Europe is dead. The European nations are the victors, and the way ahead will be one hell of a mess. Without taxing and borrowing power, there is no way to square the inter-euro trade balances between the countries except ‘internal devaluation,’ which means years of deflation and poverty for the voters – and protestors – of the deficit countries. Our pencil pushers and Excel experts have made lots of projections on the Greek situation and can find almost no possibility of success. The EU/IMF team projects Greek debt at 149% of GDP when this rescue ends, but their nominal GDP estimates are incredibly optimistic when salaries and jobs are cut dramatically. We see a 20% decline over the three years as a good outcome, the debt would stay the same, and the ratio goes to 186% of GDP. Almost like Japan, but foreigners own the Greek debt – no way! This rescue reminds us of Bob Rubin’s rescue of Russia in July 1998, which lasted about one month before the whole house of cards collapsed. We knew that one couldn’t work, and this one can’t either. It might take longer, but the euro is finished.
Goodbye euro, hello drachma, peseta, lira, and the others. The world had hoped for more, none more than the Europeans themselves, but now we are all left to pick up the pieces.