Outside the Box

Sorting Out the Euro Mess

John Mauldin

December 13, 2011

I had the pleasure of spending the morning and part of the afternoon today with Louis Gave and Anatole Kaletsky at a seminar here in Dallas; and we shared a long lunch, where Europe and China were the topics of conversation. So, with their permission, here is their latest "Five Corners," in which Charles Gave and Anatole Kaletsky discuss last week's summit, and then engage in an internal debate about whether Italy really has a significant trade deficit with Germany. As I expect from GaveKal, it's not your typical analysis. And since I have to run to dinner – and glean more insights from their team (there will be homework when I get back!), this introduction to Outside the Box is short, and we can jump right into today's piece. Have a great week.

Your feasting on information analyst,

John Mauldin, Editor
Outside the Box

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Sorting Out the Euro Mess

By Anatole Kaletsky, Charles Gave, Francois Chauchat – GaveKal

Starting  With  the  Bad  News...

Although the usual post-summit rally should not be too hard to orchestrate in the thin markets around Christmas, there was more bad news than good for the dwindling band of bureaucrats and politicians who are determined to save the Euro, regardless of the costs to the democracies and economies of Europe. We will begin with…

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Walter Bruno

Dec. 14, 2011, 1:04 p.m.

Congratulation GaveKcl to a most thougtful and revealing paper on the euro subject. Thanks also to Mr. Mauldin for its distribution. 
One is tempted to broaden conclusions from the chapter” The Triumph of Southern Italy over Northern Italy ” to “The Triumph of Southern Europe over Northern Europe”. Then, the final chapter would read: The demise of a currency dream. At the time of reckoning, whether beer or wine will call the day in France- fateful as it will be- will also determine Europe`s political future.

Mike McBride

Dec. 13, 2011, 8:14 p.m.

Another accurate representation of the European mess from a highly analytical viewpoint. But, let’s just keep it simple:  This is payback time for the EU. For way too many years most of those countries were simply and absolutely irresponsible from a fiscal and social perspective. I have read about this for years…..and years….and years. Too many countries believe they are using monopoly money to play their games, as if there is an endless supply. Well, the game is over and the paper money is now worthless given the tremendous debt overhang that has resulted, along with very low historical growth rates on the horizon for deveoped countries. Every ruling empire during the course of history has been destroyed for one reason or another - go back to the Chinese Dynasties. We are now looking at a new reason….fiscal irresponsibility and monetary debasement. Pretty soon, even the US Dollar won’t be worth the paper it is being printed on every day. World leaders have, for the most part sold their populations down the river, for political gain. “Greed” has takes many forms - power..money..prestige….really all of the above and more…. no matter what the form - it eventually destroys everything around it. “Man, I love the smell of naplam in the morning”. We should all get used to this smell…..oh, and my philosopy is to buy gold and silver in staged increments over time, especially as they retreat in value…even down to $1000 and under for gold and in the low $20’s for silver….. the world will soon suffer some deflation as major economies return to slow or no growth and recession on the horizon (maybe depression) ..... buy, buy, buy…. and hold, hold, hold…. I don’t buy what you can’t afford to hold for 7 - 10 years…..hope for the best but prepare for the worst…..October 2008 may end up looking like a holiday party…

Fred Pollack

Dec. 13, 2011, 8:29 a.m.

his one is spot on, and is an entertaining read:

http://www.telegraph.co.uk/finance/financialcrisis/8949723/Merkels-Teutonic-summit-enshrines-Hooverism-in-EU-treaty-law.html
The caption on the photo:
“Many EU leaders who went along with this summit accord must know it is Medieval leech-cure treatment and can only drain the lifeblood from large parts of wasted Euroland.”

Willis Smith

Dec. 13, 2011, 7:55 a.m.

It seems that the QE of the ECB is just an end-run around the Merkel stricture of no Eurobonds and no large purchases of sovereign debt.  The ECB lends at 1% to the banks in each country, and they buy their own countries’ sovereign debt.  This bailouts out the banks in all these countries and everything is rosy.  However, someone has to pay the piper.  It would seem that inflation would be a big risk in the longer term future after the depression caused by all the austerity.  A true Faustian bargain for the Germans.

Lee Irvine

Dec. 13, 2011, 7:48 a.m.

Well done.

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