The Trumpet (Link) - Brad Macdonald (July 14, 2011)
Maybe it lacks the pizazz that surrounds the downfall of a global media baron, or the urgency of America’s debt ceiling debate. But let’s set aside all the other headlines and dwell a bit on the most underreported yet most important story of the moment.
That is, Europe’s sovereign debt crisis.
After months of focusing primarily on Greece, the spotlight this week turned on Europe’s third-largest economy, Italy. This doesn’t mean Greece’s problems have been solved. Au contraire. Despite the endless “emergency meetings,” the bailouts and the austerity measures, Athens continues to edge toward bankruptcy. And European officials this week hinted that they may even be prepared to let Greece default.
All eyes turned on Italy last Friday, when fears of a contagion set in and resulted in the plunge of Italy’s stock market and a significant rise in the interest rate on Italian bonds. When markets opened Monday, the crisis worsened. Spooked investors continued to flee Italian bonds, causing yields to jump to 5.6 percent. The bond crisis was compounded by investors dumping stocks of banks exposed to Italian debt, which sparked the largest global run on stocks since March.
Until last Friday, European officials genuinely hoped the sovereign debt crisis would remain confined to Greece, Portugal and Ireland. But with Italy (and Spain) now clearly in the fray, the reality is setting in that Europe’s debt woes can no longer be contained. Over the next three months, Italy needs to raise €69 billion on the bond market, and then, by the end of 2013, another €500 billion. This week’s jump in interest rates has many alarmed that Italy could have trouble raising money in the bond market, sparking fears that it risks defaulting on its public debt.
After Greece, Italy has the highest public debt compared to GDP ratio of any nation in the eurozone. Italy’s total outstanding debt amounts to roughly €1.6 trillion. By comparison, Greece’s is about €345 billion, while Portugal and Ireland each have roughly €150 billion in public debt. Why is this important? Basically it means Italy, unlike the other three, is simply too big to bail out.
For those who don’t want to get bogged down in the details, just know this. The crisis in Italy has thrust the European Union—not just Italy, or even the eurozone, but the entire European unification project—into extreme crisis mode!
“We’ve painted ourselves into a corner,” one EU official, who didn’t want to be identified, told Reuters. “At this point, either someone—Germany, the ECB [European Central Bank]—has to fundamentally shift position, or everything blows up.”
Citigroup’s chief economist, Willem Buiter, agrees. “Nothing stands in the way of multiple sovereign defaults except the ECB,” he warned. With Italy and Spain, “contagion has spread from the periphery to the soft core. That is a game-changer. It is existential for euroland and, indeed, for the EU.”
The crisis in Italy has punched home a stark reality: After 20 months of trying it, the medicine prescribed by Europe’s leaders to heal the debt problems is not working!
The Washington Post noted this week that “investors appear to be losing confidence in the ability of bickering European leaders to come up with a lasting solution to the 20-month-long debt crisis ….” Europe’s leaders, as the Telegraph’s Ambrose Evans-Pritchard noted, “seem unable to keep pace with the fast-moving events.”
“The broader concern” in Europe, warned Jim O’Neill, chairman of Goldman Sachs Asset Management, is that “we are still waiting for some sort of true leadership out of Europe.”
As Greece, Ireland, Portugal and now Italy wobble, Europe is waking to the fact that drastic and far-reaching measures need to be taken. First, its leaders are now realizing that Europe needs active, decisive, streamlined leadership. Second, they are seeing that solving the sovereign debt crisis is going to take some extreme measures.
This week, the call for a better leadership structure grew much louder. Under its current structure, solutions to the eurozone’s financial woes are hashed out among the finance ministers of member states. In practical terms, this means 17 finance ministers sit down at a big table and try to agree on how to fix Europe’s money problems. Obviously, this generally doesn’t work. Cognizant of this reality, and with Europe perilously close to collapse, a growing number of European officials now believe it’s time for member states to turn their finances over to a governing European authority.
European Central Bank executive Lorenzo Bini Smaghi is one such advocate. “The crisis has shown that the euro is an incomplete construct and needs to be completed,” he stated this week. “Member states could transfer to a supra-national agency the right to issue their debt.”
Fearing the collapse of the euro, financial pundits are even coming around to the idea. “The endgame is probably fiscal union because [the crisis] is just going to move from one country to the next,” said Gary Jenkins, head of fixed income at Evolution Securities. Evans-Pritchard wrote this week that “Germany must now be willing either to buy or guarantee Spanish and Italian debt, and in doing so to cross the Rubicon to fiscal and political union …” (emphasis added throughout).
Such a development would be colossal—easily the most extreme step toward the federalization of European finance in history.
European officials are already discussing some pretty extreme solutions, too. One measure being openly discussed is the issuance of some sort of eurobond. This bond would be backed by Germany and Europe’s other healthy economies, and would likely be snapped up in volumes by global investors. Speaking to the Italian Banking Association yesterday, Italy’s Finance Minister Giulio Tremonti stated that there is no alternative to the issuance of joint eurozone bonds.
The Spectator’s Daniel Korski agrees, writing this week: “More federal arrangements are likely to emerge in the immediate future. For instance, it is hard to see how eurobonds cannot now be introduced. Then steps will be taken to develop a pan-European solution to deal with the Continent’s banks; the idea that each country will deal with their own banks is dead, so a joint solution will be found.”
Notice, issuing a eurobond would require an overarching federal financial authority!
Truth is, we’re probably much closer to seeing some sort of European finance ministry than most people imagine. It’s not like prominent European elites haven’t discussed the idea publicly. “In this [European] Union of tomorrow,” stated ECB president Jean Claude Trichet last month, “would it be too bold, in the economic field, with a single market and a single central bank, to envisage a ministry of finance of the Union?”
The financial crisis has put Europe on an inauspicious path—one that will end in the loss of national sovereignty and the creation of a financial and political European superpower!
Undoubtedly, the centralized control of finances would give the European government decisive political leverage over member states. As Korski wrote, should a European finance ministry emerge, a “multispeed Europe will become a reality, with consequences for everything from the internal market to Common Security and Defense Policy.”
Whatever happens, Europe is very possibly at a historical turning point. The status quo cannot remain. Europe’s leaders must choose between disintegration or further integration.
If you’ve been reading the Trumpet, you know what they’ll choose. Bible prophecy, as we have explained thoroughly for many decades now, says that we can expect a united, federal European superstate to form. Prophecy reveals that this globe-girdling entity will be led by Germany, and guided by the Catholic Church.
Notice this incredible forecast from Herbert Armstrong. In 1984, nearly 30 years ago, Mr. Armstrong explained to his readers exactly how Europe would unite. A global financial crisis could erupt, he wrote, which “could suddenly result in triggering European nations to unite as a new world power larger than either the Soviet Union or the U.S.”
Isn’t that a perfect description of what we are currently witnessing in Europe?
Finally, notice what comes after European unification. The formation of a United States of Europe, Mr. Armstrong wrote, will “bring on the Great Tribulation suddenly. And that will lead quickly into the Second Coming of Christ and end of this world as we know it.” †