Bernard Connolly got it right. His 1995 book titled, "The Rotten Heart of Europe: The Dirty War for Europe's Money" called it a harebrained idea doomed to fail. Saying it cost him his job as EU monetary affairs department head. He's regarded as the foremost expert on European economic, monetary, and political integration.
Months before the euro's 1998 introduction, he predicted that one or more of Europe's weakest countries would face rising budget deficits, troubled economies, and a "downward spiral from which there is no escape unaided. When that happens, the country concerned will be faced with a risk of sovereign default."
In late 2007, the great unraveling began. Massive liquidity infusions delay eventual day of reckoning inevitability. The longer it's extended, the worse the fall. It's just a matter of time.
New Fiscal Pact provisions mandate austerity. EU nations have no say. Ordinary people have none whatever. Britain and Czechoslovakia opted out, not for populist reasons. Under the Bank of England, the UK retains monetary sovereignty. Both countries retain fiscal policy control.
They'll enforce austerity their own way. Mandating more across Europe assures harder than ever hard times. Ordinary people suffer most. Recession's already biting. Europe's healthiest economy feels it. Germany's 2011 Q IV GDP contracted 0.25%. In January, its retail sales slumped 1.6%. Consensus expected +0.5%. Eurozone industrial activity contracted for the seventh consecutive month.
China's Purchasing Managers Index (PMI) showed weakness. Its growth target was cut to 7.5% from 8%. High oil prices are taking a toll. US gasoline consumption slumped 7% year-over-year. Imagine the effect of expected $5 dollar gas by summer or late spring. Real, not manipulated, joblessness keeps growing.
What affects Germany impacts the continent. Look for Europe's recession to deepen and spread. Unemployment's rising. In January, it reached double digits, its highest level since the euro was introduced.
Youth joblessness is especially affected. In Greece and Spain it's 50% or higher. Fiscal Fact austerity assures greater hardship, including higher unemployment, lower wages, eroded benefits, and less ability to survive. Mandating it's cruel and insane.
Decades of social progress is lost. Ordinary people more than ever are on their own sink or swim. In hardest hit countries, people are voting with their feet and leaving. Capital flight's joining them. Fiscal Pact madness assures economic decline, widespread deprivation, and social unrest.
At the same time, ECB Long Term Refinancing Operation policy (LTRO) gives banks free money, but not without unintended consequences. Expect eventual disruptive public anger. Deprived people take only so much. Tolerance thresholds eventually breach. The fullness of time will tell when.
For years, Progressive Radio New Hours hour regular Bob Chapman explained Eurozone madness and eventual Greek default. He calls the last four years "a warm up" for greater future trouble.
Greece, other troubled economies, and those heading there can't keep borrowing more than their revenue stream. Doing so increases indebtedness. Extraordinary levels can't be repaid. Entrapped Greece has no choice but to default and exit euro straightjacket rules.
S & P cut Greece's credit rating to selective default, its lowest level because repaying it's impossible. Moreover, European banks won't lend to each other. Speculation's safer. Unless business lending increases, economic growth won't happen.
So far, not a glimmer's in sight. Free ECB money achieves Pyrrhic victories at the expense of ultimate unwinnable ones. Follow bond, not equity, buyers. Their world view sees dark storm clouds coming. Bet on it.
Stephen Lendman lives in Chicago and can be reached at Email address removed .
Also visit his blog site at sjlendman.blogspot.com and listen to cutting-edge discussions with distinguished guests on the Progressive Radio News Hour on the Progressive Radio Network Thursdays at 10AM US Central time and Saturdays and Sundays at noon. All programs are archived for easy listening.