Tag Archives: Sovereign Debt

An orderly leap into Chaos?

It is a timing thing

When the Euro zone Debt driven financial crises – yes, it has been dragging on for a little while now; lurching from one convulsion to the next tremor – is headline news across most traditional newspapers in Britain, it is worth pausing briefly to consider the overall ‘management efforts’ of the European leadership and senior bureaucratic establishment and the potential outcomes.

€2 commemorative coin Euro Zone 2007 50th Anni...
€2 commemorative coin Euro Zone 2007 50th Anniversary of the Signature of the Treaty of Rome Français : Pièce commémorative de 2 euros de la Zone Euro en 2007 pour le 50e anniversaire de la signature du Traité de Rome (Photo credit: Wikipedia)

The interesting point to observe today is the development of the crises from one of ‘consolidated rhetoric’ to save the Euro zone and Euro project, to a slow and it now seems inevitable conclusion that certain ‘none performing’ members will have to leave the Euro monetary union. This ‘orderly exit’ is now overdue because the political will, fiscal consolidation and Euro zone wide risk sharing necessary to ensure continued membership, on an equal footing, has been and is being rejected by the electorate as incumbent political leaders and governments stumble and fall as each political reflection point at the ballot box looms.

What is not being openly discussed?

What is currently not part of the popular discourse is the fact that the risk has moved on from a political, credit and market risk to one of a social or socio-economic dimension.  Because ‘austerity proper‘ has not yet begun to bite and embed itself firmly in the economies of most European countries, as part of the process of climbing the stairway on the upward leg of addressing the mountain of sovereign debt built up over the last few years, nobody has really, except for Greece (and a blip in August 2011 in Britain), had to deal with large-scale and continued civil unrest.  Yet, this is exactly the scenario we need to prepare for as a few conversations we have been having with analysts and pundits has openly started raising this spectre as another risk factor to add to the volatile cocktail we are already expected to swallow.

The next step?

Graphic "When Greece falls" presente...
Graphic “When Greece falls” presented by Dutch government on 21 June 2011, speaking of European sovereign debt crisis (Photo credit: Wikipedia)

Is a full-scale exit by the weaker Euro zone nation states on the cards and the possibility of a wholesale devaluation of the Euro? Well, that depends on where the financial and fiscal power and discipline lies and we believe that most observers of the European Debt Crisis known the instinctive answer to that question…

A final thought is to start preparing yourself for debates and contingency planning around a disorderly exist by weaker Euro zone members.  And have large-scale civil unrest as part of the scenarios you need to consider…

theMarketSoul ©2012

The Roman denarius was debased over time.
The Roman denarius was debased over time. (Photo credit: Wikipedia)

Our Lessons from 2011

 

We decided to summarise our learning from 2011 into two brief thoughts:

 

The May 1, 2010 cover of the Economist newspap...
Image via Wikipedia
  1. The pains and strains of the economic sovereign debt melt-down in 2011, should stand us in good stead to deal with even more debt and sovereign strain in 2012, as More and Bigger Europe continue to miss the point; this being that more bureaucracy and more government and regulation will not get the INNOVATION engine started again to Recapitalise Europe!

    Graphic "When Greece falls" presente...
    Image via Wikipedia
  2. Translational differences will matter.  The CLOUD is a huge business and business model transformation opportunity.  IT ‘Geekery’ and language could scupper this potential opportunity and we need to develop more ‘CLOUD TRANSLATION’ services so that a broader community and eco-system can get involved in an aspect of “INNOVATION ignition” in 2012.
Clouds over Tahoe HDR #1
Image by Bill Strong via Flickr

All the best and good luck in 2012.

 

theMarketSoul ©2011

Recapitalising Europe

Forget about recapitalising the French Banks, saving Greece, (or the Euro)….

Euro Dominoes

Continuing our conversation on Innovation

Yes, we admit it! The headline statement above is all about grabbing your attention.  We are not advocating any disorderly default crises.

What we believe is that the ‘agricultural’ economic base and the semi-integration of Europe, via market and monetary union, without going the full circle of political and fiscal union as well, has at this point failed.

Not that a major concerted (and concentrated) effort to ensure it does not fail will end in failure itself.  But has anyone really asked the question:  At what financial cost?

If an US Treasury Secretary, Timothy Greitner, has to take the unprecedented step of flying across the Atlantic to come and join a European Union Finance Ministers meeting, then something big must be on the cards!

Is he going to come and tell Germany and France in person to just let Greece go?

This reminds us of a stanza from Felix Dennis’ poem “How to Get Rich” about timing:

“Good timing? To win it
You gotta be in it.
Just never be late
To quit or cut bait.

This might just as well be the message for Europe:  How not to get Poor.  The key words are “Never be late to quit or cut bait”.

What we believe is happening behind the scenes is the planning for an orderly default mechanism and Euro ‘disbanding’.

The more Angela Merckel’s resolve hardens around saving the Euro, the less we believe Europeans themselves are warming to this concept.

 So what about Innovation then?

We started this article with the intention of continuing our conversation on Innovation.

So, what we mean by Recapitalising Europe actually is related to addressing the culture of decay that has enveloped Europeover the last few decades.  If Europe is referred to as the ‘Sick Man’, then there must be something behind that statement.

And we believe that it is the general lack of support for invigorating Europe that is a key driver.

What do you mean, we hear you ask?

In the quest to unite Europe, we have built a framework of a European parliament, a Council of Europe, a judicial system, etc.

With these institutions have come regulation, rules and edicts.  Sometimes messy, sometimes helpful.  But at this juncture, we are so overrun by nonsensical regulation that the will and spirit to be creative and innovative has drained away from the general citizenry.

This is a very, very sad state of affairs.  The young European citizens have lost their ‘psychological contract’ with the wider Europe and European integration goal.  High rates of youth unemployment across Europe is breeding a generation of disengaged European citizens and ultimately is an opportunity and efficiency waste in the medium term.

But how do we Recapitalise a spirit of Innovation in Europe?

This is a key question we are going to ask of our network and as part of our general ‘outreach series’ and report back on our progress towards establishing an Innovation Framework for Recapitalising Europe.

Please ‘tune-in’ again soon for a status and progress up date.

theMarketSoul ©2011

I blame John Maynard Keynes (JMK)

Ever since the Great Depression and JMK’s ‘The General Theory of Employment, Interest and Money (1936)‘, have we had more intense government interference and hence taxation in most advanced economies.  Thank you JMK.

But seriously, how much is too much?  There must be value in controlling fiscal policy, monetary policy and (social) employment policy, but is this being done in an integrated fashion and with ‘value maximising’ principles?

We at theMarketSoul Limited believe this not to be the case.

We prefer to take a leaf out of Joseph Schumpeter’s book and view the economic cycle as either short (1 – 2 years), medium (around a decade) and long-term (many decades).

The trouble with any form of economic analysis is that taking any temperature readings during any specific cycle is just that – A temperature reading.  Meaningless without being set in its proper context. We generally have a major problem in identifying where we are in any given long-term cycle.

It is only with hindsight and the historical perspective that we can truly determine where we were and where we thought we were heading.

It is our belief that we are (still) in the midst of a major paradigm shift, triggered by the innovation wave of the ICT revolution over the last 20 years.

We still have not fully grasped the consequences and full extent of this ‘drift’ to a new equilibrium.

As one of the unintended consequences we are currently facing up to a sovereign Debt balloon and are desperately trying to determine when we will encounter ‘Peak Debt’.

One of the popular libertarian ideals is to cut government’s stake as a percentage of total output of GDP.  We endorse this view, but it appears that at the end of the day (because we have forgotten what Laissez faire looks like); we’ll still need someone to keep the lights on, adjust the interest rates and collect our taxes.  All this in the name of job creation

theMarketSoul ©2011