When we will fall off? Maybe tomorrow. Events are moving so fast now that my previous blog post – drafted on Monday night but not published ’til just now – is already outdated. People have started pulling their cash out of Greek banks, which is the moment that heralds that the first stage of affairs is coming to an end and the seemingly endless game of kick-can is over.
How will things play out from here? Honestly it’s insane to guess, and I stand willing to eat humble pie in a year’s time, but…
- Money will start to flee the other Eurozone periphery countries as Greece unravels. Interest on Spanish and Portugese bonds will reach 7% and it will quickly become unaffordable for them to borrow money in the open markets, forcing them to turn to the ECB
- With German elections due, Merkel will face massive political pressure to reduce German exposure to the Euro periphery – in effect weakening the ECB at the very moment that it is (theoretically) most critical
- As Greece crumbles, the far left will gain power, and a mainstream European country will be back under extremist control for the first time in nearly 40 years.
- Greece will exit the Euro and default on its debts, sparking a firestorm of contagion as over-leveraged banks in France, Germany and the UK lose billions of what are laughably called “assets” on their balance sheets. They too will turn to the national central banks and the ECB looking for a QE handout.
- Despite this, for a while, Britain will be seen as a relative safe haven and in the short term we’ll be able to sell our own bonds at record lows and probably engage in another bout of QE. This will be temporary, and will represent the last stand of the old system.
- Merkel will be voted out of office in a popular revolt against what the German people see as the foolish commitments she made to the periphery.
- A new, more hardline approach at the ECB will come into being on the back of German elections as the Bundesbank hardens its stance against being the backstop for Europe and the German parliament is politically unable to command support for anything other.
- With nowhere to turn to for day-to-day funding, calls within Spain, Portugal and perhaps Ireland will arise for them to take the Greek path and the end of the Euro finally hoves into view – and possibly the EU itself.
- France finds itself with nowhere to turn for the “stimulus” cash it wants from the ECB and popular sentiment against the EU hardens further still.
- The backdrop to these political movements will be slumping economic performance, falling investment and the steady ratcheting up of inflation, accompanied by social unrest.
- The US won’t be able to bale us out this time as they have their own debt troubles and may yet be tempted into further misadventures in the Middle East.
- David Cameron will be a useless cunt throughout the whole jig until he is replaced by a massive papier maché nodding dog by a despairing public.
Should events unfold in anything like this order, then within a year we are likely to be facing tumult across Europe the like of which we haven’t seen since the 1930s. The hard facts are that we have seen decades of false growth on the back of lax monetarism, crony capitalism and insane government programs and this will have to be rewound. How that will be achieved beyond huge numbers of defaults is anyone’s guess. Probably at least one country will fall prey to a nationalist demagogue and the best we can hope for is that that doesn’t mean war.
In day to day terms, this means banks going bust, and massive hikes in real interest charges (not the artifically low ones from the central banks, but the rates you pay on your mortgage and credit cards) as the surviving banks scrabble to claw back what they can. Taxes will rise under the guise of emergency measures as the safe-haven status of government bonds is eroded and they too look to the citizenry.
Many assumptions about the role of the state, how it is financed and what it can achieve will be torn down. How this will leak to the surface is anyone’s guess, but benefits will be frozen at least and any number of government services will be shut: a genuine bonfire of the quangos is about the smallest thing that could happen – and the reality is likely to be much more radical.
The broader picture will be about getting less for more in every part of life – from services, to benefits to everyday goods. How long will it last? If handled expertly, a short sharp shock may last a year or two as we establish new, saner systems of government and finance. As we are actually run by clowns of the first water, maybe a decade.
On the other side of this bleak-sounding chasm will be smaller, more localised, more accountable and rational system of finance and governance. Councils with real power and held properly accountable. Responsive local companies. Staid but predictable banks. A return to mutualisation and sound principles of capital investment. If we’re doubly lucky, Chinese wage slaves will still be churning out doo-dads for us to coo over and we’ll be able to play Angry Birds while we wait for people to sort shit out.
To prepare in the meantime, buy tangible, lasting items while you can and avoid whimsically falling into long-term contracts for non-necessary services. Do not buy shares in Facebook or even Apple. Fatten up. Lose your expensive tastes and look for frugal alternatives to luxuries you’ve gotten used to. Keep hard knowledge in book format. Make sure you have some marketable skills. Keep friends, family and working networks close. Remember that zombies can be killed by a blow to the head. Hope that I’m wrong.
