A Matter of Pride

Eurozone this, Eurozone that…

Man, it’s getting irritating.

Can we, for one moment, imagine a world without the Euro? Yes. Why is it so difficult? What would the cost of that scenario be?

Deleveraging, people, that will be required. All of those nations that leveraged themselves into quasi financial extinction will need to deleverage massively, once the Euro is discontinued, for as long as it takes to pay off their debts.

What does deleveraging mean? It means not using leverage for as long as it takes. It means paying off one’s debts by working overtime and saving.

Do you think the Italians or the Greeks et al. are liking such suggestions. Of course not. That’s the thing with debt. If you can’t pay it off, you’re in deep sh*t. Nobody thinks of that while taking on debt.

When the Eurozone was formed, sovereign debt of financially weaker countries was sold worldwide using the Eurozone tag. As in “C’mon, it’s all Eurozone now, and these Greek bonds give a premium return as compared to German ones!” Ingenious way to market junk bonds. Meanwhile, citizens of these financially weaker Eurozone countries borrowed left, right and centre to build houses and to consume. As 2008 approached, many lost the earning power to pay back their monthly installments. Now, as more and more of this debt matures, these financially weaker Eurozone countries need to conjure up billions of Euros they do not have.

You’ve got to hand it to the marketeers. Pure genius. They always get you, don’t they.

The reason things are not really working is the looming idea of uncalled for hard work that the process of deleveraging requires. Even if one wants to put in hard work, where does one put it in, if there’s no work.

Thus, the only option remaining involves massive cutbacks, like you’re seeing in Greece just now. Consumer spending down to zero. Pension cuts. Medicare cuts. All-round cuts. To one level above slowdown, till the deleveraging process is over. Scenario will take long to smoothen.

After enjoying a penthouse suite, a 1-BHK feels pathetic.

Eurozone wants to remain alive financially, but are they willing to pay the harsh price?

What you’ve been seeing since this crisis exploded is infinite artificial maneuvering. This might stall the situation. The goal is to stall long enough so that the deleveraging process is over before the stalling process can be weaned off. And that’s a fatal error. Nobody understands deleveraging properly, because the world has never done it properly before, at least in modern financial times. Correct me if I’m wrong.

Deleveraging is going to take longer than all the stalling moves put together. That is my opinion. Stalling results in a false sense of security because of all the maneuvering to show that the economy is doing well. Owing to this false sense of security, people continue to consume. Instead of deleveraging, people leverage. Instead of decreasing, debt increases.

What’s the deal here? You see, pride and egos are at stake. Eurozone doesn’t want to become the laughing stock of the world, the focus of all jokes. Thus, for the sake of their pride, and to fan their egos, European leaders feel the need to keep the Euro alive, even if it costs them their elections, and their financial survival.