Euro-zone ‘Plan B’ Needed As Euro One Recession Away From Implosion – David McWilliams

By: GoldCore

- Euro is one recession away from implosion – David McWilliams
- Mismanagement of euro “both laughable and terrifying”
- “When economic negotiations stop making economic sense, you should begin to question the motives of the EU”
- Germany is out of control
- Successful British exit will be model for other countries
- Euro membership is now conditional
- “Countries that don’t play ball with Germany will see their banking system used against their democratically elected politicians”
- Investors and savers need “PLAN B”

Europe’s next recession will “kill the euro” according to economist, writer and journalist David McWilliams.

David McWilliams at Ireland’s Banking Inquiry

McWilliams, who is among the best economics commentators from the only Anglophone nation in the euro – Ireland, warns that we only have a few months to plan an alternative to the disastrous consequences on peripheral nations of what he sees as German hegemony.

He describes the mismanagement of the euro currency as “both laughable and terrifying”.

Marathon negotiation sessions are not conducive to clear headed, rational decision making on the future of a nation or the eurozone. Indeed, it smacks of coercion.

He lambasts the suggestion offered that Greece could have a “temporary euro”, adding, “If the board and management of a public company dealt with problems like this, the share price would collapse. There is quite simply no corporate governance within the euro”.

David McWilliams believes that Germany is out control. France is no longer strong enough to offer a counterweight and Britain is happy to allow the circus to continue as they focus on potentially getting out of the EU.

He describes last weekends negotiations in Brussels as a “teutonic kangaroo court”. Should Britain successfully navigate its way out of the EU, other countries will likely follow rather than exist as provinces of Germany.

Norway and Switzerland have coped just as well from the outside as their EU neighbours.

He makes the obvious, though seldom heard assertion that “when economic negotiations stop making economic sense, you should begin to question the motives of the EU”.

Pointing to the plundering of Greek state assets to pay off creditors whilst forcing further austerity on the Greek people. Each previous round of austerity has caused the economy to contract further – thus forcing Greece into a debt trap from which it cannot escape. We believe this is a crucial point.

While Germany have played a major role it in the subjugation of Greece it is worth asking who truly benefits from economic negotiations that have stopped making economic sense.

Could it be the large banks who, following a similar model imposed on countries in Latin America, Southeast Asia and Africa since the 1970’s, continue to extract wealth from the poorest people on earth? Has not almost every development in the EU in the past ten years served to consolidate the power of financial institutions at the expense of the citizenry?

McWilliams highlights the dramatic u-turn in policy where membership of the EU is now conditional.

When Mario Draghi initiated the “whatever-it-takes” mass purchase of bonds of peripheral nations the message was clear – the euro is forever. Now, however, countries must bend to Germany’s demands which are the demands of politicians who want to keep their electorate happy if they are to be re-elected.

“Countries that don’t play ball with Germany will see their banking system used against their democratically elected politicians. The banking system is the soft underbelly and the Germans are prepared to orchestrate bank runs in member states to get their way. This is not only new, it is outrageous.”

McWilliams writes that Irish policy makers need to focus on a Plan B and indeed all governments in the EU are likely considering a ‘Plan B’. Indeed, we know the pragmatic  Germans have done.

For example, if and when Germany’s economy overheats and rates need to rise, they will rise regardless of the capacity of the heavily indebted peripheral nations to deal with such rises. Mortgage holders in Ireland and throughout the EU would be crucified if the ECB rate moved anywhere near the historical norm of around 6%.

We share McWilliam’s lack of faith in the current political establishment, who McWilliams describes as Pharisees, to do anything of the sort. We advise clients and readers to make their own ‘Plan B’ – an investment and savings ‘Plan B’.

Reduce exposure to debt and risk assets and protect against a collapse of the euro by diversifying internationally and owning physical gold and silver bullion in the safest vaults in the safest jurisdictions in the world.

GoldCore has partnered with Global Macro 360 to offer GoldCore readers a discounted 6 month or yearly subscription membership to David McWilliam’s daily market insights. Follow Global Macro 360 for more in depth economic analysis on the global macro economy, including the gold price.

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MARKET UPDATE

Today’s AM LBMA Gold Price was USD 1,145.10, EUR 1,050.12 and GBP 732.79 per ounce.
Yesterday’s AM LBMA Gold Price was USD 1,154.75, EUR 1,047.58 and GBP 739.09  per ounce.

Gold in EUR – 5 Year

Yesterday, gold fell $5.90 to $1,149.30 an ounce and silver slipped $0.27 to $15.11 an ounce. Gold in Singapore for immediate delivery traded marginally lower as did gold bullion in Switzerland – dipping to below $1,144/oz.

The short term trend remains lower. Gold looks set for one last sell off and capitulation and the move lower yesterday and today may signal the start of that phase.

Good physical supply demand fundamentals and a very supportive macroeconomic backdrop are being ignored and the momentum driven and increasingly computer driven futures market is dominating and pushing prices lower again.

Concerns about a Fed interest rate increase are also weighing on the market. Although to an extent we would be surprised if that was not already priced into the gold market – as it has been very well flagged at this stage.

Silver for immediate delivery was 0.4 percent lower at $15.06 an ounce, dropping for a fourth day. Spot platinum fell 1.4 percent to $1,007.51 an ounce, while palladium fell 1 percent to $630.95 an ounce.

This update can be found on the GoldCore blog here.

Stephen Flood
Chief Executive Officer

WINNERS MoneyMate and Investor Magazine Financial Analysts 2006

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