Friday, 16 April 2010

Germans may leave Eurozone

The effect of the quiet devaluation by the ECB of its eligible collateral rules is starting to be noticed. It sets a bad precedent for the other little PIGS and creates domestic problems for the Dr Frau whose electorate can see their hard earned cash flowing South in ever greater volumes. The proposed bail out, which is probably illegal, is just a quick fix and sows the seeds for future problems.

For weak states leaving the Eurozone would lead to higher interest rates and a hard sell for their bonds. For Germany the opposite would apply, lower rates and a huge demand for their bonds. That is the problem when you mix strong economies and weak ones in a fixed parity monetary union.

Greece is not the only state in a mess. Outside the Eurozone the UK looks increasingly a basket case weighed down by its huge public sector pension liabilities. Who of Dave, Gordon and Nick have even nodded at this problem let alone proposed a solution? Clegover's good debating performance last night or if you like Cameron's poor performance was greeted by a sharp fall in Sterling today.

Wage and pension devaluations are inevitable. Meanwhile the IMF are now officially in Athens sharpening the axe. Greek bond interest rates are near 7.5%. Goldman Sachs, former advisor to the Greek government have today been charged with fraud by the SEC.

I lost a fair chunk of money on Northern Rock shares because I believed their published figure that their repossessions rate and hence mortgage arrears was below the average for UK mortgage lenders. Following the conviction and fining this week of two Northern Rock executives we now know this was untrue and the mortgage arrears were well above the average. This is what worries me, Dr Frau Merkel and the IMF about the Greek situation. The true position may be much worse than reported.

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