Published On: Sun, Mar 22nd, 2015

Eurozone Implosion ahead?

So, Spanish banks can’t be in quite as bad a shape as the media would like us to believe – Sabadell Bank has just spent about $2bn buying the UK’s TSB Bank. Mind you, given the way banks can seem to find money where none exists, the purchase has probably just added $2bn of debt to the balance sheet…

Meanwhile, Banco Popular, another Spanish bank, is offering mortgages to buyers of repossessed properties, with no deposit needed and up to 13% “cashback”. Are they crazy? Of course they are! They’re so desperate to move properties on and get them off the balance sheet that they’re clearly risking the exact same thing happening in the future.

And you have to ask – as for every single retail bank in the world of course – would they pass any kind of viable and credible stress test? Of course they wouldn’t! In due course, as the eurozone’s slow implosion becomes ever more evident, we’ll all be seeing banks refusing to give us our money back when we want it. France has been forced by the so – called Troika, to impose a €1000 limit on cash transactions as of this September, while throughout Europe (not just in the eurozone) lower limits for ATM withdrawals are slowly but surely being introduced. It is pretty clear to me that all the excuses being put forward – about controlling the black economy, cracking down on money laundering and so on – are just that. Excuses. The true reason is the parlous state of retail bank balance sheets, in my opinion. Time will tell!

Mentioning the Troika of course leads me on to a word or two about Greece, where of course these days it no longer exists. They know it as “the institutions” but of course that’s just nonsense – it is still the Troika and its still in charge for the moment. It has been interesting to note the more or less complete absence of the Greek finmin Varoufakis, from any of the latest negotiations between the Athens government and the various heads of the eurozone. I rather suspect that prime minister has lost faith in him, and has decided to conduct negotiations himself. He insisted last week that any and all future discussions concerning the resolution of the issues surrounding Greece’s vast debt mountain, should be conducted at ‘the highest level’ – ie among heads of government, not finance ministers and the like. He got his way – he had a long meeting the other day with Angela Merkel, and no European government figure is at a higher level than she is!

Whether or not Tsipras feels the meeting went well, the fact is that Mrs Merkel made it crystal clear to him, that ‘Every paragraph in the agreement counts’ – referring of course to the agreement Greece must make to Brussels before any kind of bailout extension (“bridging finance” in the words of Varoufakis) can be permitted. And time is certainly running out, with Angela Merkel suggesting a week is long enough, and many in Brussels having already more or less given up on the prospect of a viable solution.

Yet it’s obvious too, that cracks are appearing within the EU when it comes to ‘What to do about the Greeks’, because despite all the harsh words of the past few weeks and the determination of the Eurogroup to keep to an implacably tough line, the EC’s president Jean – Claude Juncker, has just announced a ‘humanitarian’ payment to Greece of €2bn, with no strings attached other than it be used to alleviate the dreadful poverty and deprivation now being suffered by many of the Greek population. Is this all just about ‘good cop, bad cop’? I don’t think so. I believe (as per earlier comments above about the ‘slow implosion’ of the eurozone) that there’s a real power struggle going on here. On one side we have Merkel and her finmin Schaeuble, who are basically trying to run the whole EU show, and on the other side there’s the Brussels Brigade, who feel their power being eroded by German interests. Tsipras – the Greek prime minister, will very probably be able to exploit the split to his advantage, well beyond that initial €2bn payout. And at government level throughout the eurozone, there are clearly conflicts of interest for the Greeks to exploit. They have a friend in the French president, while Spain’s prime minister would kick them out of the euro tomorrow, if he had his way! Interesting times indeed.

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About the Author

- Ian Williams has been trading stocks, indices, forex and commodities on his own account for over 30 years. He set up a "trading training" company in 2004, and since then he has helped a large number of people to become successful traders. His hobbies are skiing and flyfishing, spending his winters in the Alps and summers in Scandinavia. He can be contacted via