Danish Banker Sees End of Euro

Just as the Eurocrats thought they had managed to talk down the euro crisis and save their beloved currency union, a little Danish boy steps out of the crowd and points out that the emperor still has no clothes. From Bloomberg.com (via Zerohedge):

Lars Seier Christensen, co-chief executive officer of Danish bank Saxo Bank A/S, said the euro’s recent rally is illusory and the shared currency is set to fail because the continent hasn’t supported it with a fiscal union.

I spent six years in Denmark. Danes are serious professionals, they are upfront, free-spirited and they have no problem speaking the truth. Culturally, When you hear this from a man in this position within the private sector in Denmark, you better listen.

“The whole thing is doomed,” Christensen said yesterday in an interview at the bank’s Dubai office. “Right now we’re in one of those fake solutions where people think that the problem is contained or being addressed, which it isn’t at all.”

Exactly. The main reason why the euro appears to be stable at this point is that the European Central Bank has put a cooler on the bonfire-like debt crisis by promising to buy any euro-denominated treasury bond, anywhere, any time. Technically, the promise was limited to the most troubled eurozone countries, but by implication it extends to all member states.

This uncapped promise has allowed international investors to go back into high-yield euro-denominated treasuries from primarily Greece, Portugal, Spain and Italy. Secondarily, they can also invest with similar confidence in French treasuries, which are next on the troubled-bonds list. Thereby the ECB removed a major reason for investor flight out of the euro, temporarily strengthened the currency and created the false impression that the crisis is over.

It is not. Bloomberg.com again, which paints a picture of declining GDP and a new phase in the debt crisis:

The European Central Bank forecasts the euro-area economy will shrink 0.3 percent this year … [and while] the euro has strengthened, the economies of Germany, France and Italy all shrank more than estimated in the fourth quarter. Ministers from the 17-member euro area met during the week to discuss aid to Cyprus and Greece as a tightening election contest in Italy and a political scandal in Spain threaten to reignite the region’s debt crisis.

Greece has suffered from a shrinking GDP for years now. Since the recession-turned-depression started they have lost roughly a quarter of their economy. That is extreme, but it shows the devastating consequences of combining austerity with an entirely artificial currency union. Furthermore, it should be a warning sign to the Eurocrats as well as other member states to not adopt the same kind of fiscal policy in their countries. Yet that is precisely what seems to be in the making: the “aid” to Cyprus and – again – to Greece will consist of a buyout of treasury bonds combined with austerity requirements.

There can be only one outcome: more of the same crisis.

As Bloomberg.com continues, it illustrates the dire situation of the European economy, a situation that according to Danish banker Christensen is going to be the undoing of the euro:

France is grappling with shrinking investment, job cuts by companies such as Renault SA and pressure from European partners to speed budget cuts. While Germany expanded 0.7 percent last year…

That’s a pathetic “growth” rate for an economy like the German.

…France posted no growth and Italy probably contracted more than 2 percent, the weakest in the euro area after Greece and Portugal, according to the European Commission. The economy is on the brink of its third recession in four years and the highest joblessness since 1998. Prime Minister Jean-Marc Ayrault said Feb. 13 the country won’t make its budget-deficit target of 3 percent of gross domestic product this year as the economy fails to generate growth and taxes.

The pursuit of a balanced budget is the enemy of growth. So long as the political leaders of Europe’s big welfare states do not want to concede that their countries can no longer afford their big, onerous, sloth-encouraging entitlement programs, there will be no change in the course of the European economy. The welfare states will continue to drive up deficits and drive down growth. The EU will continue to demand austerity, which will further drive down growth and widen the deficit gaps in government budgets. Europe will stagger and stumble, but there is no chance it will ever recover under its current big, redistributive goernment.

In a nutshell, all you Europeans: this  is as good as it gets.

And just to add some more salt in Europe’s self-inflicted wounds, Bloomberg. com tops off with a stark reminder of the economic reality the Europe is stuck in:

“People have been dramatically underestimating the problems the French are going to get from this. Once the French get into a full- scale crisis, it’s over. Even the Germans cannot pay for that one and probably will not.” … Spain, which plans to sell three- and nine-month bills tomorrow and bonds maturing in 2015, 2019 and 2023 on Feb. 21, faces a sixth year of slump. Output is forecast to contract for a second year in 2013 with unemployment at 27 percent amid the deepest budget cuts in the nation’s democratic history. Public-sector debt is at record levels, having more than doubled from 40 percent of gross domestic product in 2008. The European Commission, which is due to update its forecasts this week, sees it rising to 97.1 percent of GDP next year.

This is the crisis that the ECB is trying to cover with an endless monetary commitment to defend the euro. But the deficits do not go away, and economic growth does not return. In its desperate fight to save the euro and the welfare state, Europe’s political leaders will bleed the former dry and deplete the latter of any money to honor its entitlement commitments.

I stand by my verdict: Europe is in permanent decline,  it is turning itself into an economic wasteland of industrial poverty that over time will be left behind by North America and Asia.