Since November 16th 2011, I’ve been forecasting that when push comes to shove, Germany will opt to leave the Euro. At that time I wrote…
…everyone claims they want to support the EFSF… but no one wants to commit the money. Moreover, Germany’s constitution forbids the backing of Euro bonds… and the EFSF itself has failed to stage even a three billion Euro bond offering under] normal market conditions.
Again, the bailout game is ending. Under these conditions, I believe Germany and France will push to either:
1) Leave the EU
2) Draft legislation that allows countries to leave the Euro but remain in the EU
3) Propose kicking out the PIIGS from the Euro
Whichever one of these options Germany opts for, the Euro will collapse
~Private Wealth Advisory November 16 2011
Sure enough, soon after I wrote this, Germany began implementing measures to put a firewall around its financial system. I noted in this in February 2012, writing:
…Germany has put into place a contingency plan that would permit it to leave the Euro if it had to.
As a brief recap, this contingency plan consists of:
1) Legislation that would permit Germany to leave the Euro but remain a part of the EU
2) The revival of its Special Financial Market Stabilization Funds, or SoFFin for short, to which Germany has allocated 480€ billion Euros to in the case of a banking crisis (the fund will also permit German banks to dump their euro-zone government bonds if needed).
So Germany is ready to bail if it needs to. Meanwhile, on the other side of EU equation, Spain and Italy must be watching what’s happening in Greece and asking themselves whether they want to go through this whole process of negotiating for bailouts via austerity measures.
~Private Wealth Advisory February 21 2012
Now, nearly nine months after my initial forecast, this story is finally getting picked up in the mainstream media. The Economist has a fictitious cover story about Merkel pondering how to break up the Euro. And Der Spiegel notes:
Officially, though, Merkel’s line is that she wants more Europe, not less. In the chancellor’s bid to save the common currency, she is willing to go to the very limits of what is permissible under the German constitution. That was made clear by her support for the permanent euro rescue fund, the European Stability Mechanism (ESM), and her pet project, the fiscal pact. But Merkel still wants more. “We need a political union,” she recently said on German public television station ARD. “That means we have to give up further competencies to Europe, step by step, in an ongoing process.”
Talk of a Vote
But that will probably not work, given the limits of the German constitution, something that members of the opposition have been pointing out for some time. In the meantime, more and more people within the governing parties have been talking about holding a referendum in Germany on the European Union. Rainer Brüderle, the floor leader of the business-friendly Free Democrats, Merkel’s junior coalition partner, said on Friday that there could come a point “when a referendum on Europe becomes necessary.”
Horst Seehofer, head of the Christian Social Union (CSU), the Bavarian sister party to Merkel’s Christian Democratic Union (CDU), has even called for several referendums. Finance Minister Wolfgang Schäuble has also talked about holding a national vote on the EU.
Such a vote could indeed be a way to get the much needed legitimacy for a transfer of national competences to Brussels. But how would it actually work in practice? SPIEGEL ONLINE presents an overview of some possibilities.
There are three conceivable options for a referendum:
How exactly all of this will play is hard to say. The fact that we’ve seen hints of Germany leaving the Euro popping up in the mainstream media should be a BIG warning. Moreover, the Wall Street Journal recently noted that certain areas of Germany are once again accepting Deutsche Marks as legal tender.
Will Germany leave the Euro? I believe so. The country is already bordering on insolvency due to nearly €1 trillion in backdoor EU bailouts (pushing Germany’s Debt to GDP to 90%). Over 69% of Germans are worried about inflation. Angela Merkel is up for re-election next year (and has gained political points anytime she played hardball with Europe) and Germany has implemented steps to place a firewall around its financial system and passed legislation allowing it to leave the Euro if need be.
None of this adds up to Germany bailing out all of Europe. Merkel has said there will not be Eurobonds for as “long as [she] lives.” And Germany doesn’t have the €5 trillion needed to backstop the PIIGS banking deposits, let alone the deposits for all of the EU.
So if you somehow think the EU is going to work everything out, you might want to think again. Indeed, I’m already preparing my Private Wealth Advisory subscribers for the next leg down in the markets. It is precisely this kind of forward thinking and seeking out of “unquantifiable” risks and opportunities in the markets has allowed Private Wealth Advisory subscribers to lock in a 34% gain over the last 12 months (compared to an 18% gain for the S&P 500).
And we’ve done it without using options or futures, just stocks and ETFs which nearly ANY investor could buy using a discount brokerage account.
Just as importantly, we’ve accomplished this incredible return without taking on excessive risk. Indeed, we’ve only closed ONE losing trade in the last 13 months. We’re now taking steps to prepare for the collapse of Europe using these same investment themes (low risk, no leverage, high profits).
If this kind of high profit/ low risk approach to investing sounds like your cup of tea, we strongly suggest you try out a Private Wealth Advisory subscription.
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Chief Market Strategist
Phoenix Capital Research