DEFAULT IN THE EUROZONE

The process of structural transformation of our economy from industrialization to financialization is creating the fundamentals of sub-capitalism centered on debt. Debt is a destructive financial instrument and the world has too much of it. Capitalism is based on real wealth creation, not on synthetic wealth creation by the financial industry. This is the origin of the 2008 sub-prime crisis. In the USA and Europe, politicians made another bad decision by bailing out the banks. Taxpayers in the USA and Europe had to pay for the mistakes of a private industry. The end result is not good. These financial institutions showed large declines in afternoon trading on December 29th, 2011. The biggest loser was Lloyd”s Banking Group: -63.02%; followed by Bank of America: -60.38%, Société Générale: -59.57%, Crédit Agricole: -56.04%, AIG: -52.00%, RBS: -50.00%, Goldman Sachs: -46.41%, Morgan Stanley: -45.24%,Citi: -44.76% , BNP Paribas:-37.67%, Barclays: -34.32%, UBS: -29.33%, Deutsche Bank: -28.55%, JPMorgan: -23.03%.

After an S&P downgrade of 9 European countries (France, Austria, Slovenia, Slovakia, Spain, Malta, Italy, Cyprus, Portugal) it will be more difficult to raise capital in the Euro Zone. But, this week the downgrade did not have much effect on the market. Spain raised $ 8.5 billions and France $ 12.2 billions. This downgrade divided the Euro Zone into two categories of countries: AAA and non-AAA. Triple A’s countries like Germany are expected to growth only at 0.7% in 2012. This is an important decline from the 3% growth in 2011. Last week downgrade weakened the solidarity in the monetary union. Default will be a reality in the Euro Zone; the question is when and who will be first? Greece is one of the primary contenders to be first. It has to pay 14.5 billion euros by the end of March 2012. The troika (International Monetary Fund, European Central Bank and European Commission) solution to cut spending and raise revenue will not solve the deep structural problem of the European capitalism. This strategy of cut-and-dry-privatization is a temporary band-aid. A monetary union without an exit strategy will not lead to a positive outcome. A revision of the Treaty is unavoidable. Industrial capitalism was very successful, European nations should go back to this model.