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Is the next chapter of the Euro Crisis unfolding in Spain?
It would appear to be the case as Spain’s 10 year borrowing costs have gone up to 6.5%.
This is a big deal because when borrowing costs approach 7%, it is widely viewed as a cost of borrowing that cannot be covered by economic growth year after year…
Therefore, a 7% interest rate on a 10-year note would mean that Spain would not be able to pay it back…
That means Spain, like Greece, Portugal, and Italy before it, is nearing the default zone.
But, like those nations, Spain is making all the right noises that it has things under control.
Meanwhile, the yield on German bonds reached 0%. That’s right; Germany’s borrowing costs are zero for 2-year bonds.
Why would this be and what might it mean for Europe?
Because every European with any wealth at all is wanting to put his or her money in Germany, even if it pays them nothing.
Why would they want to do this?
A simple calculation tells the story.
Say you’re a Spaniard and you have your money in a Spanish bank. If you think that Spain is on the verge of not paying the debt service on its loans, then you’re also worried about what will happen to the euro…
Spain may in fact have no plans or desires to leave the euro…
And believe me, they certainly wouldn’t tell the world about it if they did.
Germany to leave the Eurozone?
But even so, turn it around…
What if Germany decides to leave the euro? Why would they do that you may ask?
Because Germany may rightly conclude that rather than pour endless amounts of money down the bottomless debt pits of country after country in an effort to save a currency that may not be savable…
While, in the meantime, they all hate you for the austerity measures you imposed upon them…
That it might just make a whole lot more sense to just cut them all loose and leave the euro behind.
Germany would have a lot less headache if it went back to the deutschmark….
Granted, its currency would be very strong, and therefore, German goods and services would become very expensive for the rest of the Eurozone…
But it’s not like the Eurozone isn’t sliding into a recession anyway…
Everyone but Germany, that is.
This seems like as reasonable of an outcome as any.
And it actually seems the smartest in the long run. Maybe the Eurozone failed because it was meant to fail…
What do I mean by that?
Only that an economic zone that would allow its poorest members nearly unlimited credit is doomed to failure.
The same can be said for one where the richest members enable and encourage the poorest to borrow themselves into bankruptcy.
That, in a nutshell, defines the Eurozone, and that’s why I say that it was meant to fail.
Who, in their right mind, thinks that the whole single currency euro scheme was designed to succeed?
Doesn’t look it was, does it?
But its failure couldn’t have come at a worse time as the US struggles to slow its financial and political decline in the world…
All while China’s seems on the high road to replacing the US with its rising super power status.
What do all of these concurrent events mean for Europe?
It may just mean that Europe may have to grow up and out of its infantile dependence upon the US…
This is especially true for the defense of Europe, because there is real doubt that the US can afford to defend Europe much longer.
With its own budget deficits, spending ceiling, political paralysis, and debts in the many trillions of dollars…
How long do you think it will be before the defense treaties are rendered null and void by virtue of US insolvency?
With a rising Russia to the East and a declining US to the West, Germany may find it necessary—for the first time in over 60 years--to rearm itself and Europe in a collective effort at self-defense.
Germany replacing the US?
The Germans, for all their negative history in Europe, may end up replacing the United States as the defender of Europe.
Think this is far-fetched?
If so, I remind you what pulled the US out of the depression in 1942? It was the war effort of arming of itself.
Such an effort creates debt, it’s true; but it also created jobs and demand for commodities and finished goods.
I’m not saying that a war is what will bring this about; I’m just pointing out that European defense thinkers must have already figured this out…
What their solutions might be, is anyone’s guess. But it’s clear that the single currency euro is not the answer to a healthy and dynamic Europe. In fact, it only made worse the tendencies of each nation.
What I mean by that is that the rich nations got richer, and the poor got poorer and now they all face crises of their own making.
The Euro Crisis is not just about a single currency; it is really about Europeans facing the facts about who they are…
And on whom they will be able to depend going forward.
That is why as Spain joins the other PIIGS in crisis; it brings the entire euro project into focus…
That is why it just may be that the only way for Germany to save Europe…is for Germany to leave the euro.
And those are…The Gorrie Details.