Wednesday, 16 January 2013

The challenge for Europe , is it to keep Italy and Spain from ending up like Greece and Portugal?

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The challenge for Europe , is it to keep Italy and Spain from ending up like Greece and Portugal?
Guest speaker live from Poland ;Patrick L Young


Since the fall of 2009, the European Union has been struggling with a slow-moving but unshakable crisis over the enormous debts faced by its weakest economies, such as Greece and Portugal, or those most battered by the global recession, like Ireland.
The debt crisis first surfaced in Greece in October 2009, when the newly elected Socialist government of Prime Minister George A. Papandreou announced that his predecessor had disguised the size of the country’s ballooning deficit.

But its roots of the crisis go back further, beginning with a strong euro and the rock-bottom interest rates that prevailed for much of the previous decade. Greece took advantage of this easy money to drive up borrowing by the country’s consumers and its government, which built up $400 billion in debt and In Spain and Ireland, government spending was kept under control, but easy money helped turn real-estate booms there into bubbles.

Much like the North American  housing crisis, the European financial mess is unfolding in a foreign language. It is the lingua franca of financial obscurity — “sovereign credit spreads” "derivative swaps" sovereign risk  and other terms that most people don’t need, or care, to know.

Yet the bottom line is simple: Europe’s problems are a lot like the Americans , only worse. Like Wall Street, Germany is where the money is. Italy, like California, has let bad governance squander great natural resources. Greece is like a much older version of

Mississippi — forever poor and living a bit too much off its richer neighbors. Slovenia, Slovakia and Estonia are like the heartland states that learned the hard way how entwined so-called Main Street is with Wall Street. Now remember that these countries share neither a government nor a language. Nor a realistic bailout plan, either.

In Europe series of negotiations, bailouts and austerity packages have failed to stop the slide of investor confidence or to restore the growth needed to give struggling countries a way out of their debt traps. By August 2011 European leaders found themselves scrambling once again to intervene in the markets, this time to protect Italy and Spain, two countries seen as too big to bail out.

The crisis has produced the deepest tensions within the union in memory, as Germany in particular has resisted aid to countries and has raised questions about whether the euro can survive as a multinational currency, since countries like Greece have been unable to boost their exports by devaluing their own currency. Many analysts say the belt-tightening demanded by France and

Germany as a condition of aid for weaker nations can only push those and other nations further into recession, sap the economies of their European trading partners and do little to address the systemic weaknesses plaguing Europe’s banks. The economic crisis gradually became a political one as well, leading to the ouster of governments in Ireland, Portugal, Greece, Italy, Spain, Finland and Romania. 

 I personaly feel that Fraud caused the Great Depression, and the current crisis as well. But – instead of solving the problem – fraud has been covered up in Europe, just like in the U.S. Indeed, one of the world’s top experts on fraud says that we’ve had the greatest financial crime in the history of the world, and that none of the main players have been prosecuted.

Today on our show live from Poland is Patrick Young best selling author of the capital revolution, a frequent financial speaker around world and a world class reporter on major news network , Patrick young  will answer some of the most pressing questions in a language everyone can comprehend. Though the word for “Lehman” in virtually any language is still “Lehman.”

My name is Samuel Ezerzer, your host to the Money & Business show on Radio Shalom, CJRS 1650 AM. Thank you for tuning in live with our Business studios headquarters in Montreal, the financial capital and the home to the greatest hockey team, the Montreal Canadians. We have another great show for you today and as always, you can call if you have any questions, comments, or criticisms on today's topic. Please call us direct at 514 738 4100 ext 200 or email me at if you have any inquiries. You can also visit our website at – all our shows are archived there. 

Todays discussion on the money and business show will centre on" The challenge for Europe , is it to keep Italy and Spain from ending up like Greece and Portugal?

Patrick L YoungPatrick L Young is an entrepreneur and a leading thinker on capital market structure. He has been professionally involved in financial markets for more than 20 years and has worked throughout the world and Patrick is the author of several books including the acclaimed “Capital Market Revolution”, “New Capital Market Revolution” and “The Promiscuous Investor".

Patrick L Young is the best-selling author of the "Capital Market Revoluton!" books as well as a former exchange CEO. A fairly intrepid Irish investor he lives between Monaco and Poland. Originally a derivatives trader, he is an expert in the workings of stock exchanges and advises investors in financial markets infrastructure the world over. Patrick has a broad portfolio of investments and activities both directly in the world of finance and in emerging markets, particular the "New Europe." 


Patrick remains a sought after speaker at conferences throughout the world, having keynoted for audiences of up to 1000 people in countries as diverse as Argentina, Australia, Canada, France, Germany, Hong Kong, ,Monaco, Russia, Singapore, South Africa, Switzerland,  UK and USA. He has also taught all manner of aspects of financial markets for exchanges such as LIFFE as well as on public courses and within many financial institutions. He has guest lectured at various schools and business schools including Insead and the International University of Monaco.

Patrick has been a regular guest host on CNBC Squawkbox Europe and a media commentator in leading financial journals and digital media. He appeared in newspapers across the globe, such as the AFR, L’Agefi, FT, NZZ and Wall Street Journal and he has broadcast on BBC, Bloomberg, CNN, ITV and Reuters as well as networks in Belgium, Germany, Hong Kong, Italy, Switzerland and the USA.
"He is a regular contributor to CBC News in Canada and this is his

first appearance on the Money & Business Show."

small talk
So today Patrick, we find the intrepid Irish investor in Poland? and where abouts are you in Poland?

Patrick ;It really is always a pleasure to chat with you in Montreal, the finest city in North America and a place I have always loved visiting. Thanks to Sam and Radio Shalom for the invitation to join you today.
Right now I am in Torun, in central northern Poland, mid way between along the Vistula River between Gdansk on the Baltic coast and the Polish capital, Warsaw. Torun is a beautiful medieval city with two remarkable claims to fame, the birthplace of the great astronomer Nicolas Copernicus and also the original home of gingerbread!"


-Ironically enough Patrick , it was allegedly a European, British Parliament member Iain Macleod, who first coined the term “nanny state” back in 1965; Why Nanny state well , According to Visual Economics in 2012,
Germany spends 17.9% of its GDP on public healthcare and another 10.5% on education services, adding up to well over a 25% of its financial intake.
France spends 16.7% GDP on public healthcare and 11.4% on education services respectively that’s about 29% financial intake.

The U.K. spends 16.3% on public healthcare and 11.5% education services that’s 28% financial intake ,

Spain spends 27% on public healthcare and education services
 Italy spends 23.5% 13.on public healthcare and 10.3% education
Then Add in unemployment benefits, housing, cash benefits, personal social services ,,,,,,I could go on ,
Put it all together and you get the Eurozone debt crisis that spanned over a century? Or there is more to it?

Patrick: Really, the EU's problems are all remarkably simple - if you keep spending more than your income you will end up with a big debt problem. Overall, EU governments are used to being the largest economic actors in their economies, with many, such as France being a whopping 55% of all economic activity, squeezing out the private sector and stunting entrepreneurship. Many EU nations, such as Greece, approached the Euro with the restraint of Homer Simpson at an "all you can eat buffet" 

they gorged on debt for a decade thanks to low Euro interest rates set to help the German economy which were totally unsuited to several states such as Ireland and Spain where enormous property booms took place. In Greece, the government borrowing went to a client state until debt had finally spiralled out of control...

----On Dec. 21, European banks borrowed more than $600 billion from the European Central Bank at the extraordinarily easy terms of 1 percent interest for a three-year loan. Analysts suggested that the Bank had hit upon an indirect method of stopping the market from spiraling, threatening Italy, Spain and other governments, by flooding banks with money they could use to lock in guaranteed profits by buying sovereign debt , is this the right method by flooding banks with cheap money?

Patrick : In small doses, central bankers do remarkable things to keep the wheels of the economy moving but this truly strikes me as both exceptional activity and exceptionally dangerous. The LTRO process as it is known has seen the European Central Bank accept government bonds which have less redemption value than some Groupon coupons.

It is known affectionately as "cash for trash" in the financial markets. I find this epithet difficult to view optimistically.

- The United States is no lightweight when it comes to spending, either, of course. It just happens to be in a slightly more advantageous position at this point for a few different reasons, including:
The dollar is still the world’s official reserve currency.
The USA has  larger percentage of workers to draw revenue (i.e. taxes) from.
The U.S. government only has to fight with itself in order to get anything done whereas, in the Eurozone’s case, there are multiple governments involved, complete with multiple interests and agendas
will  the European debt crisis spread  to the United states?

Patrick: Well for one thing the USA is a single language, essentially homogeneous political and economic unit. The  Eurozone is a mish mash of conflicting legal and political systems with no inherent political unity. Moreover, the USA is the world's most successful capitalist economy full stop. That remarkable success story makes the US the economic equivalent of the Montreal Canadiens when it comes to an unparalleled track record of success. I have great faith that the Schumpeterian creative destructive spirit that made the US a success in past times will shine through again in the future.

----In years past, when financial crises in Argentina and Russia left those countries unable to make good on their government debts, they simply defaulted. But this time around, swaps and other sorts of contracts have become so common and so intertwined in the financial markets that there are fears among regulators and financial players about how a Greek default would play out among derivatives holders. Asked about derivatives tied to Europe at  press conference, Ben S. Bernanke, the chairman of the Federal Reserve, said that the direct exposure is small but that “a disorderly default in one of those countries would no doubt roil financial markets globally. Derivatives traders and analysts are debating just how much money is involved in these contracts and what sort of threat they pose to markets in Europe and the United States?

Is there a concern ?

Patrick : I think there are concerns about who gets left 'holding the baby' or in this case the liability. After all if you sell a lot of insurance and there is a big hurricane then you need very very deep pockets to pay all the claims. Here the concern is that some of the sellers of the derivatives 'insurance' products will end up with huge liabilities that may further destabilise financial markets.

---Patrick lets talk about the the second Greek bailout  , After months of hardball negotiations  Greece announced on March 9, 2012, that it had clinched a landmark debt restructuring deal with its private sector lenders. The deal clears the way for the release of bailout funds from Europe and the International Monetary Fund that will save the country from imminent default; did Greece Dodged Default With there Second Bailout , and  now it becomes a question of whether ''is it’s sufficient enough in the long-run.for Greece to sustain itself?

-Is the Greek contagion contained for now?

-In the event of a Euro zone break up and as a result of a possible devaluation of greek and Italian currency, interestingly enough, the country which I could see well affected is France, as the country’s industrial base competes largely against countries like Italy and Greece. If the possibility of a  Euro zone break-up could it well destroy the French economy?

It’s a dangerous question to ask out loud but Will the euro survive?

Patrick :  The EU Debt crisis is a story of remarkable hubris, paralysed government and sheer and utter economic incompetence from the EU's so-called elite. Hubris has dictated that no Euro nation can leave the single currency bloc yet the truth is Greece is now being reduced to penury as a result of EU diktats. The death spiral of the Greek economy must end in bailout and default and the sooner the better for the Greek people.

So, no, the Euro cannot survive in its current form. After all, even the Dutch government - those previously reliable arbiters of fiscal rectitude in northern Europe are now left unable to meet their own budgetary deficits as laid out in the new EU Fiscal Union ("FU") treaty. If the Dutch are in trouble (and Spain has said it cannot meet its budget deficit targets either) then it is truly a stretch to see how the Euro currency can hold together with members such as Greece and other potentially at risk nations such as Portugal, Ireland and of course Spain, not to mention the big kahunas such as Italy or even France. Ultimately, the European governments have mortgaged their futures to pay for an unsustainable social state - now with youth unemployment at  40-50% in Greece and Spain, the system is, not unsurprisingly under great strain. I cannot see how the Euro can survive as it currently is constructed.