Expect A Financial Crisis In Europe With France At The Epicenter

submitted by penelopepnortneyBecome ungovernable from zerohedge.com

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[–]penelopepnortneyBecome ungovernable[S] 5 insightful - 1 fun5 insightful - 0 fun6 insightful - 1 fun -  (4 children)

We would like to alert our readers to a theme that has been preoccupying us for a while – the possibility of another financial crisis in Europe. We have generally been restrained in our warning of financial crises. The main exception was the global financial crisis and its cousin, the euro area’s sovereign debt crisis. Fifteen or so years later, we see another financial crisis ahead here in Europe: a crisis of the European social and political model with deep consequences for fiscal and financial stability.

The canary in the coalmine is the overshooting budget deficits in France and Italy, at over 7% and over 5% for 2024 respectively. These numbers are a symptom, not a cause. Behind them lies a lack of economic growth needed to sustain Europe’s social model. Germany’s fiscal policy could not be more different than that of France or Italy, and yet Germany is afflicted by the exact same problem.

The European model was powered by oligopolistic industrial companies, which were heavily supported by the state through regulation that tilted the level-playing field in their favor. The German car industry is a classic example, but everybody did this.

What is killing this model now is a shift in technology and geopolitical fragmentation. Of the two, we would argue the first is the more important. More and more functions in our lives that were previously the realm of purely mechanical processes are nowadays wholly or partially digitalized. Barriers of entry have collapsed. China went from zero to the world leader in electric cars.

With productivity growth that low, Europe’s model has become financially unsustainable. It is unsurprising that the political system is fragmenting everywhere. The argument for sustained deficits, in France for example, is that you need them to keep Marine Le Pen out of power. This means they will persist.

[–]penelopepnortneyBecome ungovernable[S] 5 insightful - 1 fun5 insightful - 0 fun6 insightful - 1 fun -  (0 children)

In a single word, the EU is dysfunctional. That’s the problem, not technology. The Maastricht treaty itself is a big part of the reason the EU is dysfunctional. The Euro itself, with one common interest rate, is fundamentally flawed.

EU rules make it impossible to fix the basic problem. So the EU has resorted to nannycrat rules to regulate US and Chinese companies instead of fixing anything.

Technology, including AI, and geopolitics is now accelerating the basic problem, the EU is dysfunctional by treaty. It’s showing up in polls everywhere.

Instead of fixing Germany’s aging infrastructure, attempting to compete with the US on AI, or competing with China on anything, EC President Charles Michel promotes war as growth.

[–]easter_special 5 insightful - 1 fun5 insightful - 0 fun6 insightful - 1 fun -  (2 children)

The only reason European industry is collapsing, is that the US forced its European vassal states to give up cheap energy. The US exploded the North Stream pipelines to make Germany buy expensive American LNG.

[–]penelopepnortneyBecome ungovernable[S] 5 insightful - 1 fun5 insightful - 0 fun6 insightful - 1 fun -  (1 child)

Apparently that's not the only reason.

[–]easter_special 4 insightful - 1 fun4 insightful - 0 fun5 insightful - 1 fun -  (0 children)

All European politicians are traitors to their countries and agents of the USA.