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Thanos Maroglou
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Experienced investor, entrepreneur and business man. Enjoy understanding world developments and analyzing potential investment implications.
  • 2012 is not the end of the world 0 comments
    Nov 17, 2011 4:15 PM
    Just the end of global economic powers as we know them
    By Thanos Maroglou, a humble observer of world events @thanosmaroglou
    Germany is trying to accomplish with euro what they failed to do with two world-wars; concur Europe
    The initial EC sponsors had good intentions of a united Europe but individual sovereignty led to an unbalanced financial system. You either unite or you go back to individual countries. In between does not work.
    As it turned out Germany was the primary beneficiary of the euro as they were able to export within EC at a fixed currency as the other EC countries could no longer devalue their currency to remain competitive. 
    Discipline and austerity might work in Germany but for the Club Med counties to function they need their own printing press.
    It is just a matter of months before S. Europe gets liberated again.
    Greece failed to deploy the initial EC financial packages to transform its economy because at 341 drachma/euro exchange rate made labor cost immediately uncompetitive. The little light industry that was there was shut down and moved to peripheral countries with cheaper labor cost like Bulgaria, Rumania etc.
    All goods were “rounded-up” with euro introduction resulting in high inflation and dramatically increased cost of living.
    Andreas Panadreou ordered huge salary increases for public and private employees, to win votes that made Greek labor even more uncompetitive. Hidden benefits and corruption made the situation even worse.
    Within a couple of years of euro introduction, high labor cost and inflation destroyed tourism, a key Greek industry, as Greece went from an inexpensive vacation heaven to an expensive European country. Going to Mykonos was as expensive as going to Paris!
    From that point on there was no going back; the only way Greece could finance its needs was with increasing debt levels thus debt/GDP exploded.
    Greece cannot return to a sustainable economy with austerity. Nor can it pay back its debts even with significant hair-cut of >50%. The deal offered by Troika, read Germany, demands very high interest 7% and sale of national assets at fire sale prices. I am sure many German companies would be interested to buy land, companies for pennies to the euro.
    The only way for Greece to resurrect is to fully default on all its debt immediately, return to drachma with a big devaluation. Greece competes with other Mediterranean countries for tourism and the devaluation needs to bring travel costs to Greece at the same level as Turkey, Tunisia etc. Yes, that will be initially very painful for Greeks but improved competiveness will help rejuvenate the economy with recovery within 2-3 years.
    Farming needs to return to Greece. Wheat and bread is currently imported from Bulgaria because it is so much cheaper there. Most fruit is imported too! I will never forget the juicy tasty peaches grown in Greece and exported throughout Europe during my childhood. Fields are now going fallow.
    Installing caretaker government subservient to Germany is not the solution. A truly technocrat government with the strength of a dictatorship that would instill some discipline and cleanse all government posts of corruption and free loaders is the solution.
    Italy has done nothing wrong. Budget deficit is low and manageable. External debt was reasonable. GDP was stable. Berlusconi might be a paliaso that provided all of us endless amusement with his shenanigans but I think he had Italy’s best interest at heart.
    Putting a similarly Germany friendly and subservient government in place will not solve their problem either.
    Italy’s problem is that a confluence of event dried up many sources of debt financing leading to the current explosion of interest rates.
    ·        Increased European bank reserve requirement to 9%
    ·        CDO’s of no value because debt defaults are “voluntary”
    ·        US banks reluctance to take on any more risk with no CDO protection
    ·        Italian depositor flight to safer Suisse and German bonds
    I look forward to visiting Capri again with liras.
    Spain, Portugal and potentially even France
    Unless the ECB is allowed to print trillions of euro immediately in a gigantic EuroTARP all these counties will not be able to finance their debt at acceptable rates. It is the end game for euro.
    Let’s hope the CDO obligations of US banks are not as big as feared as it will drag US into another banking crisis that even the Fed might not have enough funds to bail out. Thank God Bernanke keeps the US printing press well oiled!
    Help from China? Whom are we kidding? China using its huge foreign reserves to help anybody! If they wanted to help they would start by respecting copyright, trademarks and intellectual property right and stop pillaging every industry they can.
    They will get what they deserve when the euro and USD they hold will be worth a fraction of current value in a few years.
    Not the end world – just the end of current economic powers
    Post end “end of the world” 2012 the seismic economic changes will return balances back within national sovereignty powers. The current debt driven apparent wealth will be reduced to its true value. The poor will get poorer and the rich will get a little less rich but still rich. The greedy will get crushed and the humble will survive.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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