Parsing the multitude of ruminations about rating agency Standard & Poor's threat to downgrade all Eurozone members I am left wondering how this announcement comes as a surprise to many market observers while failing to see the bigger picture that was drawn so far in 2011.
Ring-fenced by exploding deficits, rocketing yields, stubbornly rising unemployment especially among the youth and a true inflation closer to 10% than official figures of three percent, the long term negative outlook for the Eurozone has not changed in the past 11 months.
This action was overdue but again serves more to highlight the deficiencies of an opaque rating process than act as a reliable guideline. After all, most of these Eurozone countries have smaller debt/GDP ratios than the USA, which passed the 100% mark this week and rises faster than EU deficits. After the announcement of future unlimited money printing through dollar swap lines from the major central banks on November 30, that propped up markets and the Euro, the downgrade announcement is the next step in keeping a volatile equilibrium during the demise of Euros and Federal Reserve banknotes against the ultimate currency of all times; gold.
Rating agencies have been most timely to paint the chart with pivot points, smoothing out spiking markets that wait desperately for the impossible: A silver bullet solution to the Eurozone's woes that stem from a decade of easy credit and the lowest interest rates in history, that produced Spanish hairdressers as second home owners/debtors on annual salaries of €12,000.
This is not going to happen. The Euro was initiated as a political goal for deeper EU integration and lacks a Treasury as guarantor like in the US monetary system. The Coming Crisis Meetings in 2012
Its destruction will begin to follow a shock and awe script as the "no more Euro core" members have yet to come to terms with the unpleasant reality that a slowdown of debt growth will not be enough to get their houses inoder again. Greece may be soon everywhere as Eurozone nations will get squeezed between the need to refinance €800 billion in government issues and the resulting higher interest rates.
Here are some expected headlines from the coming 12 months that will keep EURUSD in a rough balance while both will continue to decline against gold.
Before you now reactivate Solitaire on your screen, please keep in mind that those are only EU headlines. Global geopolitical tensions will keep markets lightfooted while new upheaval in Russia and the Middle East are destined to keep the bloated forex market running on high leverage. As in most cases of collapsing currencies it may well be an exogenous shock that brings the Euro closer to its true intrinsic value.
