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Stratfor VP of Analysis and European Analyst Peter Zeihan on the European debt crisis and why Greece’s crisis won’t cause the EU to collapse.
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And 1%.
While investors are again watching Europe and President Obama has again criticizing the region for not dealing with its financial problems efficiently.
-- science says that the EU can't survive with Greece as a member.
Is the vice president of analysis for -- for where He focuses on Europe and He joins me now.
That that this is a -- because of the focus really has been on whether or not.
Greece can make it without the rest of the.
Greece for all practical purposes is becoming a broken state between their debt load or lack of meaningful growth opportunities.
And really really sour geo political position this is not a state that can contribute to its own wealth so your choices are between subsidizing it and everyone else that will demand equal treatment.
We're letting them go.
-- why don't why is this -- they falling all over themselves why is Angela Merkel jeopardizing her political career wise France at this -- the ECB the EU the IMF.
How come there's so many giant players that are trying so desperately to make sure Greece phase part of this whole Euro experiment.
Because you can't let them go just yet there's about 350 billion euros state debt in Greece that is in danger.
Roughly three quarters of that is held outside of Greece elsewhere in the Euro zone.
If you kick the Greeks out today -- default on the rest of that tomorrow.
That'll trigger a cascading banking failure failure across Portugal Spain Italy and France probably roughly in that order.
And so first you have to build a safety net that can handle that sort of catastrophic damage.
You're talking you're gonna need about two trillion Euro to pull that off.
It's gonna take a few months to build up.
A few months at that -- I -- ability to not -- a lot of money.
All right so we've got a two trillion dollars that two trillion euros safety net.
How how does -- how does that play out then they get the safety net in place and then it's a okay -- -- -- -- because parents here's what I see as being a major problem.
This grand idea of this you know single currency to me was just one step -- -- ultimately uniting the entire continent and one under one government somehow today.
Get more players a comment how to get us over the northern European countries and some of smaller countries -- -- -- You wanna be a part of this experiment by the way we do is kick Greece out.
I think from an economic point of view the Euro can still be attractive thinking at some of the fundamentals right.
Germany has the lowest interest rates in Europe and being a part of that gives you market access and low capital costs that.
Are simply undeniable advantages.
Take a look at for example Portugal Spain and Ireland all of which who had mortgage rates in north of 20% before the join the eurozone now it's around two to 3%.
There are growing pains that go along -- -- of course but it's undeniable that if you drop your cost of capital -- that sort of extreme volume you can have growth options that you never had before.
The question is how much political authority are you willing to give up in order to access that sort of cap.
Appeared you had your -- printing press of yeah I don't Central Bank.
Could you dictate -- -- rates to go could you do like -- fed -- go from zero point five basis points.
It's an issue of volume you can do that for Greece that is certainly a short term option but if you do it for Greece you were also going to have to do it for Italy.
That is a one point trillion Euro debt market and the type of printing that would be necessary to make -- -- permanently liquid.
You're gonna be doing with double digit inflation -- the bare minimum.
That is not something that the Germans who remember very well what happened when they did that back during the by -- days are willing to do for anyone else.
Not in for themselves.
Every -- let's go ahead and kept how this may play out I know there's a million of one different a possible outcomes but how do you see it playing out from here.
What we've got the EFSF that's the bailout facility ratification going on right now those will be done this year.
The first quarter of next year is gonna be about going through the -- normal again in order to -- what.
Quintupled.
The size of the bailout fund that'll take at least all of the first quarter.
As soon as that is done in place they start tapping the bond market to build up that two trillion Euro.
And as soon as they've gotten about a third of the way there.
That's when Greece gets cut loose.
But there's a lot of things ignore wrong between here and there and that's the best case and what we have learned that so far unfortunately -- -- way Peter zionist reference thank you very much great insight analysis we appreciate it.
My pleasure.
Coming up new economic data out today show that the economy is still building at a very sluggish pace.
What we'll leave for the markets going forward well we ask the vet -- just minutes is gonna take a look.
