Monday 7 November 2011

If we all stop believing, will it cease to exist?


There has been a lot of talk of contagion during this Euro crisis. Contagion is the domino effect of a falling economy taking its less stable creditors over the edge, which in turn causes larger and larger economies to fall, unable to resist the infectious debt. Such is the incestuous nature of finance that this could feasibly take down the majority of the world economies; starting with one little trip. There is another contagion that worries the Eurozone, however, that is not spoken of, the contagion of faith.

The Euro is a fiat currency, which means that it has no substantial commodity (usually gold) underpinning it. This means that its value is derived from the faith in the issuing nation and the belief of the financial markets. Were Greece to be excommunicated, or worse, walk out during mass it would spend more than 40 days in the wilderness but it may just learn a thing or two, or at least appear to have. This is the most infectious idea that could be spawned. If Greece survived exile, and ultimately but painfully, it would, this would send a clear message to other suffering members to cut the cord.

The world's financial markets are run by some of the most sharp, aggressive and secular intellects on the planet. They form long and short term strategies and know how to make the market move in their favour but a hint of a rumour of an idea from someone who knows the right people and all hell breaks loose. If traders believe something will happen, it happens because they will make it happen. Have you ever noticed how the news that someone is leaving a company or political position sends the markets into turmoil. For the last two years the markets have gone wild every time Steve Jobs looked a bit peaky or adversely when he was looking well. The markets draw conclusions from omens that are interpreted by the high priests to mean up or down.

The markets don't know what to believe about the Euro, their fates are too closely linked to what everyone else believes, but their minds can easily be made up. If Greece and one other Eurozone economy lose the faith it could be more than the central bank can support.


For the time being, the big players in the Eurozone have faith that they can carry the currency and the market is willing to have faith in them. 



So, if we stop believing in the Euro, will it cease to exist?...




...that depends on who we are.    

Thursday 3 November 2011

Why Greece will fall

who will play Captn George
 in the movie

The present problem derives from the fact the EU thinks it is in battle with Greece but it is not. Greece is in a battle with its government and its political classes as a whole, both right and left. It knows that it has played its part in the situation but it will not take responsibility for its self-serving rulers any more. The EU is dealing with the government who has no influence over its people. 


The Papandreou and Karamanlis dynasties have only ever been allowed to govern because they have shared out the sweeties from time to time, the public sector is bloated with the price of favour, crumbling roads are the price of wannabe civil engineers who happened to be cousins. Now, however, the sweeties are all gone and the sweet shop is calling in the debt. The rulers never curried any sustainable favour and definitely never earned any respect. 
    
The people will vote against its government, not the Euro, not the EU but the government has now made that the same thing. Those who have been managing this country have missed all the lessons on running a tight ship, efficiency is all German to them and working a narrow margin is vaguely sexual. Ultimately, all will lose, the Greeks, the single currency and, once again, the Germans.     

Hopefully, once its all over Greece may get a ringmaster worth his ring and then be remembered as the 300 of Thermopylae. 

From Under Dark Clouds

The Century of DIY