From Smoldering Ashes Comes Good News of Reality

Posted by Mike Shedlock: Mish's Global Economic Trend Analysis

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CyprusIt’s easy enough to focus on the smoldering ashes of the politically and economically insane move in Cyprus by the heavy-handed bureaucrats in Brussels and Germany.

Instead, I suggest we focus on the bright side, and there is plenty to be found.

  1. The nannycrats have been permanently exposed as liars
  2. Trust is gone
  3. Everyone can now clearly see that deposit guarantees were a lie
  4. Realization has set in that in spite of nannycrat denial, this will happen again
  5. The move in Cyprus will strengthen the Five Star Movement in Italy
  6. The move in Cyprus will embolden the separatists in Spain
  7. The move in Cyprus will strengthen UKIP in Great Britain
  8. The move in Cyprus is even likely to strengthen Alternative für Deutschland (AfD)
  9. Eurobonds and joint budgets are exposed as dead
  10. In Germany, Merkel is likely to have won a Pyrrhic victory (if indeed she won anything at all)
  11. Sensible people now realize all this talk of European solidarity is a gigantic lie
  12. Even ardent supporters of the eurozone are now starting to question its existence

That is one heck of a lot of good things for the bargain basement price of a mere €5.8 billion.

If Europe could not come together to scrape up a mere €5.8 billion to rescue tiny Cyprus, what exactly can they come up with? The answer of course is nothing.

Philosophically speaking, Northern and Southern Europe could not possibly be wider apart.

No Union, Only Dreams

There is no union, only foolish dreams of one. There is no solidarity, only talk.

Yet the talk has changed. I was wondering exactly what it would take to light a fire in Telegraphcolumnist Ambrose-Evans Pritchard and we now have the answer.

Pritchard says Daylight robbery in Cyprus will come to haunt EMU. But so have two-dozen others. What struck me was these paragraphs.

They [EU creditor States] have demonstrated that the rhetoric of EMU solidarity is just hot air, that they will not force their own taxpayers to share a single cent of clean-up costs for the great joint venture of monetary union.

The sooner this is made clear, the better. The sooner they take the proper course of withdrawing from EMU and organise the break-up the euro in the least disruptive way, the sooner Europe can recover.

America and China must crush Germany into submission

Please compare the above paragraphs with an article Pritchard wrote on November 9, 2011: America and China must crush Germany into submission

As we watch Italy’s 10-year bond yields near 7.5pc and threaten to detonate the explosive charge on €1.9 trillion of debt, it is time for the world to reimpose order.

Yes, this means mobilizing the full-firepower of the ECB – with a pledge to change EU Treaty law and the bank’s mandate – and perhaps some form of quantum leap towards a fiscal and debt union.

The EU Project has become both dangerous and insane.

Two days later, on November 11, 2011, I wrote a rebuttal: We Must Crush Ambrose Evans-Pritchard, Nouriel Roubini, Martin Wolf, the Army of Krugmanites into Submission; Reflections on “Dangerous and Insane”

Reflections on “Dangerous and Insane”

  • What’s dangerous and insane is economists like Prichard demanding treaties be tossed to the wind to test poorly thought out economic ideas.
  • What’s dangerous and insane is economic theory that says printing presses are the answer. It has never worked in history and will not work now.
  • What’s dangerous and insane is more leverage. Didn’t Lehman and LTCM prove that? How many more times do we have to prove that before it sinks in?
  • What’s dangerous and insane is the idea is that central banks can impose their will on the world.
  • What’s dangerous and insane is doing the same damn thing over and over and over again hoping for a different result
  • What’s dangerous and insane is the moral hazard policy of time-and-time-again forcing the 99% to bail out the 1%.

The world will not end if banks fail. Forcing the 1% (banks and bank bondholders) to take a hit will not cause the world to end either, nor will it cause lending to cease.

In my rebuttal, I also wrote “Widespread debt restructuring and partial break-up of the eurozone is where we are headed, and the debate ought to be how to do that correctly instead of how to achieve the impossible.”

As you can see, Pritchard finally has it correct. Given that he was one of the original eurosceptics, I knew he would eventually come around.

It’s one thing for eurosceptics to finally get back on the right track, but it’s another thing indeed for dyed in the wool euro supporters to begin questioning the euro itself.

Wolfgang Münchau, founder of Eurointelligence and columnist on the Financial Times is one such euro supporter.

The Failure of the Euro-Politicians

Please consider Münchau’s recent column on Der Spiegel Expropriation in Cyprus: The Failure of the Euro-politicians.

The euro finance ministers will partially expropriate bank customers in Cyprus. This decision is the worst accident in the monetary union. Anyone now trusting his savings to a southern-European bank must be pretty naive.

It was by far the most stupid and dangerous decision the politicians in the euro zone have made. Europe’s finance ministers have knitted the Cyprus package with hot needle – and triggered a fire storm.

The fatal mistake was to try to overturn deposit insurance for savers. What’s important is not the formal legal nature of the guarantee but its credibility in Cyprus and elsewhere. In the euro zone deposits are insured up to 100,000 euros. If now the government comes and says: we’ll take money by a property tax, then the trust is gone. This action constitutes theft.

When Tanks Are Needed

Reader Bernd translated the final two paragraphs as follows …

“Readers of my column know, that I have always defended the Euro, including the instruments (tools) needed to make it a success. However, there comes a point when it is no longer morally acceptable to uphold a currency if Governments and Parliaments do not have the will and the insight to manage it properly.

The day approaches when the Euro can only be defended with tanks. When that happens, the Euro will no longer be worth defending”

And so here we are, at long last, with ardent supporters finally questioning whether this experiment can work. The answer should now be obvious to all: it can’t.

So we finally need to do what I suggested long ago, start frank discussions on how to break up the eurozone in the least disruptive manner.

Wine Country Conference

I am hosting an economic conference on April 5 in Sonoma, California. Proceeds go to the Les Turner ALS Foundation (Lou Gehrig’s Disease).

Please see My Wife Joanne Has Passed Away; Stop and Smell the Lilacs for my association with the disease.

To learn about the economic conference with world-class speakers including John Hussman, Michael Pettis, Jim Chanos, John Mauldin, Mike “Mish” Shedlock, Chris Martenson with guest moderator Lauren Lyster and other Special Guests, please visit Wine Country Conference April 5, 2013