Tsipras gives a big hint of the stitch up on Day 2

"We don't want to go to mutually assured destruction [with the eurozone] but we won't continue being subservient"

So already of the Greek nightmare and already the enormity of the situation facing the Syriza Government has dawned on its hapless leader, Alex Tsipras. Greece won't default on its debts nor exit the Eurozone....but nor will it be subservient according to reports of his first cabinet meeting.

If I was a more cynical person I would think this is all a set up.

Last week The ECB announced QE, €60 billion a month of Government bonds to be bought. Then Syriza is elected and now they are already moving towards just asking for a bit of debt forgiveness to placate the populace.

The QE until July will push $240 billion of debt onto the ECB balance sheet - the holdings of Greek debt by Eurozone countries are, err, $240 billion. What a strange co-incidence!

It is almost as if Merkel has stitched up to accept QE in exchange for only forgiving Greece say 30% of its debt and it continuing in the Euro. This 30% will allow for a little more spending to keep Tsipras happy.

Life is good in the democratic Eurozone. Less so for Greek people trapped in the Euro nightmare perhaps, but hey, they are only little people after all?

Will this dastardly plan work...

 ....There's many a slip 'twixt the cup and the lip

Euro Crisis: Round 2

The papers today and tomorrow will be full of the story of the IMF reporting that Europe needs to follow the UK's lead on austerity and how wrong that have been to criticise the Government in the past.

However, they are all missing or will miss the two really key issues:

1) The UK has not undergone real austerity. The cuts in some areas have been made up by tax cuts and increases in other areas of spending such as Foreign Aid and the NHS. The IMF say the UK has obtained fiscal credibility - oddly, this is because the UK has engaged in a massive exercise in money printing. This could not have happened in the eurozone as the central bank will not do this.

2) Germany is rapidly falling towards recession, driven by a drop of exports to Russia and the continued downturn in its export markets around Europe and in China. With France and Italy not really out of recession, this means the Eurozone is heading back towards trouble. No growth and huge debts leave many of the Countries in the eurozone very exposed indeed.

2011 was not a pretty year, if 2015 repeats it then the UK is in for a tough time given our own debt dynamics.

France - the Euro Killer?

Continuing our whimsical themes from last week, today we are going to look at France why such an economic basket case is threatening to replace Italy and Spain as the biggest threat to the federalist dream of the eurozone and European superstate.

France has predicted growth of 1% this year and 1.7% next year - but according to the international experts this is quite a heroic estimate. In June many of the key manufacturing and business indicators put France on warning for a mild recessionary event in the second half of this year.

French Unemployment is above 10% and the population is growing fast - faster than the UK. Also it is for the same reasons as the UK - immigrant mothers and record levels of immigration are both boosting the population. Not so long ago (up to WWII and until the 1960's) France had a much smaller population than England. Now that has changed and it is no coincidence that UK and the FN are both rising int he polls rapidly on both sides of the channel.

France too has a leftist Government that is the most unpopular of all time - a great accolade for President Hollande. With Government spending at 57% of GDP there is little for private business to do in France. To pay for this, taxes have gone up from 44% of GDP to 47% of GDP in the past three years.

To do this France has relied on huge increases in social taxes, in effect, employment taxes. A business colleague of mine opines that in his business, on euro spent on salary requires 9 euros to be spent on employment and corporate taxes. Not only this, but French tribunals find in favour of 'unfair dismissals' at a rate of 75% success for employees who then get 6 months pay. The net result is no one is ever sacked and instead there are huge bribes paid to make people leave on mutual terms and not submit unfair dismissal claims - typically 3 months pay, natch.

Together with this micro-economic mess, France has played for years in the world of state subsidies and ownership - to great effect historically too. TGV's plough the country, the farmers are paid from EU funds. There is a rosy glow from the past, however manufacturing is in decline and has been for a while and all French companies look to build up there foreign units where possible to avoid French labour laws and tax laws.

At the next elections is is hard to see what will happen. The Left will be defeated, but whether by the traditional right or the Front National is harder to see at the moment. France is the sick man of Europe currently and its saving grace is its low budget deficit, much lower recent times than the UK's, which to date has prevented any kind of run on its bonds. However, with sclerotic growth and no reform, France is headed in only one direction.

The European Economic Zombie Commuity

Zombies are all the rage these days, what with popular shows like 'The Walking Dead'  - not my cup of tea as I am not keen on gore and horror, enough of that in the day job.

But the Eurozone economy is something else, after a sclerotic recovery that was barely, even in the Northern States, better than the UK's and hardly above inflation, all the main economic indicators are falling again. Business activity has slowed in May, Manufacturing output has slowed in May and inflation is also falling.

All the while there is QE in the background and record low interest rates. But today will see the European Central Bank cut from 0.25% to 0.1%. How this is supposed to make a difference is beyond me. Rates at that level are a signal not a tool.

The European banks are not lending and companies are not investing - as we can see from unemployment being at an 11.5% average across the Eurozone.

It really is a tale of woe and hard to see a way out when the economy is straightjacketed into the Euro. Spain, Italy and Greece desperately need a devaluation to write-off the debt and pain of recession and grow once more, albeit from a lower base - confidence is the name of the game and that is what the euro currency shreds. With markets so subdued even the German powerhouse is in trouble and a weakening China also means that Germany is not in the next 2-3 years going to lead some economic charge.

Of course in the UK we did not have the euro. A devaluation occurred, although that has now been made up in currency terms, QE was undertaken on a wide scale and the Bank of England pushed Funding for Lending and other such programmes to try and re-start the economic engine. It took a while but it seems to have been partially successful (the cancelling of austerity will be seen as the main failure in years to come).

The Euro crisis of 2011 seems like distant history now, but the reality of its malign influence is still with us and will be for years to come; The politicians of Europe have so much capital invested in the project that they will bankrupt the economy of the EZ before letting the Euro go. We maybe here sometime.

Self-igniting euro collapse?

Loving this article from the peerless FT Alphaville today. over the sumemr lots of US companies have been thinkin about what to do to sustain their business if greece falls out of the euro. Bank of America is looking at a fleet of trucks to ship in cash from abroad (how advertising this to potential brigands is sesnisble is beyond me).

My reaction to this is that we are witnessing the further build up of the Euro crisis. bad enough is the Eurozone's inept performance at managing the crisis. Still every day senior German minister's gon on and on about not saving Greece. This forms the basis f the plot re Grexit to whcih private actors then work to.

By withdrawing all money from Greek bank accounts the Country is forced closer to bankruptcy - so the rhetoric in the media has a causal effect on Bank share prices and others in Greece.

In one weeks time is the meeting of the Trioka in Greece. After a summer lull, all the talk of eurozone collapse will return to provide and indian summer of hot air for the autumn.

What if anything can stop this cycle? I doubt myself it is possible, but when politicians are involved it maybe there is a massive printing of money or some other kind of mega-collapse that will allow Greece to continue in the Eurozone. the price for exit is a disaster of 2008 proportions, only this time piling into a much weaker Eurozone economy.