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Sunday 13 July 2014

Why France is the new domino effect victim of the Eurozone collapse..

In a recent edition of there is a very interesting article about the new patient of the eurozone, France. Not a surprise for whoever read my previous blogs or understands the basics about macro-economics. France is obviously collapsing and this is not a surprise. Al least is you are not another boiling frog.. The majority of the eurozone members are currently facing situations between the "Bubble" and the "Ponzi" pattern and this proves that the collapse of the Monetary Union is much more possible, due to the continuity of the past mistakes. But, why is it so obvious, especially for France? France is currently extremely expensive, as a destination, has low productivity and offers overvalued quality in most sectors. So, the only possible way for France is to rightsize. The rule of the economy pattern is stability, growth and normality while correct measures are adopted, becoming a bubble when you fail to act effectively on time and if you still pay no attention to the problems it is converted to a Ponzi scheme and finally collapses. This is the fact and France is currently between the "Bubble" and the "Ponzi" since no correct measures are adopted.

After the the Latin Monetary Union and the Scandinavian Monetary Union break up, the Eurozone collapse is for me so obvious due to the irregularities the monetary systems create to their members. Different countries, adopting the same currency but still choose to act individually, enhancing inequalities within their borders and within their trades. The truth is that today's eurozone, instead of a single currency, still has national euro currencies "pegged" and every time each country fails to follow the rest needs to find ways to debase the national euro. As the member countries of the 19th and 20th century needed to have enough gold and silver to support their national currency and circulation and forced to leave the union the time of the shortage, today we still haven't realised that nothing has changed since then. We need a surplus to support our inner economy or we need to sell something (such as the public property) in order to find new income, the time we fail to achieve a surplus or at least a break-even point.

Cyprus had serious macro-economic problems for decades, especially due to the increase in salaries and benefits. Being "pegged" with the British pound had to keep harmonizing the local economy with the British, in order to have the British tourism and real estate investors, two of the island's most important incomes. Every time the cyprus pound was becoming expensive, for the island's major visitors, Cyprus was losing tourists and investors, forcing the country to find some ways to become more attractive again and, of course, cheaper. The cycle was doing the same round. Being cheaper, attracted more tourism, again becoming more expensive for a few years and need to follow the same patters once again. Until Cyprus entered the euro zone area and the basic rules changed. Cyprus continued to give raises to the public sector and benefits that couldn't afford in euro terms, any longer. Since the system was impossible to follow the local pound cycle, in 2013 after receiving loans that couldn't serve any longer, was forced to the bankruptcy, the haircut and the Troika memorandum. At that time, the only alternative was the return to the Cyprus pound. But, of course, it was not a serious solution since it could create the same pattern Greece followed during the Drachma period. That time, i remembered Karl Marx's statement, history repeats itself, first as tragedy, then as farce.. And within the euro area, too many farces will follow..

Greece had almost followed the same pattern, during the Drachma period. Unfortunately, Greece had higher levels of corruption and lower productivity within the past decades. Greece has a serial default problem because productivity was never positive, the public money vanished as the icebergs do and Figures were always misleading, as the Greek officials had to admit in the last years. So every few years Greece had to lower the drachma currency. The measure proved that Greece has no positive income, and continued transferring the massive debt to the people, without officially admitting it. The time Greece adopted Euro, nothing really changed but the rules, as happened in Cyprus after. Productivity remained low, corruption continued, donating even the european funding to specific people and finally Greece had to find new ways to rightsize the inner economy, remaining in the Euro area. Troika had no experience to understand what was really happening, as few years later also faced in Cyprus. The fact is that if any country has no willingness to fix the long-term internal problems, no Troika nor international institution is capable to do it. Instead of believing that Cyprus, Greece or any other country is today in austerity procedures, we have to admit that all these countries have to follow an one way road, the right-sizing procedure, away from the "Bubbles" and the "Ponzi" . Some people, in these countries, stole so much money during  the previous decades and today the rest of the population are forced to pay the bill.

So, as a general rule of economics, each country that creates or chooses a fake prosperity model, and designs a non viable environment, sooner or later needs to find ways to become attractive once again. And till that time, there is no alternative than the road to the bottom. The situation affects foreign investments to these economies, as well. The billions invested in the Cyprus banks by the Russians in the last decade and the billions invested to the Greek banks in the last two decades, by the Cypriots and the French, were transformed to billions of losses for all those foreign investors. Today Austria faces the same problem in Hungary and the story goes on since many other countries, banks and enterprises will follow. When the Cyprus and French banks entered the Greek market they did nothing to help the market become more efficient. They decided to copy the same pattern the greek banks adopted in the recent decades. High interest rates causing low or fake productivity, Bubble and Ponzi results. It was impossible to hide the truth for ever. It was impossible to keep that system live either. They kept lending the greek market with high interest rates, as they used to do in the Drachma times, enhancing inequality with the countries that adopted the real eurozone rates. That market was neither competitive nor profitable, it was converted to a bubble and then to a Ponzi, waiting for the collapse of the cycle.

Failing to harmonize the eurozone economies will continue creating bigger problems. Greek companies simply couldn't compete the German, in the long term. French markets can't compete the Italian at the moment, as well. After a few years, the current problem will be even bigger, more dangerous and definitely non viable. Returning to the local currencies is a kind of solution but not viable as well. Leaving the euro sends us back to the system that hides the problem and creates the serial default pattern of the Asian tigers and the Latin economies. The truth is that a common currency reveals and exposes the national fraud and illusions. So, as a primary rule, being in the common currency forces us to become transparent and efficient.What we hoped for European integration was a European Family where transparency and equal rights exist. What was created was a long-term party for very few organisations and banks. 

The most tragic issue is that i keep finding too many similarities between the Greek and the French administration and many other similarities between the Cyprus and the European authorities. Since we all know the current situation of Greece and  Cyprus we may easily simulate what follows for France and Europe as well.

Nicos Rafidhias (official page) is a political scientist and a corporate consultant at TANTAK Ltd (based in Cyprus). The above data are part of his upcoming PHD research for the possible collapse of the Eurozone.

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