When Athens aims to hide London and Washington

Greece is back in the Anglo-Saxon media’s headlines. So, like last year at the same time, we must not seek the "speck of dust" but "the plank in the eye” of Washington or London. Last year, the "Greek crisis" had been used to divert attention from the British major risk embodied in an explosive budget and dangerous political situation (with elections producing no overall majority). The operation succeeded in preventing the world realizing that the UK "IMFed" itself, demonstrated by the establishment of a drastic budget cutting plan for the following quarters that even the IMF version 2011 (less ideological than some years ago) would have hesitated to impose on Britain.

But it was a Pyrrhic victory in two key aspects. On the one hand, it pushed Euroland to carry through a coup at the centre of the European Union, finally marginalizing the United Kingdom and precipitating the emergence of a "new sovereign" which is expanding bit by bit every quarter in terms of the management process of the financial crisis and of governance (1). On the other hand, the "FMIsation" of British politics (2), dressed in a meaningless concept of the "Big Society" by David Cameron, proves to be a social, economic and budgetary failure a year later: the fact that Greece in the first quarter of 2011, afflicted with all the flaws by the Anglo-Saxon media, achieved higher growth than the UK, this is what the media should have as headlines!

So, according to our team, Greece’s comeback in the financial media, including concepts as absurd as Greece’s Eurozone exit, is a sign of a serious new crisis in the United Kingdom, and also in the US this time because the US media are well to the forefront on the subject. We have already identified in previous issues the US event to camouflage: it is impossible to end QE2 (see above for its impact on US Treasury Bonds and the US Dollar (3)).

As for the United Kingdom, it’s a sort of a return to the situation prior to May 2010, but in a much worse state because all the bullets have been fired. There is, once again, a political crisis following the collapse of the Lib-Dems, the Conservatives’ partners in the ruling coalition. The Lib-Dems have just realized that they have been "made fools of" (4) and from now on will refuse to endorse the Cameron government’s toughest budget measures. The British political mood, therefore, once again swings towards the chronic instability that was narrowly averted last May, now including a prospect of the country breaking up with the likelihood of a referendum on Scottish independence following the tidal wave election of Scottish independents (5).

And now social instability has developed, illustrated by the huge demonstration last April which had little media coverage, whilst we could see the extent to which a demonstration of minor importance in Athens made the headlines everywhere. At the same time, all the macroeconomic numbers are deteriorating (6) and government financing needs are not getting less, steering the country towards a new risk of a crisis in government debt.

The second half of 2011 will certainly bring new twists to the government debt crisis on Euroland’s periphery. But as we showed in the GEAB No. 50, the main consequence will be the decision by Euroland to make investors pay some of the costs, including banks. But we maintain that the main countries that contribute to this explosive fusion of the crisis in the second half of the year will not be Greece, Portugal or Spain, but the United States (7), the United Kingdom and Japan (which is also now in the front line of future shocks, caught between its post-tsunami recession and its staggering government debt without any credible political leadership (8)).

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Notes:

(1) Remember that our team only analyses the facts objectively. The fact of appreciating, or not, European integration and the single currency has nothing to do with it. Those who predicted the shattering of the Eurozone were wrong and increasingly so because, in contrast, Euroland is now equipped to withstand the financial crisis (while it was helpless only a year ago). Moreover, we emphasize that those who followed our advice last May on the Euro-Dollar exchange rate trend can only congratulate themselves, while those who listened to the “anti-Euros” and their forecasts of Euro/US dollar parity lost a lot of money. To conclude this theme, we note that, according to LEAP/E2020, there is no risk of Euroland shattering in the medium or long term. The real risk in Europe, and Euroland in particular, is a democratic risk in the second half of this decade, but not a monetary risk. Even the far-right movement will rally to the Euro as "Paris is worth a mass" and because they have no credible economic policy. They will endorse the existing technostructure, as always. For the rest, everyone can continue refusing to look reality in the face and continue to believe in the good old days that reassure him or sink into the nostalgia of his youth embodied by the Franc, Mark, Lire or Florin. Yet a youth embodied by a currency shouldn’t have so much nostalgia!

(2) Moreover David Osborne, Chancellor of the Exchequer, has now said he is very pleased that the UK is included in the group of seven countries required to be "scrutinized" by the IMF. At least things are becoming clearer! Sources: Independent, 04/16/2011; Journal des Finances, 04/16/2011

(3) As we have emphasized for several years now, it isn’t that the Euro will benefit from the end of US Dollar hegemony. The Brazilian Real, Russian Ruble and Indian Rupee will also be big winners as the "experts" now recognize and the media who didn’t believe any of it three years ago. Source: Spiegel, 05/10/2011

(4) Source: New York Times, 05/11/2011

(5) Source: Irish Times, 05/07/2011

(6) Source: The Independent, 04/28/2011

(7) Including State and city bankruptcies. It suffices to note that MarketWatch of 05/13/2011 now compares Las Vegas to Detroit, or even to discover in the Herald Tribune of 05/12/2011 that cities are "begging" from foundations of all kinds, to measure the increasing fragility of the whole fabric of US local authorities, and wonder, in the second article, about the real power of a State that sees so many economic players escape paying taxes.

(8) Note that these are the same three features found in the Japanese, British and US cases: staggering government indebtedness and deficits, recession and lack of credible political leadership (that’s to say competent, having the means to act). It's an explosive cocktail for the quarters to come.