Is the Eurozone in a Dead End?

It’s remarkable that the Euro and the Eurozone currency grouping hasn’t fallen apart until now. Greece could have done it in 2010 but it was avoided by extraordinary acts of the Euro governments and European Central Bank.

Now those actions are coming back to haunt especially Germany who stands poised to become the “sugar daddy” of the debt-bloated southern Euro states such as Italy or Spain. This is one major reason that the anti-Brussels parties that triumphed in recent Italian elections—5-Star and Lega, suddenly dropped talk about leaving the Euro. They are betting that Macron and Markel and their proposed new EU architecture will pull their debt chestnuts out of the fire at expense of German taxpayers. It’s a timebomb ticking ever louder.

Ten years into the greatest financial meltdown in the history of finance, triggered by the USA sub-prime real estate bubble collapse in 2007, the Euro and its 19 member central banks are at a dangerous crossroad. It’s clear from her recent address to the German Parliament that Chancellor Merkel intends to lure Germany into what she and Macron intend to become a “transfer union.” In plain English that would mean the strong surplus economies of Germany and northern Europe including Holland, would have to “transfer” hundreds of billions of Euros to subsidize the deficit countries of Italy, Spain and southern Europe. The ultimate winner would be the shaky French and Southern Eurozone banks. It’s not surprising that Merkel, a close ally of former banker Marcon of France, is not being open with her people on what is at stake.

Target 2 Trap

In 2011, in the wake of the manipulated Greek bond crisis that triggered a Eurozone contagion panic in markets, the European Central Bank initiated a highly controversial and poorly understood disguised bailout known as Target 2.Without getting into the complex details of how Target 2 central bank balances function, they in effect allow the central banks of the Eurozone crisis countries, led by Italy and Spain, to issue state bonds which are in effect taken by the strong central banks of the Euro, notably Germany’s Bundesbank. Since 2011 and the Greek crisis, Target 2 balances have been growing phenomenally to where today the total is estimated for the Bundesbank alone at € 914 billion. This is about one third of German GDP.In 2011 the highly-respected German economist and then-head of Munich’s IFO Institute, Hans-Werner Sinn, called the ECB use of Target 2 “The ECB’s stealth bail out.” He was the first to warn that the ECB Target 2 system for “Target balances constitute public credit relations in the same way as credit that is given via official rescue packages.”

In 2011 the sums involved were still a fraction of the present total. Today the sheer size of these little-publicized Target 2 central bank balances in the Eurozone, especially the Bundesbank, put enormous pressure on the more prudent northern EU countries, especially Germany, to finally drop resistance to adoption of George Soros’ plan to have the Euro countries issue common Eurobonds. With such Eurobonds, the public debt of euro-zone countries would be pooled and converted into Eurozone “Eurobonds” with collective responsibility. De facto that would mean German or other north EU taxpayers would support the debt of stressed countries like Italy or Portugal or Greece. For strong reasons former Finance Minister Wolfgang Schäuble fiercely resisted any supranational issuing of bonds as a disguised forced German bailout of the countries such as Italy or Spain.

As Sinn points out about the covert bailout Draghi’s ECB has created via the little-understood Target 2 central bank credits, “And yet the Bundesbank’s Target claims (on Italy, Spain, etc) are essentially worthless, because they can never be called due, and are issued at an interest rate determined by the debtors, which hold the majority on the ECB Governing Council. For the time being, they have set the interest rate to zero.” This is €914 today, alone for the German Bundesbank.

Merkel, SPD and Eurobonds

Now it becomes clear why Merkel elegantly pushed Schäuble aside by naming him CDU Parliamentary leader. His replacement, Social Democrat Olaf Scholz, is rumored to be privately favorable to French President Macron’s proposal for a European banking union and a transfer union. In her first speech in March as Chancellor in the new Grand Coalition, Merkel suggested favoring plans to turn the €500 billion European Stability Mechanism, the eurozone’s crisis rescue fund since the crisis in 2013, into a permanent European Monetary Fund, an EU version of Washington’s International Monetary Fund.
In a transfer union, the healthier countries of the Euro will support the weaker. This is behind Macron’s call for a common Eurozone Finance Minister who would develop a common tax budget for the ECB member countries. Under the Macron Plan, which Merkel and the SPD have endorsed, each euro transferred from a Northern to a Southern European country would reduce the Target claims and liabilities by one euro.

The deeper underlying problem in all these schemes is the fact that the countries of the ECB and Euro have done nothing fundamental to clean up their banking insolvency mess. Instead the ECB under Draghi has been used to create what is today a de facto insoluble problem for the German and other strong central banks of the Euro using Target 2 balances as a stealth bailout. Now the Merkel-Macron axis in the EU is ready to spring the next step—Eurobonds, a common Eurozone Finance Minister and fiscal policy and a transfer union.

This is the real reason Italy’s “Euroskeptic” parties suddenly dropped election demands for a referendum on leaving the Euro or the EU. They realized Italy could be a huge benefactor by staying in and backing an EU Transfer Union. Bond market speculators like Soros will have a field day. German and Dutch and other more prudent countries will de facto pay the bill. For Germany where the demographic reduction in working age population is already apparent and will accelerate in coming years, a growing pension obligation makes German debt obligation in the long run unsustainable. To now add a fiscal transfer from Germany to the indebted Southern EU countries spells political and economic Tsunami.

F. William Engdahl is strategic risk consultant and lecturer, he holds a degree in politics from Princeton University and is a best-selling author on oil and geopolitics, exclusively for the online magazine “New Eastern Outlook.”

8 thoughts on “Is the Eurozone in a Dead End?”

  1. Im not surprised italy and spain and greece are in dire straits economically. Theyre such lazy countries (economically speaking). They dont work. They have their own little mom+pop shop that they go into at 10am, work for 2 hours, close for lunch then siesta, then close for the day, only working 4 days a week. How can they get away with this? Mostly gvnt subsidies, but also just a very laid back attitude which seems romantic to outsiders for a holiday and instagram pictures, but to actually live there will take its toll, as theyre all finding out.
    ..So the national gvnt relies on tourism; everything from regular tourism of the historic sites to mafia sex and alcohol and drug tourism.
    Yet even the tourism is lame bc its so full of ppl and queing and extortionate prices etc. Ticking timb bomb economically and politically.

    Then u have britain and scandinavia which arent lazy in work and skills, but have allowed their country to turn into a refugee camp subsidising welfare parasites (from migrants to big corporations to huge gvnt waste+warfare) from their productivity/taxes.
    Brits are among the most overworked ppl in europe and possibly the world and thier half-functioning systems like their helathcare are collapsing from OVERBURDENING/OVERPOPULATION (from all the ppl fleeing there from their lazy shithole debt and scam friendly countries).

    1. I lived and worked in Italy some time ago, and I [and my colleagues] worked extremely hard. Your claim that I [and others] are lazy are simply inaccurate generalisations that appear motivated by xenophobia, among other things.

      In Australia, British Emigres get many advantages over other immigrants, and locals, especially access to public sector employment. Local Councils in my home town are full of British based migrants with mediocre skills, and dubious backgrounds.

      Whinging is the key component of your comment, and this is also the key characteristic locals have traditionally ascribed to British migrants to Australia. That, and an inordinately high level of self-serving cultural elitism. A recent example of this is the 2017 Federal Government scandal whereby many senior Ministers and Senators were revealed to have misled everyone about the truth of their British heritage, which would have made them ineligible for office. Of course they are all still receiving pensions etc. Lazy Brits stealing Aussie tax-payer dollars, typical.

      If staying in Britain will mean working hard for you, then isn’t that better than joining the band of Brits that appear o simply pillage this country for their own personal benefit – but on Her Majesty’s Service?

    2. I am surprised that you have written in this way Karl, I would have thought that you would’ve had a greater understanding of worldly events and situations, especially since you comment of GP quite often.
      Why do people hate it when other people still have a life worth living by doing less work? After all do you really think that that is the reason why we are born – to slave away? I have been to Greece many times and I have seen these people work hard for long hours during summer, many of them do this for the summer months then yes work less or not at all during the winter. Why not if your profits have allowed for this life style, then why not? The farmer can be looked upon in the same way. As he ploughs his field and sows his crop he waits patiently for the seed to sprout and grow into a wonderful crop. There are are weeks that go by between each weeding session. Then you reap and once that is done plough in the fields and let nature decompose it back into the soil again. This takes from 1 – 3 months of sitting. The farmer is already on holiday at this time for his month away vacation. I used to work offshore, we would work one month on then have a month off. Theoretically only work for 6 months of the year, so what? People have choices to live their life the way they want to – don’t condemn them for it.
      Your rant on immigrants coming into the UK is absurd! After we have almost annihilated every former colony of the empire and then some as we are doing today in the middle east for resource control then we must also accept the plight of these poor people. We have flattened their homes, wasted their infrastructure and destroyed their cultures, robbed them of precious artefacts and then condemn them further for arriving on our shores? What we should be rising up against is this divide and conquer behaviour that our elitists have programmed so deeply into our heads. That is who we should be focusing on.

  2. Seems like the FASCIST(USA) and COMMUNIST(Putin/Khazarian) overlords are NOT “Sticking Together” right now….as prophecyd to happen SOON.

  3. What many do not seem to see or understand is that, having plundered the American country to the bone, the Khazarians are in the process of shifting their base of operations–plunder, power, and destruction–back to Europe.

    They have one more war for their US Tyranny wardog, Iran, and then they intend to start pulling the plugs keeping the US Tyranny on life support.

    The plan has been in the works for many years, but was officially rolled out in about 2012 (See Barbara Spectre interview for more.).

    It does not end well for we Americans, and does not go forward well for the Europeans.

    One is not a true American until resident in the ADL’s database.

  4. The TRUE “American’s” are NOT of European stock at All…ONLY the “Native Americans” ARE and THEY are (Blacks & Indians) STILL HERE.
    When the REAL Truth about so-called “American History” is revealed, ONLY THEN, will “AMERICA become Great Again”!!
    The so-called “Citizens” of this country are nothing but SLAVES of this country.

  5. Nice analysis, but the question is who is behind this and what is the purpose? As always the question: who benefits?
    The EU and the common euro was from the beginning a plan that favoured the banks (Rothschild central banks !!!!) and the multinationals. Democracy became oligarchy … What Hitler could not achieve was now swiftly introduced by stealth operation behind the screens. But much more sinister was the idea that the countries together would be made responsible for the total EU. NOT THE BANKS !!!!! Note the situation of Greece where the banks (with their fractional reserve !!!) had little problem making large profits when all went well but at the moment when there were problems the cost were nicely moved to the people. People who did not share in the benefits of the EU !!
    The only reasons that countries as Germany and Netherlands accepted this can be as their banks and multinationals saw less risk and more income. That all the risk would be dropped with the people in Germany and Netherlands was not their problem. Banks (central banks) and multinationals do not care. They are not bound to countries … They are the largest parasites of this world nitpicking where they can. Producing in low cost country and selling in the richer country at high price ! Charging interest on money that they print and knocking on the door of governments when they have problems …

    The time is not far that the situation is not sustainable … And then it again will be the banks who will wash their hands and claim that they have done everything they could (with creating debts) … They will try to set up a world government with the people as their slaves as they have always done, but they will not succeed this time. The cost will be laid with the people, but this time too many people are awake and they will prevent that the responsible people will walk away freely as they were used to do ! Times have changed for good !!

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