen by them as profit, for malinvestment in speculation in rising asset bubbles due to lack of regulations like Glass Steegal. Now on top of this situation we have seen the creation of derivative bubbles on an unimaginable scale, once considered entirely illegal before the deregulation of the financial markets as envisioned as economic “freedom’ under neo-liberal economic ideology.

    Perhaps this was the plan all along? To engender a massive debt trap, collapsing the financial sector, with new bank(s) being instituted that will foreclose on nation states and their populations assets as we have witnessed in Greece, Argentina and others with the instigation of a new universal money supply based upon repayment of the debt through forfeiture.

    • Great post ICF, I believe you capsulated it very well there in your very fine post!

      • ICFubar

        Thank you.

        • You are very welcome, and I am just giving credit where credit is due!

          • Joann Hughes

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  • 02.07.2016 The EU’s Architects: Nazis and Nazi Collaborators

    There is an old adage that pertains to the founding of the European Union «If at first you don’t succeed, try, try, again». And for the Nazis and Nazi collaborators of the Second World War, viewing the post-war European death and destruction brought about by Adolf Hitler and his «Third Reich» alliance of Italian fascists, French Vichy, and others, the immediate decision was to «try again» with a European Union that would establish the same European super-state envisaged by Hitler but with a decidedly «democratic» aura.

    http://www.strategic-culture.org/news/2016/07/02/the-eu-architects-nazis-and-nazi-collaborators.html

  • Auldenemy

    Greece → Ireland → Portugal → Spain → Italy → UK

    You left out France on that list and as it has 11% unemployment and its own banks are mired in debt I think in fact it should come after Italy. Actually if any one of the bigger EU countries has a big banking collapse then all of them will come down, and no way is even Germany immune from that (especially given the ticking time bomb of DB and its $70 trillion derivatives book). It will be a repeat of 2008 but much, much worse. If European banks implode then I don’t see the USA, China and Japan not getting caught in the tsunami, they too are clinging to the edge of their own towering infernos of debt.