Economic Canabalism

SUBHEAD: As the Eurozone economy collapses you're either at the table or on the menu. And that means you. By Ilargi on 8 December 2011 for the Automatic Earth - ( [Editor's note: This is the beginning and end of a long Ilargi post. For the middle go to link above.] Image above: Creepy illustrated advertizement for "Cellophane" ("Cannabalism"). Mashed by Juan Wilson. From ( Earlier today, in a fancy location in Brussels, - no, you're right, they probably had it €500 a plate catered, can't take the risk of venturing out into the real world where the people live they're supposed to represent-, one bullet-proof limo after another arrived to deliver the honorable hoi polloi from 27 EU countries and their servants for an informal gala dinner during which they could, in hard-fought peace, discuss the maximum extent to which austerity measures can be taken in various member countries without provoking outright civil war. Security costs? Just a few million bucks; what are you insinuating? We do this every week. And I'm thinking: the limo's may be bullet proof, but they're certainly not fool proof. It links up perfectly with something the Polish Prime Minister said to his MPs this week: "You're either at the table or you're on the menu." Only, he meant his country's government should have a say in what goes on (not just France and Germany). He did not mean the people of Poland themselves should be at the table. They are, like all other European people who were not delivered by bullet-proof limo to attend the dinner, very much on the menu. It's the 1% vs the 99%. "European leaders Merkel and Sarkozy have reached "complete agreement" (mostly) on a new treaty that would restrict the budgeting and size of future deficits for eurozone nations. ", or so I read somewhere this week. Sounds great guys! Problem is, though, that the problem is not future deficits, it's present ones. What do you have for those? Thing is, they have nothing. The EFSF stability fund was supposed to be leveraged up to €2 trillion or more. Not happening. The ECB was supposed to buy trillions in useless and worthless sovereign periphery bonds. Not happening. Geez, wonder why. Incestuously adding the EFSF to its own daughter (just temporarily..), the ESM; actually proposed. But not going to happen. The busiest people today and tomorrow in Brussels at the EU meeting are the spin doctors. It’s about form, not content. Not what you say, but how you say it. They have nothing. The interests of the countries involved are by now so far apart, it's somewhat insane that Merkel and Sarkozy even try to maintain that "we're all in this together" stance. Well, then again, they have by now both realized what predicament they're in. There's no way out that would allow either to keep their jobs. So they're together in that at least. But it's not going to be for their lack of trying! For the financial markets, Merkel and Sarkozy, and all the rest of Europe, have long since lost all credibility. So they may pretend to be still in control, but there is no such thing as control without credibility. It’s all about faking it from here on in. Look, the US has a constitution. The EU has 27 different constitutions. Some modeled after England, some after France, some after the US, and some just made it up as they went along. There are lawyers and judges in all these 27 countries that know their respective constitutions. And I'll leave you a wild guess as to how many of them stipulate that you can't just sign away broad based sovereign powers and rights to Brussels or anyone else without first consulting your parliament and/or your people. Whichever grand scheme comes out of this summit will have to, if it were to be any good in achieving any of the goals they're aiming for, include parts that violate the constitutions of at least some of the 27 EU members. Cue referendums, cue elections, cue many months of delay that isn't realistically available. Most European banks, all 17 Eurozone countries, all 27 EU countries, the EFSF and the EU itself are now all under credit downgrade watch. If there is no grand enough plan on Friday evening, S&P, Moody’s and Fitch will start picking them off one by one, downgrade by downgrade. With devastating consequences for the Eurozone: the downgrades will be perceived and taken as accumulative, not separate. Can't do the math, you're not alone. Just watch it unfold. Which will in turn lead to higher interest rates on sovereign bonds, which will lead to less growth (make that more contraction), which will lead to more austerity, which will lead to less growth, which will lead to more downgrades etc. Yes, children, deflation is a bitch. But even then, going forward the sovereign issues will turn into nothing more than a sideshow. The banks will be the main issue from here on in. If there is no consensus within the EU to support European banks (and how could there be with both French and German - and everyone else's - banks on the perch?), that will be even more apparent, but even apart from that fight, things are plenty ominous. The whole H. Mary Dumpty is falling to pieces, and there isn't a Merkel in the land to put it back together again. While the EU leaders talk about sovereign debt issues, they are being overtaken and incapacitated by what's happening in the banking world. It really doesn’t matter what they decide. The smart people in the markets have long since realized that there are so many vulnerabilities in the very system they make their money in. They can sit back, pick off countries and financial institutions one by one, get rich, eat grapes, boink their servants and play their harps while Rome burns and loves them long time. The EU as fish in a barrel. Many of these people work for, with or through those financial institutions. From that angle it shouldn't perhaps be all that surprising that they go after sovereign countries first. The next step, going after the banks, will feel like cannibalism. Still, why would they want Rome to burn while they live and prosper in it? Simple: they know it'll burn no matter what. But they’ll live long enough to see it, and enjoy the spectacle. After them, the flood. EU banks will have to meet new capital requirements at the exact time when hundreds of billions of euros in debt needs to be rolled over. Which if at all possible, will lead to substantial increases in interest to be paid. Damned if you do, doomed if you don't. Not an unfamiliar theme. They are borrowing - near - record amounts of dollars these days. Lots of USD denominated debt that needs to be serviced. The ECB base rate cut to 1% today is mere window dressing. Even the stock markets got that one right. Come on guys, there's way over $2 trillion in toxic assets sitting in European bank vaults. Who's going to take that on? Not the EFSF, it can’t even get to €900 billion, and that is meant for sovereigns, not banks. Not the ECB, which would itself be downgraded if it even tried. Come to think of it, downgrading a central bank would be a sight to see... Get Out of the Way ... The entire Eurozone project, and indeed its very failure, have been based on "voluntary coordination". Greece volunteered to dive into trillions of dollars of debt, and banks all over Europe did it to a factor of 100. And now anything voluntary would still instill confidence? Oh wait, he did say "massive increase", true. Come to think of it, given the preceding events, that just makes it all the more scarier, doesn't it? "Get out of the way of this thing" is not just the best, but indeed all I can say. The spin doctors may come up with something on Friday that smoothes things over for a bit, but by Monday it may well be a feeding frenzy out there. That is, unless Ben Bernanke saves the day with $5 trillion or so. In that case, it may just all be postponed until next Monday. They can't enforce treaty changes without triggering referendums and elections, which take months to complete. They can't leverage their stability fund anywhere near the necessary level. That can't get the ECB to do it all for them. All they can do is play word games, hoping that at least someone will believe them. And while their own voters might for a bit longer, the markets will not. Will we make it until Christmas? Hard to gauge. There's always a few more days to be bought. It's just that the cost increases all the time, and exponentially so. We won't make it in one piece for much longer than that though. Either Merkel and Sarkozy voluntarily abandon their shadow theater and go home, or the markets will force their hands. And if they don't, the street protests will. And then the day will come when one of these 27 EU countries will elect a guy or gal based on the promise of not paying back what they "owe". You know, as metaphors go, for far too many people it won't even be about fighting over the left over scraps swept off the bullet proof limo table; they will be on the menu. They already are, they just don't know it yet. And in all that, something just ain't right. From where I'm sitting, at least. .

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