Despite the painful paradox of this headline its content stays unchanged. Not even a half week of optimism around the economic globe following the vague announcements of the EU summit in Brussels, news from the US labor market and new problems in Spain and Italy have sent the markets downwards again. There is an increasing obviousness of erosion in systemic confidence reflected by these increasing levels of volatility. The vicious circle is becoming more and more obvious: signs of depression are followed by political intervention; political interventions are followed by depression and so on. The question might be justified if the current market volatility is still reflecting markets or if it has already started to reflect the agony of an entire system.
There is an undisputable urgent need for growth at least in all emerging economies: if it is about infrastructure in megacities, electricity grids and power generation in Africa, educational systems, road construction, medical services, to make it short: even basic needs are still not met in a majority of countries around the world while the developed world starts to erode.
Millions of qualified people are without jobs in one place. Expertise is urgently needed but not affordable in others.
The world has witnessed an unprecedented technical revolution in the last two decades allowing high frequency transaction processes, almost full accessibility of information and cross-national availability of data. But the financial system along with local elites have not followed this pace, leaving whole continents financially dry, hampering growth and development.
Capitalism in its current form is not a naturally given phenomenon. It is a historically grown framework to distribute material goods and services within and among societies. If it fails to serve this need, the demand for change might unavoidably rise.
Currently the public discussion is still based on the term of crisis. If the public trust to and the credibility of ruling elites further erode, as long as objective evidence and subjective experience are still neglected in commercial media, the demand for change may be a logical consequence.
If people in Europe for the fifth consecutive year of austerity do not see any benefit of their sacrifices despite eroding medical and educational standards and services for example, the quest of systemic failure might occur sooner than expected
The situation in Spain is far from stable despite negotiations about a bail-out of around 100 Billion EURO. With more than 150 bln in debts, the regions add to the overall debt crisis. Millions of households aren’t able to pay back private debts. The credit crunch and rapidly growing social challenges add to the situation.
The proposed European fiscal union might become unprecedentedly challenged by the volume and the socio-economic dynamics in Spain. There are doubts that the Spanish economic and social challenges can be handled by European fiscal institutions and there is no political commitment of the Spanish government to quit fiscal sourveignity.
The basic systemic problems expressed by impressive export growth figures on the one hand and unemployment rates of more than 25% (in some regions up to 60%) on the other hand, show that the paradigms of the country’s crisis are very different to those of Greece.
There is no doubt that rapid reforms might help Spain to keep its standards as an industrialized society. But it is not sure how significant gaps in regional development, existing separatist movements, youth unemployment of 50% and the empty pockets of the public sector could be overcome to initiate recovery.
Like many other measures in the recent past the temporary ease provided by the European bail-out for Spain won’t give an answer to these questions. There are hardly doubts that more austerity might become explosive in Spain as frustration is already at the brink to explode.
On the other hand, a much different handling of the Spanish crisis than the one in Greece might bring new tensions in a Europe that is obviously out of balance.
With the official warning by the Spanish government this Tuesday previous to a telephone conference of G 7 leaders on the Spanish re-financing problems the situation in Europe is obviously entering a more dramatic phase. The next launch of Spanish bonds is scheduled for Thursday this week. Bond yields range already around 6,7%, too high for a long-term re-financing. There is no guarantee that this launch is successful.
With the Greek elections 10 days later the political challenges might be back in the focus but there is also a chance of an at least temporary ease if the conservative ND wins most votes. But even a success of the Neo Democracia would come with the risk of a politically delicate backlash: with most Greeks angry about the traditional establishment, any success of the ND would be only related to the fears of losing the Euro currency. But the tremendous risk of a Greece exit remains even if a new government confessed to follow the austerity regime of EU and the IMF.
If Greece would be forced to give up the Euro despite a win of the conservatives, the political quagmire in Greece might enter another stage with consequences for all Europe.
This is why a strong conservative victory in Greece would put enormous pressure on the EU fiscal policies right now. Along with the threats in Spain and Italy and a potential recession also in Germany there is hardly any other chance than increasing dramatically the money supply of the ECB to preserve the currency. In that case Germany might become the next hotspot of political turmoil.
Facing these perspectives the current political leadership circles in Europe tend to slow down the flow of information and to cover decision making and precautions. Potentially tensions within these circles might reach a critical point with a first Eurozone member declaring readiness to leave the system.
As only two of the consequences the political ties within Europe and the world market growth might become so inconsistent and fragile that any planning except caring for the worst case might become obsolete.
Changes of monetary systems coming with strong devaluation need to happen in very short, unannounced periods of time in order to hamper bank runs, capital exits, general panic or public disorder.
This is why any exit of Greece form the Eurozone can hardly happen by endless weeks of struggle and negotiations, by public discussion or voting, except if a dry out of the banks was part of the strategy. An exit of Greece needed secret preparation, logistic management, security measures and planned procedures to be carried out within two or maximum 5 days. Even the involvement of military might be necessary during the critical phase – sending shock waves to the rest of Europe if for example too obvious or too heavy equipment was put in place.
In advance, there is a risk that rumors might have a major impact as the credicbility of politicians involved might be necessarily replaced by pure strategic communication.
Therefore experts expect any announcement of an exit would happen during weekend time followed by immediate regulatory action.
Given these necessary requirements, the technical challenge of a rapid, overnight currency change contains tremendous risks if unexperienced administrative bodies took responsibility for the process.
It can’t be ruled out that the challenges of the whole process and the volatility that it might cause is already now the main topic to be discussed behind closed doors as unpreparedness of investors and small savers is necessary for any successful cut.