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When Will The European Union Collapse?

Posted by Larry Doyle on May 10, 2011 8:36 AM |

2011? 2012? 2013? 2015? 2020?

Who is willing to make book that the European Union as we know it will no longer exist within any of the time frames highlighted above? You think I’m reaching? I don’t. Why? Let’s navigate.

The core principle of the Prisoner’s Dilemma promotes that individual economic entities will act in their own self interest at the expense of a collective interest. We witness this dilemma at work within many economic circles in the world today.

Why do individual economic units behave in such a fashion? Often a lack of trust and a true sense of partnership will compel one economic unit– be it a state, a nation, or a trade bloc– from fully cooperating and embracing its supposed partner. While this dilemma is causing real conflict and friction in many parts of the world today, I believe the dilemma is most troubling within the peripheral countries of EU. Why so? 

When an electorate loses its voice and has formal economic policy dictated to it as in its best interest only to experience greater pain and anguish, you can rest assured the seeds of distrust and disintegration are being sown. I sense this reality is developing across a number of the smaller European nations at this very moment. You think I’m kidding? Let’s visit Finland and listen to Timo Soini the leader of the True Finns, a political party in Finland which espouses a populist and nationalist approach. The True Finns were previously an after thought but now represent a major political force in Finland.

In today’s Wall Street Journal, Soini writes Why I Don’t Support Europe’s Bailouts,

When I had the honor of leading the True Finn Party to electoral victory in April, we made a solemn promise to oppose the bailouts of euro-zone member states. Europe is suffering from the economic gangrene of insolvency—both public and private. Unless we amputate that which cannot be saved, we risk poisoning the whole body.

To understand the real nature and purpose of the bailouts, we first have to understand who really benefits from them.

At the risk of being accused of populism, we’ll begin with the obvious: It is not the little guy who benefits. He is being milked and lied to in order to keep the insolvent system running. He is paid less and taxed more to provide the money needed to keep this Ponzi scheme going. Meanwhile, a symbiosis has developed between politicians and banks: Our political leaders borrow ever more money to pay off the banks, which return the favor by lending ever more money back to our governments.

In a true market economy, bad choices get penalized. Instead of accepting losses on unsound investments—which would have led to the probable collapse of some banks—it was decided to transfer the losses to taxpayers via loans, guarantees and opaque constructs such as the European Financial Stability Fund.

The money did not go to help indebted economies. It flowed through the European Central Bank and recipient states to the coffers of big banks and investment funds.

We already know that the Federal Reserve was the ultimate backstop to the EU bailout of Greece structured a year ago. How has that bailout worked? It hasn’t. Greece remains on the precipice of default and the citizenry is increasingly buried with bills they will never be able to repay. Ireland and Portugal are in similar straits. Spain is not much better. Italy? I’m not betting on them. Soini offers as much,

Unfortunately for this financial and political cartel, their plan isn’t working. Already under this scheme, Greece, Ireland and Portugal are ruined. They will never be able to save and grow fast enough to pay back the debts with which Brussels has saddled them in the name of saving them.

I would expect that the the populist movement which elevated Soini and the True Finns in the recent elections in Finland will prove to be a precursor to similar electoral results in other nations, including here in the United States. Will those results drive real change or will central bankers overrun and overrule the political powers to be? Time will tell but I recall that during my trip to Ireland a few months back, I learned that more and more people in  Ireland are questioning why they would remain in the EU. Why would they slave under a debt burden which only serves to repay creditors–those being large international banks–who have done little to nothing to support the public interest.

When people experience a real sense of disenfranchisement, they will react not only in the voting booth but ultimately in the street.

Thus, I repeat my question. When will the EU collapse?

Me thinks that at the current pace of economic degradation within a number of peripheral nations the EU will no longer exist as we know it by 2013.

What do you think?

Larry Doyle

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I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.



  • James

    Recall that a year ago the very same question was raised about the EU.

    The answer will be delayed by how much and how often the Federal Reserve can continue to provide backdoor bailouts for the European banks.

    • Phil

      How do we know that this is not going on right now and that the sense of calm in the markets is a direct reflection of Fed provided liquidity?

  • divvytrader

    i find it astounding how the global equity markets just seem to laugh at the meltdown in Greek , Ireland and now Portugal debt ……. as if ECB can fund these countries for next 30yrs or so at wayyyy below market rates .

  • Steve

    I don’t see the EU collapsing, it has so many other uses. I do see a strong possibility that the Euro collapses. That’s another story…

  • Bill

    Some people worry that a “one world government” will be instituted, with a loss of sovereignty. The euro is Exhibit A this will never happen. A sovereign government requires a unitary currency, and there won’t be any world universal currency.

  • coe

    It is both a complicated AND a populist issue for sure..I have friends in Germany that are pretty fed up with the economic and political implications on their stronger economy and a related matter, we keep jetting senior and mid-level US banking regulators over to Basel, trying to forge a new paradigm of capital standards tied to balance sheet and operational risk that will create a level playing field of safety and soundness..what happens to these initiatives if the EU indeed starts to fracture? The fact remains that in these times, everything is global, and the fall of the EU would have debilitating consequences for a protracted period of time..that is why I am forced to take the over, at least until we see more stability, more economic uncertainties relieved, and a much stronger US economy to anchor any apocalyptical post-mortem on the EU..but it took me awhile to concede that conservatorship for the big GSEs was really going to happen – any Windex for our crystal balls?

  • mg

    Look, it’s all the fault of the citizens, seeing they elected their officials and now they must pay, and the evil speculators. A high ranking ECB official explains: ““We need to strengthen the norms and the rules for each country to be full members of the euro rather than making easy ways out which would not work in any case,” Bini Smaghi said today.
    He put some of the blame for the restructuring discussion on large investors who have bought insurance against a sovereign default and “stand to benefit greatly from the default and lobby in favor of it.”
    “They tend to encourage naive governments to believe that debt restructuring can be done in an ‘orderly way,’ distracting them from implementing the appropriate policy adjustment,” he said. “If the euro area were to go down the path of leaving it entirely up to the markets to decide which countries are solvent and which are not, it would put the euro at a disadvantage compared with all other major currencies.”

    Earlier, Bini Smegma said this,”ECB Executive Board member Lorenzo Bini Smaghi yesterday: “Irish people also elected the governments that regulated the banks as the problems built, Mr Smaghi pointed out.
    “If taxpayers have the right to share in decision-making, they must also accept the consequences,” Mr Smaghi said.

    Interesting how his comments dove tail nicely with thos from bin Laden concerning the accountability of citizens that elect their officials:bin Laden in 1997: “As for what you asked regarding the American people, they are not exonerated from responsibility, because they chose this government and voted for it…”

    Point being, the so called democratic nations are being ruled by fear and fear alone. From the disinformation around the Iraq war to the TARP bailout and now to the bleeding of the citizens in Europe and the US for the benefit of the Financial/Banking cartels.

  • PG

    Citizens have little choice , with restricted political parties and candidates . Many countries and the EU have third rate politicians and corrupt political parties , and the political systems are too close to finance and big business .
    If the EU was that strong and respected then why are EU politicians against referendums concerning countries staying in the EU and making it technically difficult to leave .
    Citizens are not just against the EU , they are against the current political parties and the system , especially when the EU makes it impossible for small parties to enter parliament , and politicians spend more time fighting one another rather than running countries.
    Unlss politicians listen and the political system changes , there could be unrest in many EU countries , similar to what is happening elsewhere in the world.

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