EU Endgame

So the endgame is soon approaching in the eurozone. Even mainstream is now reporting what influential think tanks used to say in private, behind closed doors. That the bloc is doomed to a decade of crisis, which could put the future of the single currency at risk and that the Ukrainian crisis is likely to “trigger a triple dip depression” in some of it’s constituent countries and regions, according to Hans Werner Sinn from the respected Ifo think tank. The article is entitled, “.... eurozone doomed to decade of crisis,” in the telegraph, dated October 5. It now seems that mainstream is no longer watering down the severity of the economic crisis, which is gripping firmly on the eurozone economy.

Sinn goes on to say that if French policy-makers failed to implement the vital supply side reforms needed to stimulate growth, it could be the final nail in the coffin for the euro. In other words, what we’re starting to see now in Europe is not only an economic crisis but a political one too.

In Sinn's words “vital supply side reforms” means basically more of the same, continue with unpopular austerity and quantitative easing. But it also means that France will need to slim down its expensive public sector, which is a drain on public finances and orientate its economy more towards self funding private enterprise. So it looks like the German influential think tank is now firing up a warning flare for France and the other southern states, where their shrinking economies can no longer finance their swollen public sector. The peripheral states may be stuck between a rock and a hard place. They may now have two difficult options to take. Either impose major structural change to their economies, making them less reliant on the public sector and more enterprising, which is not going to be easy and is likely to lead to even more social unrest, or alternatively, if the southern states fail to do so, the single monetary currency (the euro) which is being supported by Germany, will cease to exist. That would have serious consequences on sovereign debt in the peripheral states. It would effectively shut the south off to international finance which could plunge the region into a chronic depression.

Meanwhile, the latest economic data out from the bloc isn't good. Annual inflation in the eurozone weakened to a five year low in September and consumer prices actually fell in Italy.

According to International Monetary Fund data, Italy's gross domestic product, adjusted for inflation, posted no growth between 2000 and 2013. U.S. output is up 25% over that time.

Italy has suffered three recessions since 2008 despite low ECB interest rates and abundant bank-lending measures. The government is forecasting that Italy's economy would contract 0.3 percent this year, returning to just 0.6% growth in 2015.

"People have talked about Japan's lost decade. Italy has had a lost two decades," Mr. Roberts said.

raising pressure on the European Central Bank to do more to stimulate the region's struggling economy. Andrew Roberts, co-head of European economics at RBS, expects the ECB to begin quantitative easing by November or December.

But if quantitative easing (QE), which involves the ECB buying up high risk debt, did little or nothing to stimulate the economy, it’s very unlike that it will do much this time round either. Besides, QE base rates are near zero and the policy has no more bang, it is done. It might have served the purpose of buying up deadbeat loans made by the banks, thereby improving their balance sheets, but apart from that and causing other asset bubbles, QE hasn't done much else. Pumping the banks with liquidity, in these precarious times, has not led the banks to lend more or stimulate business to make investments either. "New investments nowadays are a pure hazard," said Antonella Lattuada, a partner in the mechanical engineering company Lamar SRL in the Milan area. "There's so much uncertainty that only very few companies make long term plans."

So what is the end game?

Here comes a swear word, and you’re not going to like it. It’s called the dreaded bank bail in.

A few months ago, when most Europeans were planning their summer holiday, the German cabinet (on July 9) approved plans to force creditors into propping up struggling banks beginning in 2015

One year earlier than required under European-wide plans that set rules for failing financial institutions, as reported in the wsj.com, July 9.

It is as if the bureaucrats already know that the eurozone is going to implode. Moreover, the plans are being rushed in 52 weeks early. Why are they rushing in this framework in advance?

"The measures approved today are an important step toward stabilizing the financial sector further and strengthening the trust in the stability of our single European currency," said German Finance Minister Wolfgang Schäuble. "We want to eliminate the risk that taxpayers would have to assume liability once again as they did during the financial crisis."

"This ensures that in times of crisis mainly owners and creditors will contribute to solving the crisis, and not taxpayers."

But the creditors, are not just the shareholders, bond holders, they are also those people with bank deposits and savings. It's the individual, the grandmother who worked hard and saved diligently all her life for her grandchildren could now have her savings deposit plundered by EU technocrats, that is the EU plan. Well, they did this in Cyprus, although some individuals had their savings stolen, there was no major riot. So Bank bail in two might just be on its way.

Now more than every individual investors need to know how to shelter their wealth from what could be coming.