Save the banks, kill the euro

A coordinated action by the world’s central banks (including our own dear BoE) underwritten by the Fed is tossing a lifebelt to Europe’s moribund banks. The inflated ring is made up of cheap dollars, to which the banks will now gain easy access. ‘Where the hell were you when we needed you?’ those Lehman brothers must be asking. We ought to ask a question that’s less emotionally charged but more to the point: ‘Where are those cheap dollars going to come from?’ You don’t get a multiple choice. There’s only one possible answer: the printing press. So the ring involves inflation in more senses than one.

Call me a cynic, but I don’t think the Fed is driven by predominantly altruistic motives. Central, or for that matter any other, banks seldom are. In this case they are clearly pursuing three highly pragmatic ends. One is to prevent a global banking meltdown, or rather try to do so. The second, less obvious, one must be to inflate the dollar, thereby reducing the real value of America’s national debt, currently approaching $15 trillion and denominated in dollars. The third, an even less obvious one, is to reassert the dollar’s tottering position as the world’s reserve currency.

The Chinese who hold a good chunk of the US debt ($2 trillion the last time I looked) grudgingly go along with the scheme. Though they may not be familiar with Thomas Jefferson’s homespun wisdom ‘half a loaf is better than none’, they don’t need a Founding Father to grasp the logic.

Where does all this leave the euro? On the way out, according to Quotidiano.net, the website run by Italy’s powerful press syndicate. According to their report Germany has already drawn a plan for overnight departure from the euro. The plan involves instant withdrawal of the old currency and its replacement with new banknotes complete with magnetic strips. The euro will stop being legal tender, and its import into the country will become illegal. The website doesn’t say what will happen to the euros in people’s bank accounts. Presumably they’ll be converted to the new currency, but such presumptions are dangerous when it comes to the spivocracies that rule the West. In any case the conversion rate will hardly be fair.

The plan is based on the sophisticated calculations prepared by Prof. Dirk Meyer-Scharenberg of Hamburg University. According to the good professor, keeping the euro from ‘going belly up’, in George Osborne’s elegant phrase, would cost banks and insurance companies about €560 billion. But casting it adrift would cost a mere €225 to 340 billion. Augmenting his arithmetic, the Swiss bank UBS (whose own value dropped from $116 to 35 billion between 2007 and 2009) reckons that the demise of the euro will cost every adult €9.5 to 11.5 thousand in the weak member countries of the eurozone and €6-8 thousand in the strong ones.

So a two-adult family in Greece, Ireland or Portugal will emerge about 20 grand worse off. Not that this will come as any great shock. According to the European Commission’s own poll, 87% of the eurozone dwellers say they’ve become poorer in the last few years, and 71% don’t believe the current measures will help at all.

In a fit of most lamentable Schadenfreude, a couple of weeks ago I sent an e-mail to my French friends, federasts to the last man, but jolly nice chaps nonetheless. ‘So do you still think the euro was a good idea?’ I asked, getting my own back for the 11 years of scorn poured over my unpopular ideas on the subject. So far I’ve received no replies.

 

 

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