Friday, September 7, 2012
Felix Zulauf interview part 6: The euro will not survive
The euro has absolutely no chance?
Realistically, it will not survive. It would have chance only at full fiscal union, that is common with household policies. That would be possible only in a political union. At this moment the European nations are not ready. Therefore, the politics will continue to make compromises, and that is why we remain in a permanent crisis several years.
What is happening with the banks in the EU now?
The citizens suspect in the periphery, that their countries will soon be exiting from the euro. To guard against future devaluations of their new currency, they move their money to a bank in Germany. These are not just private savings, but also businesses. The capital flows from the periphery to the center. So there is too much capital in Germany. In the periphery, however, there is lack of capital, as banks lose deposits regularly. The banks in the periphery may award less credit and buy only limited own government securities, even if the ECB gives them lots of money.
And the Bundesbank in its balance sheet piling more and more claims against the banks of the periphery?
Yes, and that is fatal. The individual central banks may finance the capital outflows to other countries due to unlimited money creation, which are then available in the case of inflows to Germany at the Bundesbank as claims against the euro system, or those national central banks in the books. You can solve this if Bundesbank or the ECB, and the German banks say: Send the money back! But then the euro would be done at once.
So Germany is trapped?
Exactly, the Bundesbank sits there and can do nothing. Once the system falls apart, will fail these requirements. Then, the Bundesbank is broke and needs of the state, that is by tax dollars, are capitalized again.
So, the longer euro exists, the higher will be its funeral expenses?
That's it. If the euro splits now the cost for the Germany will be close to one billion euros. And over time it becomes more and more. The rush to German government bonds will continue anyway. The crash rate of return has accelerated recently.
To be continued...