Endgame Euro: Why we like watching messy train-wrecks

The writer Stephen King, who specialises in horror stories, once explained why people pay good money to buy his books and get scared. It’s the same impulse, he said, as when you’re going down the road and you see what looks like a gruesome accident, involving perhaps several mangled bodies. You know you’re going to be traumatised if you don’t avert your eyes, but the typical human instinct, he says, is to want to gape and take it all in. A lot of people like gore, he suggested.

Watching the slow-motion train wreck of indebted European economies has much the same perverse quality to it: you know there’s a big pile-up coming, and it will likely involve mangled economies and perhaps financial ruin that will go some way around the world, and perhaps even impact your stock market investments. Yet, it’s so intriguingly fascinating that you can’t quite get yourself to avert your eyes.

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Perverse gapers may not have long to wait. With each passing day, analysts reckon, the endgame in Europe is getting closer at hand, which goes some way to explain why stock markets from Madrid to Mumbai are tanking every day.

[caption id=“attachment_65141” align=“alignleft” width=“380” caption=“You know there’s a big pile-up coming, and it will likely involve mangled economies and perhaps financial ruin that will go some way around the world, and perhaps even impact your stock market investments.AP”]  [/caption]

Europe’s policymakers, says hedge fund manager Marshall Auerback, “have comprehensively blown it. Their persistent reluctance to get ahead of the looming systemic ticking bomb at the heart of the euro project has reached the point where it is likely to doom the euro’s existence.” In his estimation, Europe is perhaps headed for its “most dangerous time” since the Second World War.

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The problem with the European Union, as Firstpost has pointed out here and here , is that it is increasingly acting less like a Union and more like a pathetically inept grouping that can’t decide if it should hang together or hang separately. Greece, the poster-boy for fiscal profligacy, wants more loans to pay off its earlier loans, but even within the European Union fraternity, there are increasing calls for collateral, since faith that Greece can ever payback has been shattered.

Bloomberg reports that after Finland secured such a collateral agreement for new rescue loans, other euro members - Austria, the Netherlands, Slovenia and Slovakia - are putting up similar demands. Predictably, it had the effect of driving down Greek bond prices to new lows, reflecting concerns that a bailout may be less likely to come about - and compounding Greece’s debt burden through higher interest rates.

These collateral demands, made by one European brother of another, are threatening to torpedo a bailout arrangement, and may in part account for the wholesale collapse of markets around the world in recent days. The fear is that they could push Greece closer to opting out of the Euro, which would effective end the monetary union arrangement as it exists.

[caption id=“attachment_65144” align=“alignleft” width=“380” caption=“Germany Chancellor Angela Merkel (L) is facing increasing political opposition to the limitless bailout of peripheral Eurozone states. Reuters”]  [/caption]

Legendary investors like George Soros are actively pitching for Greece and Portugal, which have so far been granted multi-billion EU-IMF rescue loans to prevent them from defaulting on their huge debts, to quit the euro to help save the currency.

In an interview to the German newspaper Der Spiegel, Soros also suggested that Germany take the lead - which it has thus far failed to do - and embrace the idea of floating “euro bonds” as a way out of the crisis.

“The future of the euro depends on Germany…Germany is in the driver’s seat because it is the largest country in Europe with the best credit rating and a chronic surplus. In a crisis, the creditor always calls the shots…

““If (the euro) were to break apart, all hell would break loose. Germany has to make it work. To make it work, you have got to allow the members of the euro zone to be able to refinance the bulk of their debt on reasonable terms. So you need this dirty word: “euro bonds”.

Germans fear that under a euro bonds arrangement, they will end up bailing out all the indebted countries, even bigger ones like Italy. Germany Chancellor Angela Merkel is facing increasing political opposition to the limitless bailout of peripheral Eurozone states. France’s Nicholas Sarkozy opposes the euro bond idea, saying it would lead to strong countries being “in the position of guaranteeing debt they do not control.”

In other words, the bigger, less indebted countries don’t want to bear the collective burden, and the indebted peripheral countries are in no position to accept the loss of sovereignty that would come with any additional bailouts. In short, centrifugal forces are working overtime to rip apart the ties that bind the euro zone, as the currency union goes into the end game.

It’s the kind of horror story Stephen King would have been proud to script. Just don’t take your eyes off the action: it will be a perversely enchanting sight.