Call me a prophet of doom if you want, but Europe’s meltdown isn’t a recession – it’s a coming depression
by Mitch Feierstein about 10 years 10 months ago
Those financial forecasters, like myself, who take a generally dark view of world affairs are known by a number of monikers: prophets of doom, killjoys, pessimists, Cassandras. And that last one is interesting.
Cassandra, in ancient Greek myth, was the daughter of King Priam of Troy. After Helen, she was considered the most beautiful woman on earth. Curly red hair, blue eyes, fair skin. (I know: she sounds more Irish than Turkish, but work with me.) Because of her beauty, the god Apollo fell in love with her and gave her the gift of prophecy. When she did not return his love – always a dangerous game when dating a god – he cursed her, ensuring no one would ever believe her prophecies.
But Cassandra saw it all coming: the Trojan war, the Trojan horse, the fall of the city and the slaughter of its citizens. She explained clearly and repeatedly what was happening. And no one believed her. Even after her early forecasts had proved to be bang on the money, still no one believed her. Even as the Trojan horse, bursting at the joins with Greek soldiers, trundled up to the gates of Troy, no one believed her.
Greece: We can’t see the 10-year depression just yet – but that doesn’t mean it’s not coming
So Cassandra feels like a good term to apply to people like me. (I’ve never been wooed by a goddess and cruel observers might suggest I’m very slightly past my physical peak, but I’m trying to focus on the prophesy side of things here. Work with me, folks.)
I’ve said for ages that the euro will fail, that the countries of the Mediterranean are bankrupt, that Germany doesn’t have the resources to fill the void, and that the Western world is entering not a recession, but a depression: a huge, 10-year, economic slump.
And here we are. If you look outside the city gates right now, I think you’ll find a giant wooden horse with a trapdoor in its belly. Because I’m a Cassandra, you won’t believe me of course, but I’ll give it a try anyway. That’s what I’m fated to do.
So number one, the interest rates on Spanish government debt are now heading up towards 8%. If you want to borrow money from the bank, you can likely do it cheaper than that. You personally may have a better credit rating than the Spanish government right now. In any case, a government can’t pay those punitive rates when its debt is gaping, its deficit out of control, and its economy in recession.
There’s muttering about a €300 billion bailout, which would keep Spain away from the financial markets for three years, but so what? For reasons I’m about to come to, I don’t think such a bailout could possibly happen, but even if it did, so what? Spain’s problem is too much debt piled onto a creaky economy. That €300 billion ‘bailout’ wouldn’t be a gift, it would be a loan. The solution to too much debt is not more debt. (And, for that matter, Mr King, the solution to weak money is not to print an endless supply of the stuff.) Naturally a giant bailout would kick the problem down the road, but bankruptcy is bankruptcy no matter when you meet it.
That’s point one. Point two is that Germany (and creditworthy northern Europe in general) is coming to the end of its borrowing capacity. There’s no reason at all why the German government should fail to meet its obligations, but it can’t be the Atlas that shoulders all the burdens of its southern neighbours too.
The ratings agencies have noticed this. Germany is now on credit watch for possible downgrade. If Germany commits to a monster bailout of Spain (not directly, of course, but via some Euro acronym), that downgrade would happen faster than Helmut Kohl could guzzle a schnitzel. Because Germany knows this, and because its citizens know it, those German purse strings are going to be drawn ever tighter as eurozone discussions progress. And quite right too. Germans have worked hard to restrain wage costs, export goods, innovate new products, and boost productivity. There’s no reason on earth why the fruit of those efforts should be handed out to economies which have steered a very different course.
Germany is now on credit watch for a possible downgrade. No wonder Angela Merkel is showing the strain
Point three: the terrible data, released today, about the British recession. I said we were in recession back in autumn last year. (No one believed me but, hey, I’m used to it.) And now we find that we’ve actually had three successive quarters of recession, with the last quarter the worse of the lot. Even if things turn up – and, pardon me for asking, but do you see any grounds for optimism right now? – we’ve still experienced the worst recession in British economic history. Not a bit worse than the Great Depression but, by now, very significantly worse.
Like I say, I’ve been saying all this for a while. Me and Cassandra both. The Greeks are coming. There’s going to be war. It’ll last for ten years. That wooden horse looks mighty iffy to me.
And no one listens. Maybe it’s nothing to do with being cursed by a God. Maybe it’s just the way with people who tell the truths that people don’t want to hear. But we Cassandras just go on prophesying anyway. There’s a big storm coming and it’s about to strike.
This was published in todays Daily Mail.