Mish's Global Economic Trend Analysis

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• What If I Am Wrong About Europe?
• At Some Point the Hat Runs out of Rabbits; First Catalonia, Now Basque Separatists Call for Independent Country; El Pais Survey Shows 43% Catalans For Independence, 41% Opposed
• Austerity Programs Hit France; Marchers Demand Vote on Treaty; Hollande Reneges on Campaign Promise

What If I Am Wrong About Europe? Posted: 30 Sep 2012 08:59 PM PDT I have long stated the eurozone will breakup. Historically speaking, no currency union has ever survived in the absence of a political union. Moreover, in It's Just Impossible I noted The Bundesbank said there should be no banking union until there is a fiscal union. Angela Merkel said that there should be no fiscal union until there is political union. François Hollande said that there should be no political union until there is a banking union. The German supreme court will not allow a political union nor a fiscal union, nor a banking union without a German referendum. Mathematically Speaking Mathematically speaking, I also fail to see how the eurozone can stay intact. Specifically, please consider point number nine of Michael Pettis: Long-Term Outlook for China, Europe, and the World; 12 Global Predictions 9. Disruptive European Politics European politics will become much more difficult and disruptive. The historical precedents are clear. During a debt crisis the political system becomes fragmented and contentious. If the major parties don't become radicalized, smaller radical parties will take away their votes. Remember that the process of adjustment is a political one. We all know someone has to pay for the massive adjustment countries like Spain must make. The only interesting question is about who will be forced to take the brunt of the payment – workers in the form of unemployment, the middle classes in the form of confiscated savings, small businesses in the form of taxes, large businesses in the form of taxes and nationalization, foreigners, or creditors. Deciding who pays is a political process, and because the stakes are so high it will be a very bitter process. This means, among other things, that politics will degenerate quickly, and of course if Europe doesn't arrive at fiscal union in the next year or two, it probably never will. This conclusion is also the reason for my next prediction. That prediction was made by Michael Pettis, and I am in complete agreement. But what if I am wrong? Can Politics Triumph Over Math and History? What if the eurozone in spite of all obstacles stays intact? Daniel Hannan is a writer and journalist, and Conservative MEP for South East England since 1999 offers an interesting viewpoint for The Telegraph in Spain teeters on the brink All of a sudden, the talk is of the breakdown, not just of the single currency, but of the parliamentary system on which it rests. Commentators across Europe fret that Spain, which emerged from dictatorship less than 40 years ago, might give up on multi-party politics. Every round of economic figures is worse than the last. The deficit is massively larger than forecast. A bailout of unprecedented size is becoming inevitable, even as the prime minister gives his countrymen a 'one hundred per cent assurance' that he won't apply for one. (He said much the same thing a few days before applying for the last one.) Hundreds of thousands of people are protesting, some violently.  .... The real tragedy of the euro is not that it will come crashing down upon the financial system, as Smaug upon Esgaroth, splintering it to sparks and gledes. The tragedy, rather, is that the monetary union will limp on, condemning hundreds of millions to gradual immiseration. I am still trying, as gently as I can, to suggest that there is an alternative to the euro-imposed bailout racket. I did so again in our most recent parliamentary session, as you can hear in the clip above. The trouble is that, while Spaniards recognise the folly of imposing cuts while at the same time bailing out banks, they shy away from the logical conclusion: that leaving the euro is now the least bad option. The real threat to Spanish democracy is not internal but external; not a pronunciamiento but a Brussels-imposed civilian junta, as happened in Italy.  Mario Monti, the EU's proconsul in Rome, indicated yesterday that he 'might seek a second term'. Oddly, I don't remember him seeking the first. Sad Reality The sad reality is Spain and Italy may linger on just as Greece did, destroying their countries in the process. Consider once again what I said on September 26, in Firebombs, Teargas, Riots Near Greek Parliament; 57% Say Greece Should Abandon Pledges Made to Troika Sentiment Has Turned Sentiment in Greece has turned, and likely turned for good. 57% of Greeks have had enough of austerity to the point they would rather default. Turn back the hands of time a bit and think how this might have played out if Greece simply left the euro and defaulted three years ago as it should have. Tourism would likely have increased and if  Greece had implemented true structural reforms rather than tax hikes, its economy would be stable or recovering now. Instead, the country is in ruins, tourism is down, and in an on-again-off-again fashion, absolute chaos breaks out. Another round of austerity and tax hikes can only make things worse at this point, and the people know it. This will pressure political parties to not go along with Samaras. If another round of elections were held today, there is no way Samaras would win. Instead, the radical left, and radical right (both of which want to exit the euro), would be fighting over the pieces. The nannycrats in Brussels and Chancellor Merkel are to blame for this sad state of affairs. Finally, please note that the big fear of the nannycrats and Merkel is not that Greece leaves the euro per se, but rather Greece leaves the euro and the Greek economy starts to recover. Well, here's the deal and it is something I said years ago: the sooner Greece abandons the euro, tells the Troika to go to hell, and defaults, the better off it will be Same Track, Wrong Track Spain, Greece, Portugal, and Italy are all on the same track and the wrong track. All need work rule reform and lower taxes. Instead, the countries have been short on productivity improvement, short on pension reform, short on work rule reform, and long on tax hikes. It is no wonder their economies are imploding. It is no wonder protests are getting louder. Yet the political class, beholden to the banks and the IMF have taken the wrong track. In the end, I highly doubt I will be wrong. In the meantime, however, Telegraph writer Daniel Hannan appears to be correct in his assessment the "the tragedy is that the monetary union will limp on, condemning hundreds of millions to gradual immiseration." Mike "Mish" Shedlock "Wine Country" Economic Conference Hosted By Mish Click on Image to Learn More Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

At Some Point the Hat Runs out of Rabbits; First Catalonia, Now Basque Separatists Call for Independent Country; El Pais Survey Shows 43% Catalans For Independence, 41% Opposed Posted: 30 Sep 2012 12:27 PM PDT Calls for the splintering of Spain have picked up steam. Euskal Herria Bildu (EHB, a left-wing, Basque nationalist party) has called for "A Great National Act" in Favor of Independence according to El Pais. EH Bildu has called "a great national political act" in favor of the independence of the Basque Country for the next October 13 in the BEC Barakaldo (Bizkaia), announced its candidate for lehendakari, Laura Mintegi in an appearance before the media at EA headquarters in Bilbao. Mintegi explained that the purpose of the meeting is to claim a free Basque state in Europe. The nationalist left has led in recent times to BEC, in a space with a capacity for 15,000 people, some of his most important acts to demonstrate their ability to mobilize. force. The sovereignist coalition vindicate independence there to say "clearly and directly" to those "who do not want to hear, who kidnap our rights in the name of the Constitution imposed on us" you want "a free state in Europe." Mintegi has defended "the pressing need to build a framework sovereign" in the Basque country that allows this community to have the tools to address their own economic, social and employment. "Only from the sovereignty we orient our policies towards true social justice," said the candidate. In his view, "it is truly reckless remain at the expense of a corrupt system like Spanish, you're sacrificing the rights and freedoms of all the people to ensure the interests of a political and economic elite." With the "corrupt system" called on "break ties". El Pais Survey Shows 43% Catalans For Independence, 41% Opposed According to El Economists, Catalan Separatists Not Quite at Absolute Majority. About the option of independence for Catalonia, El País published a survey in which, in case of a referendum, 43% would vote for secession, compared with 41% who would decide against. The complete data interpretation contrasted with other numbers registered in June, when only 21% of respondents said anti-secession and another 21% abstained. The current difference can be understood as a translation of abstention towards not to Catalan independence, which in June this survey enjoyed the favor of 51%. Various surveys seem to be fluctuating wildly so I am not sure any of the are accurate at the moment. That said, it is clear anger over austerity measures is picking up steam. Protests in numerous countries is proof enough. At Some Point the Hat Runs out of Rabbits I am sticking to my long held belief that "Eventually will come a time when a politician will hold up a copy of the EMU treaty, declare it null and void, and the debt null and void right along with it. That politician will be elected." Yields have come down since my July 24, appearance on Capital Account: Discussion of Social Media Panic in Italy, Soaring Yields in Spain, and the Upcoming 20th Euro Summit, Bound to be Another Failure so it appears there was another rabbit left at the time. However, the government of Portugal recently had to back off announced austerity measures following a mass protest, and additional protests elsewhere have become more frequent and more violent. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Austerity Programs Hit France; Marchers Demand Vote on Treaty; Hollande Reneges on Campaign Promise Posted: 30 Sep 2012 10:16 AM PDT Following protests in Portugal, Spain, and Greece, a wave of Leftists march in Paris against austerity. Thousands of leftists marched through Paris on Sunday demanding a referendum on the EU's new fiscal discipline treaty in the latest of a series of anti-austerity protests in countries hit by the eurozone crisis. The demonstration, the biggest political rally in France since May elections brought Socialist president François Hollande to power, followed protests on the streets of Madrid and Lisbon on Saturday. The communist-backed Left Front and 60 other organisations backing the Paris march said tens of thousands of supporters turned out for the protest, timed to coincide with the opening this week of a parliamentary debate on ratification of the fiscal treaty, which Mr Hollande had originally vowed to renegotiate. Jean-Luc Mélenchon, the Left Front leader, said austerity policies were "dangerous for all the people of Europe". Demanding a vote on the treaty, he added: "Democracy is sicker than we thought." analysts worry that the recent upsurge in political unrest in Portugal, Spain and Greece – where the neo-Nazi Golden Dawn party has risen to third in national surveys – could be a sign of more trouble ahead as repeated rounds of austerity bite even further into daily lives. "The cracks are showing in Spain's social and economic fabric," said Nicholas Spiro, a London-based sovereign risk consultant. "The risk is that in seeking to retain as much domestic ownership of the terms attached to any [EU rescue] programme, the government [of prime minister Mariano Rajoy] overdoes it and sparks an even more intense social and political backlash." In Portugal, tens of thousands of trade unionists turned out in Lisbon's central square for a peaceful protest against terms of the country's €78bn EU-IMF bailout. Greek unions have also vowed to hold big protests if the government moves forward with a new €13.5bn austerity programme agreed last week by the coalition government. The recent upheavals in Portugal – where there had been widespread bipartisan support for the bailout since it was launched 16 months ago – has come as a particular shock to eurozone leaders, forcing Lisbon to reverse a rise in social security taxes designed to hit mandated budget targets. Hollande Reneges on Campaign Promise Recall that Hollande ran on a platform to rework the Merkozy Treaty. We now clearly see that was just another campaign lie. However, Hollande has followed through on all of his economically destructive ideas including massive tax hikes, lowering retirement age, and pressuring companies to not lay off workers. Destructive follow-through of the worst ideas, with no follow-through on the best campaign ideas is typical of presidential elections everywhere. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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