Germany Drives Another Nail Into the Coffin of the Euro

Monday, June 07, 2010

An unbacked currency can only take so many hits at one time. Bad news have been hitting the Euro fast and hard this year, driving the single currency to a new 4 1/2-year low of $1.1876 in early Monday trading.
The latest shot into the body of the single currency comes from the German constitutional court which may impose a temporary injunction against Germany's participation in the unworkable €750 billion bailout package envisaged by the EU and the IMF, influential German magazine Der Spiegel wrote on Friday.
The constitutional court has received a complaint by christian conservative MP Peter Gauweiler, a member of Angela Merkel's coalition, who sees Germany endangered by guarantees to weaker Euro members.

GRAPH: The Euro plunged to a new 4 1/2-year low of $1.1876 in early Monday trading as none of its problems disappeared while another fundamental roadblock will delay the proposed unworkable €750 billion aid package. A member of Germany's ruling coalition has called on the constitutional court to block it and German economists warn of negative consequences for their own economy. Chart courtesy of Yahoo. Click to enlarge.

This is only the next nail in the coffin of the Euro after the G20 meeting again reached no agreement on a global financial transaction tax over the weekend. Add the other weekend fact that Hungary's government went into a 3-day emergency meeting on Saturday to counter the threat of an exploding budget deficit - latest 2009 figure: 3.8% - that may turn the country into the next falling domino after Greece in the European Union and you arrive at more - not less - problems.

Biggest Banking Crisis and Nobody Goes Bankrupt?
EU banks have yet to bear the brunt of the financial fallout. Isn't it strange that we are 34 months into the crisis, taking supbrime as a starting point, and not a single European bank has closed its doors while banks fold up on a daily basis in the USA?
This happens despite a global political pledge for more regulation and "consequences" that has yet to be followed up with a single significant step of action.
I am more and more willing to lend my ear to those voices whose whispers that Europe's banks are particularly "inexperienced" in credit writedowns grow louder with every day. Maintaining a position of disbelief into official figures released by banks became more widespread. Earlier this year the former president of Austria's Rechnungshof, equivalent to the US General Accounting Office, said he is not able anymore to judge the value of a bank or its profitability based on their balance sheets.
Policymakers have certainly racked up enough air miles to retain gold standard level for the rest of their lives, jetting from one emergency weekender to the next. This may have helped the 5-star hotel industry from Athens to Zurich but certainly not the rest of Europe.
For the latest word bubbles from the G20 meeting in South Korea, check out this Reuters report but be warned it's not worth the time.
ECB President Jean-Claude Trichet had slightly more substantial news up his sleeve. After a first warning last week that European banks will face another €195 billion in loan losses in the next 18 months, he hopes that a current series of stress tests will deliver a result that Europe can survive the crisis with one black eye, Reuters reported.
I would not bank on this. Last stress tests from 2008 came to the conclusion that methods were inadequate.
I rather rely on another indicator: Gold reached a new Euro record of €1,024 in early trading.
DISCLOSURE: Long Gold/Silver bullion.


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