EuroCrisis: Bank Fraud May Collapse the Euro

The Economies of Spain and Greece are in ruins, Italy is set to join them, and if they all stay in the EU the Euro may hit 89c USD according to Economist Shayne Heffernan.

The cost of borrowing for governments in Europe is on the rise, unemployment is at record levels and investors confidence vanished after the disastrous Greek default. Spanish bankers insist that there will be no bank runs. But ministers in private are clear about their wish to see European-wide bank deposit guarantee measures put in place quickly to avoid the risk of what could be a catastrophic event. There are signs the European Central Bank favors deposit guarantees.

The idea of the EU Deposit Guarantee is a financial fraud that few will fall for, it is not possible to fill a bank with Government Bonds and call it safe.

The idea is tantamount to printing money, but it seems the idea of a large scale financial shuffle has gathered support as it does not involve anyone producing cash, cash that they do not have, to fix the problems.

The widespread use of deposit guarantees and the use of EU Government Bonds as any form of security will directly lead to a collapse in the value of the Euro.

Devaluation seems the only real exit now for Europe, Germany again will be a huge winner from such a move.

Devaluation either by the ECB, the European Banks or the market is now the only option if the EU is to continue. A drop in the EU to USD rate to 80c would dramatically improve the trade deficit in the trouble countries and offer some hope to their desperate economies.

While the move would pressure the German trade surplus creating an inflation event in the small number of European countries that are still near full employment, it remains a better option than having an economic catastrophe in many of the EU member states.

Around Europe the situation is an Economic mess.


Spain's GDP is forecast to fall 1.8% this year and 0.3% in 2013, with the strongest economic contraction in the second half of 2012. The jobless rate is projected to increase to 25.1% next year.

With the cost of borrowing heading rapidly towards 7 percent and most foreign investors already shunning Spanish debt, the government will find it increasingly difficult to refinance 98 billion euros of debt and find another 52 billion euros to fund its deficit this year.

Local banks are barely lending, or offering loans at prohibitively high rates, squeezing companies and increasing the risk of a chain of bankruptcies which could send the economy into a nosedive. The banking system's total loans to the business sector were 44.6 billion euros at the end of March half of what they were at the end of the boom in 2007, and the contraction continues almost every month, according to Bank of Spain data.

Consumers are postponing big purchases and cutting back spending. Spain's soaring borrowing costs have become a national obsession since the crisis. Taxi drivers opine knowledgeably about the risk premium Spain must pay to borrow and TV news bulletins open with the latest number for la prima de riesgo.


Greece's jobless rate hit a new record in February, underlining the hardship that drove voters to reject an international bailout and plunge the country deeper into crisis in Sunday's election.

Greece's recession, one of the worst in postwar Europe, has put more than one in five people out of work.

Greeks vote again June 17 after elections on May 6 failed to produce a workable majority in parliament, as parties opposed to sticking to Greece's part of an aid agreement with the European Union won most of the votes.

Euler Hermes SA (ELE), the world's biggest credit insurer, said it will no longer cover new shipments of goods to Greece because of the risks of the nation leaving the euro currency and customers defaulting on payments.

The lack of export insurance, which pays companies if a client defaults, raises the prospect that certain goods will no longer reach Greek companies and stores.

The insurer, a unit of Allianz SE (ALV), took the decision because exporting to Greece has become significantly more risky, Paris-based Euler Hermes said in an e-mailed statement yesterday. The insurer is still working under the assumption Greece will remain in the euro zone, it said.


Unemployment in Italy has risen to 10 percent in March from 8 percent last July, while the rate among people aged under 25 rose to 36 percent from 28 percent.

The government expects the economy to contract by 1.2 percent this year.

Italy is hugely exposed to the risk of contagion from the debt turmoil in the euro zone, its prime minister said on Thursday, suggesting the European Central Bank take action to help cool borrowing costs.

Mario Monti, a respected former European commissioner who took over the premiership in November to enact tough austerity measures, expressed frustration at borrowing costs that have risen for Italy since mid-March despite a 2012 budget deficit forecast at well below the EU average.

It is obviously a difficult place to be in, when you have a country displaying massive and concentrated efforts of consolidation and structural reforms, which are obviously politically and socially costly, and sees its position threatened by huge possibilities of contagion, Monti said.

Shayne Heffernan

Shayne Heffernan oversees the management of funds for institutions and high net worth individuals.

Shayne Heffernan holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reached a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services.Read the Terms of Service