Europe is currently trapped in what the former Chancellor of the Exchequer Normal Lamont claims ‘is the biggest Ponzi scheme in history’. The European Union (EU) coupled with the European Central Bank (ECP) are in the process of bailing out countries drowning in sovereign debt. Yet these bailouts are simply loans that allow governments to sell more bonds and thus increase their debt, rather than defaulting on these loans and allowing the banks who made these loans to suffer the consequences of their mistakes. Moreover, the Eurozone countries receiving these loans are being funded by countries that are at risk of needing a bailout themselves!
Nigel Farage revealed the truth in the latest €100 billion bailout of the Spanish banks. Italy has to fund 20% of the bailout by lending at 3%, while borrowing at 7% on the International markets. Thus, the bailouts are simply leading to other countries ‘needing to be bailed out themselves’, as Italy has a debt-to-GDP ratio of over 120%, the second-highest in the Eurozone. Indeed, both Farage and Lamont argue that when the ECB is at risk of going bust, the Eurozone countries currently getting bailout funding would have to bailout the ECB itself. Consequently, debt is simply passed around the European Union while it becomes larger and larger.
Moreover, the bureaucrats who support the continuation of the Eurozone, in particular the president of the European Council Herman Von Rompuy and the president of the European Commission Joseph Barroso, have extremely poor records in terms of their economic predictions. There have been 19 European Summits in the last two and a half years where the Brussels Bureaucrats have said each time that the situation is improving, just before new crises emerge. For instance, on March 2012 in Seoul, Mr. Rompuy claimed in his speech, ‘Investors in Europe can be reassured that we have not just navigated a different corner, we have turned a corner’. The following month, it was revealed that Spanish borrowing from the ECB doubled in just one month to €316.3 billion in March from €119.8 billion in February, while bond yields have surged over 7%.
However it isn’t just EU bureaucrats who are consistently wrong. Spain’s prime minister argued as late as May 29 that there was no need for any bailout whatsoever, just two weeks before the latest €100 billion bailout, while former President Mr. Sarkozy proclaimed back in March that ‘Today the problem is solved’ right after Greece’s second bailout.
All of these politicians are committed supporters of the Euro, which they claim has established financial stability. Yet the Euro does the opposite. By attempting to unify different economies with different fiscal policies under a single currency, countries have experienced interest rates that are either too high or too low, thus creating a misallocation of resources within the economy. For example, when Ireland’s interest rates were cut in half to 3% upon joining the Euro in 1999, cheap money poured into property with prices increasing at a compound rate of 11% a year while Ireland’s Real Gross Domestic product grew between 4.9% to 5.6% a year between 2000 to 2007. This economic growth was not genuine. It was caused by a boom fuelled by cheap money which has now gone bust, as Ireland’s property prices have collapsed. Real GDP has fallen by 6.7% between 2008 to 2011 and it has the highest budget deficit in Europe at 9.4% of total GDP.
The crisis is being used as an opportunity by supporters of the Eurozone, whose real agenda is to ultimately transform the EU into a single state. Both Mr Barroso and Mr Rompuy in virtually every meeting argue the crisis is creating a more integrated Europe. They aim to first establish a fiscal union followed by full political integration into one European Superstate. Mr Rompuy has argued that the bailouts and legalisation in the Eurozone are not just emergency measures, but ‘also represents an important step forward towards greater fiscal and economic integration in the Eurozone, making our monetary Union even more irreversible.’
Originally published 22 June 2012.