Posted By thestatedtruth.com on February 12, 2010

Feb. 12 (Bloomberg) — Southern European countries are trapped in an overvalued currency and suffocated by low competitiveness, a situation that will lead to the breakup of the euro bloc, according to Societe Generale SA’s top-ranked strategist Albert Edwards.

The problem for countries including Portugal, Spain and Greece “is that years of inappropriately low interest rates resulted in overheating and rapid inflation,” London-based Edwards wrote in a report today. Even if governments “could slash their fiscal deficits, the lack of competitiveness within the euro zone needs years of relative (and probably given the outlook elsewhere, absolute) deflation. Any help given to Greece merely delays the inevitable breakup of the euro zone.”

Tommaso Padoa-Schioppa, a former European Central Bank executive board member and Italian finance minister, said today there was no possibility of a partition of the euro-zone.

“I don’t think there is any prospect for such an event and I don’t think it makes much sense to talk about it,” he said in an interview on Bloomberg Television.

Edwards was voted second-best European strategist in the 2009 Thomson Extel survey after his then-colleague James Montier and is known for his bearish views on equities. In 1996 he angered southeast Asian governments by predicting the currency meltdown that struck the region a year later. The poll also named Societe Generale as the top economics and strategy research firm for a third straight year.

Portuguese and Spanish bonds also declined earlier this month on concern those countries may also need to cut spending.

Prime Minister George Papandreou’s drive to get Greece’s ballooning budget under control is being challenged in the streets by striking schools, hospitals and airline employees.

“Unlike Japan or the U.S., Europe has an unfortunate tendency towards civil unrest when subjected to extreme economic pain,” Edwards wrote. Consigning the countries in southern Europe with the weakest finances “to a prolonged period of deflation is most likely to impose too severe a test on these nations.”

The budget crisis in Greece may escalate in the way the Asian currency meltdown of 1997 paved the way for the Russian default and the collapse of Long-Term Capital Management LP in 1998, Edwards added.

This is “a different chapter in the same book,” he wrote, adding that the need to tighten deficits is a “particular issue for the U.S. and U.K.” “There will be more crises to follow Greece, both inside and outside of the euro-zone.”

Last Updated: February 12, 2010 08:12 EST

Complete article at http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a.DhVdgUJ6nA

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Jim Sinclair’s Reply

Will the Euro be the vehicle to increase the floating exchange rate system or the vehicle for the next step in the devolution of paper money?
 
What you are presently witnessing is the unwind of sovereign entities as a product of their adventures into OTC derivatives and disregard for economic law.
 
Greece is the Lehman Brothers of the euro, making it harder to accept Soc Gen’s position today that the euro is about to break up.
 
I see this as a crisis situation by design for the establishment, in time, of a single Western currency and a single Western central bank of central banks. Gold will then be attached at the hip in the inverse to this single Western world currency with the single western currency trading lower against Asian currencies or a single Asian currency.
 
In that situation gold emerges as the only real storehouse of value.
 
My feeling is that this well publicized event today of sundering confidence in the euro will simply accelerate the devolution of paper money as any storehouse of value, upgrading gold in the final analysis as the most trustworthy currency form.
 
It is unlikely that central bankers would want to have history record them as the caretaker when a system dissolved. They would much more likely prefer to be known as the architect of something new.
 
Trichet certainly wishes he kept his mouth shut when the euro was at $1.52 as the decline thereafter to his verbal intervention set the stage for the attack that followed.
 
Think about this for a moment. A collapse of the euro would retrogress to the dollar trading against a host of currencies, opening up each currency to a successful attack on whatever was deemed to be the weakness, picking off each country’s debt one at a time. The dollar will be in more, not less, danger when it is valued second to second, not against the simple euro, but rather a host of other Western currency units. It would set the stage for a Western world collapse of confidence in money as a storehouse of value.
 
Consider the implications if the Korean press is right about a common asian currency amongst the strongest asian nations.
 
We have created so much paper in the world that it is now considered kindergarten to attack individual stocks when you can bankrupt countries.
 
To assume the dollar is insulated against this “Art of War” approach to planetary destruction is silly. That would mean you accept the December hog wash of a sustainable US recovery.
 
The US is headed towards the same economic conditions of the second leg of the Great Depression. A 1933-1934 type unwind is coming. The only argument for a sustainable equity market in the Western World is the Weimar case.
 
All currencies are headed in one direction: down in storehouse of value character.
 
Gold is the only storehouse of value. Gold has demonstrated that clearly even in the face of the Crimex and the gold banks fighting it.
 
Respectfully,
Jim Sinclair

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