2017 could be a year that goes down in the books of days of old in respect to European politics and a whole lot more!
2016 gave us the year of populism and anti-establishment movements coming to the fore with both Brexit and Trump, along with the Italian referendum that led to an immediate drop in the shares in the world’s oldest bank - Banca Monte dei Paschi di Siena. Just today in fact (21st December), the bank is back in the headlines that warn us that it could run out of money within just four months unless plans to raise new funds succeed.
EU under scrutiny
Meanwhile, the EU is now under more scrutiny than ever before - Greece was the catalyst that really woke the world up to all that is flawed about the European project in the sense of the EMU and that 'one size doesn't fit all'. The EU, however, while some look to the unelected European Commission which runs the EU with despisement, pooling them into the same group of bureaucratic elites in global governance, aka, The New World Order, had on the surface at least, helped bring a lasting peace to Europe between member nations since WWII.
In my opinion, there are indeed a number of pros for such a union, such as helping Europeans to understand their shared values, replacing self-interest with shared interests, and exclusion with inclusion, encouraging a rules-based approach to international affairs and allowing Europe to speak with a louder voice. However, I'm afraid to tell it how it is and say that this is all just pink cloud nice and fluffy fantasy stuff, the kind you might find in a liberalist's fairy tale - yet one fairy tale that ends badly and turns into a nightmare, starting at the scene when you see through the stratagem and realise what the real motivation behind the EU actually is - Profit.
The EU fundamentally reformed tariff and trade policy by abolishing all internal tariffs by July 1968 and its protectionist trade policies were put in place favoring domestic industries and cooperate in areas in which members traditionally had acted independently, such as international trade (i.e., trade with countries outside the European Economic Community (EEC)).
Today, the EU is now one of the engines of capitalist globalization - perhaps a model that is appealing and makes a lot of sense but only in the absence of corruption.
"Power tends to corrupt, and absolute power corrupts absolutely" - Lord Acton
Unveiling the EU's agenda
The EU web page proclaims "the EU, therefore, leads in the drive to liberalize trade in services worldwide and remove barriers to a truly global market". This needs to be decoded and is the kind of deceit I was talking about above.
It cannot be contested that the principals of globalization are that all decisions should be made on the basis of profitability alone. Indeed, we have the World Trade Organisation that wants to impose such principals on a global level through the Global Agreement in Trades and Services covering 160 services' sectors including education, waste management, housing, healthcare, water, and other basic services. In other words, what you get is an EU that wants to turn water supply, education, health over to profit-making enterprises and services provided to those who can pay.
You have already seen this in the introduction of local service charges like the water charge and next on the privatization agenda could be aspects of the education and health services - then the real danger is when these services are sold off and the cost rise exponentially, afforded only by those who can pay. This is just one of many concerns held by those that voted Brexit who do not want to be controlled by the plans engineered by foreign rulers in Brussels - then you have the issue of national safety while EU open border policy has resulted in thousands of deaths in the last decade, and most recently in the Paris, Brussels and Berlin terror attacks. This indeed is a world problem, and without going into the root of the causes to global terrorism, indeed it was part of Trump's protectionist driven campaign that arguably won him his presidency in the White House while hundreds of millions of Americans live in fear every day after 9/11 of another imminent terror attack.
The next financial crisis will make 2008 look more like a bullet to the system than the pending atomic bomb to global markets and world civilization
So, with some background towards the anti-establishment movement, we can start to understand why the EU is under such scrutiny and an exit is on the populist movements' agenda all over Europe. We started with Brexit, we have seen Italy's PM Renzi fall and opening the way for the populist, anti-establishment, environmentalist, anti-globalist and Eurosceptic Five Star Movement.
Trump was a no brainer in many regards and now we have European politicians such as France’s Marine Le Pen and Netherlands’ Geert Wilders who are both in a fighting chance of winning power in coming months and could spark a slate of Brexit-style referendums and also put an end to multiculturalism and open immigration in Europe - lets face it, it could be chaos next year on the continent - mix that with a banking crisis - we could well be headed for a global catastrophe, the kind that Harry Dent spoke of in a recent end of year panel hosted by myself at FXStreet. You can watch that full panel here:
In the panel, we also discussed the strength of the dollar for the mean time and euro falling way below parity towards $0.80c while the DXY can move higher to 120 on an offshore shortage in the dollar that the BIS recently announced to the tune of $10T, which indeed then becomes very complicated with global trade in decline. However, as day traders, it isn't really about picking a bottom in the euro as you take profit or loss no matter the direction of the trend. Nonetheless, absent of any major defaults in the financial arena, next year is going to be a year of fundamental analyses with a shift from focussing entirely on Central Banks to politics, world trade and reflation. However, there is a real apparent and major risk that eclipses the political agenda in Europe.
What would happen if Banca Monte dei Paschi di Siena or, say Deutsche Bank go bust next year?
If you think the financial crisis of 2007/08 was bad, well the next one brought on by a major bank default would be a lot worse, because the Central Banks can't have the governments and taxpayers funds reserved to bail out yet more 'too big to fail' institutions this time around. In fact, regulator's latest idea is to make the banks bail themselves out, 'a bail in', by setting up new entities under the parent company that will be a sort of emergency backup bank within the bank and a vehicle for internal bailouts - Well, good luck with that, but ultimately, this is a practise proposed by only Bank of America and Citi Bank so far - The European regulators are yet to devise a back - up plan that will prevent the burden of their failures landing on the laps of the taxpayer or shareholders once again and at the end of the day, the financial markets are interlinked worldwide with highly complicated debt structures and liabilities born out of the derivatives markets - we all felt what happened when just four states in the USA started defaulting on subprime credit back in 2007 that ultimately lead to major defaults of big player financial institutions such and Lehman's and a Federal takeover of Fannie Mae and Freddie Mac, aka, "The financial Crisis of 2008"!
Such problems in the banks are not isolated to just Deutsche Bank and Monte dei Paschi, for they are just two of several large European banks struggling with a heavy burden of bad loans that are unlikely to ever be repaid - anyone of them could be the trigger point, or the last fallen snowflake to cause an avalanche of mayhem throughout the world.
Oh well, Merry Christmas anyway!
On that merry note of an article, I truly wish you all happy New Year, and let's all just 'pray' for peace, love and unity - meanwhile, hold on to your hats - 2017 is going to be a wild ride in the foreign exchange markets - that is a certain.
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