The euro has been on a steep decline since the European Central Bank announced its loose monetary policy in December. Since the start of 2015, it has lost more than 14 percent.

Source: European Central Bank

One of the factors affecting the euro, is the looming possibility Greece may again fall into a sovereign debt crisis and possibly leave the Eurozone, which would send the currency sinking even further.

“The European Central Bank launched its €1.1 trillion bond-buying program on Monday. The program will pump new money into the economy via central banks buying sovereign bonds in order to jumpstart the EU economy and steer clear of deflation. Inflation is hovering close to zero and nowhere near the ECB’s 2 percent target,” RT reports.

It is worth noting that,  for the time being, the ECB program will not help Greece.

“The purchases are not supposed to take place for countries still receiving bailout funds from the EU. Greece’s existing bailout program was just extended by four months to the end of June.

The ECB could accept junk-rated Greek bonds. But it would have to be satisfied the country is meeting the terms of the bailout. It clearly isn’t yet,” CNN Money reports.

“Are we on the verge of an unprecedented global currency crisis?  On Tuesday, the euro briefly fell below $1.07 for the first time in almost a dozen years.  And the U.S. dollar continues to surge against almost every other major global currency.  The U.S. dollar index has now risen an astounding 23 percent in just the last eight months.  That is the fastest pace that the U.S. dollar has risen since 1981,” Michael Snyder said last Tuesday. [The Last, Great Run For The U.S. Dollar, The Death Of The Euro, And 74 Trillion In Currency Derivatives At Risk – OpEd]

ETFs: FXE, EZU, FEZ, HEDJ, GREK

Euro to US Dollar Index 3Y Performance (Source: StockCharts)

By Bruce Morley

The implications of a deal not being struck and Greece leaving the eurozone would be huge – for the country itself, the eurozone as a whole and countries outside it. Just the increasing prospect of a Greek exit affects international financial markets, especially the foreign exchange markets.

Studies show

A number of studies have shown that the increase in the probability of a euro member leaving causes a fall in the currency’s value and an increase in its perceived riskiness. This has implications for investment and trade in the eurozone, as increased exchange rate volatility can inhibit trade and therefore economic growth.

So an increase in the chances of Greece exiting the euro will only accelerate the drop in the euro’s value and its volatility. If Greece were to exit the euro, then in the short term these effects would probably be exacerbated, affecting not just the euro, but the entire euro based financial system.

A number of studies have concentrated on the implications of eurozone instability on the value of the euro. Economist Stefan Eichler, for example, found strong evidence that the euro only depreciates when the risk for the sovereign states increases. Risks within the banking system do not significantly affect the currency’s value. Cho-Hoi Hui and Tsz-Kin Chung found similar results showing that instability in the eurozone area was harmful to the value of the euro and, more worryingly, also caused exchange rate volatility to increase.

Not all bad

The depreciation of the euro does have its upsides. A weaker euro can be potentially beneficial to the eurozone economy, especially as it is currently suffering from deflation. Exchange rate depreciation tends to induce inflation, which can be harmful if excessive, but this is not the case in the eurozone.

A weaker euro also increases the competitiveness of the region’s exports, which as a result causes them to rise in value and encourages economic growth. This in turn could go some way to increasing tax revenues for the eurozone and solving the budget deficits.

A deeper problem

The problem goes back further than the latest Greek election. The eurozone first entered a crisis towards the end of 2008, as a result of the financial crisis, which exposed high levels of European debt. This sent financial markets into chaos and left the eurozone in a precarious position. Greece was particularly badly affected and the prospect of a Grexit was first raised in 2010 before the country was bailed out to the tune of €45 billion.

Governments and central banks alike have gone to great lengths to control things. As well as multi-billion dollar bailouts, the European Central Bank (ECB) announced it would be the lender of last resort for government bonds and also introduced the Outright Monetary Transaction programme, which allows it to buy sovereign debts if needed. Most recently, the ECB announced it would start quantitative easing, buying €60 billion of bonds a month, hoping that this might encourage economic growth.

Despite these policies, the crisis is far from over and little progress has been made in addressing the fundamental and structural problems hindering the eurozone. This has added to the current problems in Greece and the increase in the likelihood of a Greek exit.

This recent crisis highlights the need for greater fiscal integration within the Monetary Union. Many economists, including Alan Greenspan (former head of the US Federal Reserve), have gone as far to say that a fiscal union should be formed in order to prevent future crises and that even this may not be enough as a political union could also be required.

Without some form of fiscal or political union, the single currency area will always remain vulnerable to the consequences of asymmetric shocks and macro-economic imbalances, which in turn will potentially affect the Euro exchange rate. Further fiscal integration will reduce the likelihood of future crises and would provide a platform for co-ordinated and quick responses to any future problems. It would also reduce the incentives for countries to live beyond their means and accumulate unsustainable levels of debts.

Bruce Morley is a lecturer in Economics at University of Bath

Courtesy of The Conversation UK, © 2015 The Conversation Trust

ETFs: GREK, FXE, EZU, FEZ, HEDJ

By Bergljot Bjørnson Barkbu, S. Pelin Berkmen, and Hanni Schölermann

In fact, the decline in investment has been much more drastic than in other financial crises; and is more in line with the most severe of these crises (see Chart 1). The October 2014 World Economic Outlook showed that many governments cut investment because their finances became strained during the crisis. In addition, housing investment collapsed in some countries, reflecting a natural scaling back after an unsustainable boom. But what is holding back private non-residential investment?

In an IMF Working Paper, we have looked at the driving factors of private non-residential investment in seven euro area countries – Germany, France, Spain, Italy, Ireland, Portugal and Greece – and the euro area as a whole until 2013. We find that low growth is definitely a big part of the story. But crisis legacies, such as high corporate leverage, financial constraints, and policy uncertainty are also holding back investment in some countries.

A vicious “Catch 22”

Much of the dip in investment since the crisis can be explained by low or negative growth. Effectively, this creates a “Catch 22”: growth is weak partly because investment is low, but investment is low because companies don’t have sufficient demand for their products. The shortfall in investment dims both short- and medium-term prospects for the euro area. Countries need higher investment to raise demand now, increase the productive capacity of their economies, and secure permanently higher incomes. Yet, without higher demand, firms are unwilling to invest.

This is particularly true for Spain, where changes in real GDP explain the variation in investment well.  But in many euro area countries, investment has declined by more than suggested by the changes in output since the beginning of the euro area debt crisis.

… reinforced by crisis legacies 

So what other factors are at work? In some countries, investment is too low because of high corporate debt, policy uncertainty, and borrowing constraints.

Uncertainty makes firms more wary about investing in future capacity, and has been an important factor holding back investment in several of the countries, such as Spain, Italy, Greece, and Ireland, as well as in the euro area as a whole.

Similarly, higher indebtedness impairs firms’ credit worthiness and ability to borrow and invest, reducing investment in Portugal, Italy and France, particularly during stressed periods.

A very difficult borrowing environment, especially access to bank finance is also impeding investment in Italy and Portugal. On the other hand, some firms finance investment by their own cash streams, with higher cash inflows associated with more investment in Spain and Germany.

The significance of these other factors in explaining investment in some countries since 2010 becomes clearest when comparing the cumulative difference between the predicted and the actual level of investment, i.e., the unexplained shortfall in investment.

While the cumulative difference between investment predicted by output changes alone and its actual level ranges between  3 and 6 percent of GDP, this shortfall narrows to ½ -2 percent of GDP when taking into account the other factors mentioned above, such as uncertainty, indebtedness, borrowing costs, cash buffers, and financial constraints. (see Chart 2).

In Italy and Portugal, for example, the unexplained shortfall in investment thus declines from about 6 percent of GDP to less than 1 percent of GDP.

What does this imply for policy? First, investment should pick up as the recovery strengthens. As outlined in the last year’s staff report on the euro area, continued accommodative monetary policy and the use of available fiscal space at the national level should help support investment by raising current demand.

But demand support is not enough to stimulate investment. Our analysis confirms that corporate indebtedness impedes investment and that dealing with the debt overhang and high non-performing loans should be a priority. Firms also need better access to capital, and at a lower cost. Completing the banking union and building a capital markets union would increase the prospects of  boosting investment.

In addition to making financial intermediation more effective, more flexible labor and product markets and reforms to improve the business environment would also raise investment by raising growth expectations. Overall, a comprehensive policy effort would reduce policy uncertainty, revive the animal spirits, and contribute to a sustained recovery in investment.

Courtesy of IMF

ETFs: FXE, EZU, FEZ, EWG, EWQ, EWP, EWI, EIRL, PGAL, GREK

By Neil Wilson

One thing I’ve noticed about the European Central Bank (ECB) is that it likes to publish woolly worded documents and then brief its preferred interpretation of them to those who hang around in the lobby. Those then get written up and disseminated to become The Truth in the classic repeated assertion fashion by people who like to get paid and no doubt wined and dined, but not think too much.

Thus the ECB acts in a political fashion as the politically independent entity it is within the European Union.

But it is not legally independent. It is governed by statute and the treaty and importantly subject to the control and jurisdiction of the National Courts within each member state (ECSB Statute Article 35) and the European Court of Justice.

There is a provision within the Treaty (Article 340) that states: “the European Central Bank shall, in accordance with the general principles common to the laws of the Member States, make good any damage caused by it or by its servants in the performance of their duties.”

So we come to the thorny issue of Emergency Liquidity Assistance (ELA) and the rules governing it. There is no lender of last resort function delegated to the ECB within the ECSB Statute, and that means that function is delegated to the National Central Banks (ECSB Article 14.4).

The preferred interpretation of the rules put out by the ECB is that the National Central Bank has to ask for permission before issuing ELA. That is not how the rules are written. Lender of last resort is a National Central Bank competency and  “Such functions shall be performed on the liability of national central banks and shall not be regarded as being part of the functions of the ECSB”.

So when handing out ELA that is not something the ECB has any say over. What it does have say over is whether such an action interferes with the ‘Objectives and Tasks of the ECSB’. So what the ECB asks for in this instance is data so that the governing council can decide if things are being interfered with.

Providing that data however is a bureaucratic nightmare, so the rules provide an option to the National Central Bank to allow it to ask the ECB for ELA clearance. It has to refer itself to the governing council to ask for that clearance. What the clearance does is absolve the National Central Bank of the requirement to report ELA transactions until the value exceeds the determined amount.

So the ECB can only direct the National Central Bank to stop making ELA payments if it finds, by vote of the council, that the action would be in breach of the ‘objectives and tasks of the ECSB’. Of course if they do that then they collapse the payment system in that member state. Yet Article 3.1 of the ECSB statute states that one of the ‘basic tasks’ of the ECSB is ‘to promote the smooth operation of the payment system’.

It is not within the jurisdiction of the ECB to complain if commercial banks decide to purchase forms of government debt on the open market, or if a national central bank managing those commercial banks considers such debt to be perfectly sound for the purposes of its local operations even if the ECB doesn’t for supranational purposes. Those are commercial decisions made by those entities.

IANAL, however I would submit that should the governing council of the ECB decide to withdraw ELA from any member state they are in breach of their duties under the statute of the ECSB and therefore liable for any damage caused to the member state. And they can be sued for that in the national court of the member state concerned.

This article was originally published in the independent online magazine 3spoken.

This work is licensed under a Creative Commons Attribution-NonCommercial 3.0 Unported License.

ETFs: GREK, FXE, EZU, FEZ, HEDJ

]]> /2015/02/19/could-greece-sue-the-ecb/feed/ 0 Scales Justice etfalpha Scales Justice Creative Commons License /2015/02/17/greece-rejects-bailout-deal-deadline-to-avoid-financial-chaos-in-europe-is-march-1st-oped/ /2015/02/17/greece-rejects-bailout-deal-deadline-to-avoid-financial-chaos-in-europe-is-march-1st-oped/#comments Tue, 17 Feb 2015 13:30:04 +0000 /?p=6219 Continue reading →]]> Europe is on the verge of a horrifying financial meltdown, and there are only a few short weeks left to avert total disaster.

By Michael Snyder

On Monday, talks that were supposed to bring about yet another temporary “resolution” to the Greek debt crisis completely fell apart.  The new Greek government has entirely rejected the idea of a six month extension of the current bailout.  The Greeks want a new deal which would enable them to implement the promises that have been made to the voters.  But that is not going to fly with the Germans, among others.  They expect the Greeks to fulfill the obligations that were agreed to previously.  The two sides are not even in the same ballpark at this point, and things are starting to get very personal.  It is no secret that the new Greek government does not like the Germans, and the Germans are not particularly fond of the Greeks at this point.  But unless they can find a way to work out a deal, things could get quite messy very rapidly.  The Greek government has about three weeks of cash left, and any changes to the current bailout arrangement would have to be approved by parliaments all over Europe by March 1st.  And the stakes are incredibly high.  If there is no deal, we could see a Greek debt default, Greece could be forced to leave the eurozone and go back to the drachma, the euro could collapse to all time lows, all the banks all over Europe that are exposed to Greek government debt could be faced with absolutely massive losses, and the 26 trillion dollars in derivatives that are directly tied to the value of the euro could start to unravel.  In essence, if things go badly this could be enough to push us into a global financial crisis.

On Monday, eurozone officials tried to get the Greeks to extend the current bailout package for six months with the current austerity provisions in place.  Greek government officials responded by saying that “those who bring this back are wasting their time” and that those negotiating on behalf of the eurozone are being “unreasonable”…

A Greek government official said that a draft text presented to eurozone finance ministers meeting in Brussels on Monday spoke of Greece extending its current bailout package and as such was “unreasonable” and would not be accepted.

Without specifying who put forward the text to the meeting chaired by Dutch Finance Minister Jeroen Dijsselbloem, the official said: “Some people’s insistence on the Greek government implementing the bailout is unreasonable and cannot be accepted.”

Most observers have speculated that the new Greek government would give in to the demands of the rest of the eurozone when push came to shove.

But these new Greek politicians are a different breed.  They are not establishment lackeys.  Rather, they are very principled radicals, and they are not about to be pushed around.  I certainly do not agree with their politics, but I admire the fact that they are willing to stand up for what they believe.  That is a very rare thing these days.

On Monday, Greek finance minister Yanis Varoufakis shared the following in the New York Times…

I am often asked: What if the only way you can secure funding is to cross your red lines and accept measures that you consider to be part of the problem, rather than of its solution? Faithful to the principle that I have no right to bluff, my answer is: The lines that we have presented as red will not be crossed.

Does that sound like a man that is going to back down to you?

Meanwhile, the other side continues to dig in as well.

Just consider the words of the German finance minister…

Wolfgang Schaeuble, the German finance minister, accused the Greek government of “behaving irresponsibly” by threatening to tear up agreements made with the eurozone in return for access to the loans which are all that stand between Greece and financial collapse.

“It seems like we have no results so far. I’m quite skeptical. The Greek government has not moved, apparently,” he said.

“As long as the Greek government doesn’t want a program, I don’t have to think about options.”

Global financial markets are still acting as if they fully expect a deal to get done eventually.

I am not so sure.

And without a doubt, time is running short.  As I mentioned above, something has got to be finalized by March 1st.  The following comes from the Wall Street Journal…

Any changes to the content or expiration date of Greece’s existing €240 billion ($273 billion) bailout have to be decided by Friday, to give national parliaments in Germany, Finland and the Netherlands enough time to approve them before the end of the month. Without such a deal, Greece will be on its own on March 1, cut loose from the rescue loans from the eurozone and the International Monetary Fund that have sustained it for almost five years.

So what happens if there is no deal and Greece is forced to leave the eurozone?

Below, I have shared an excerpt from an article that details what Capital Economics believes would happen in the event of a “Grexit”…

• The drachma would be back. The euro would be effectively abandoned, and Greece would return to the drachma, its previous currency (it might take a new name). The drachma would likely tumble in value against the euro as soon as it was issued, and how much the government could print quickly would be a big issue.
• It would have to be fast, with capital controls. There would be people trying to pull their money out of Greece’s banks en masse. The Greek government would have to make that illegal pretty quickly. The European Central Bank drew up Grexit plans in 2012, and might be dusting them off now.
• European life support for Greek banks would be withdrawn. Greek banks can currently access emergency liquidity assistance from the ECB, which would be removed if Greece left the euro.
• Likely unrest and disorder. Barclays expects that this sudden economic collapse would “aggravate social unrest”, and notes that historically similar moves have caused a 45-85% devaluation of the currency. Capital Economics suggests that the drop could be more mild, closer to 20%, and Oxford Economics says 30%.
• Greece would resume economic policymaking. Greece’s central bank would probably start doing its own QE programme, and the government would likely return to running deficits, no longer restrained by bailout rules (though investors would probably want large returns, given the risk of another default).
• Inflation would spike immediately, but both Capital Economics and Oxford Economics say that should be temporary. It might look a bit like Russia this year — with the new currency in freefall until it finds its level against the euro, prices inside Greece would rise at dramatic speed. The inflation might be temporary, however, because with unemployment above 20%, Greece has plenty of spare labour slack to produce more.

That certainly does not sound good.

And once Greece leaves, everyone would be wondering who is next, because there are quite a few other deeply financially troubled nations in the eurozone.

David Stockman believes that Spain is a prime candidate…

In spite of the “recovery” in Spain, close to 24% are still unemployed. That statistic explains Pessimism in the Streets.

The crisis is here to stay according to significant majority of Spaniards. The general perception is that the current situation in which the country is negative and far from getting better, can only stay stagnant or even worse.

A Metroscopia poll published in El País makes it clear that the Spanish are unhappy with the current state of the country. Five out of six (83%) see the economic situation as “bad”, while more than half of the remaining perceive “regular”.

Right now, Europe is already teetering on the brink of an economic depression.

If this Greek debt crisis is not resolved, it could set in motion a chain of events which could start collapsing financial institutions all over Europe.

Yes, we have been here before and a deal has always emerged in the end.

But this time is different.  This time very idealistic radicals are running things in Greece, and the “old guard” in Europe has no intention of giving in to them.

So let’s watch and see how this game of “chicken” plays out.

I have a feeling that it is not going to end well.

The statements, views, and opinions expressed in this article are solely those of the author and do not necessarily represent those of EMerging Equity.

Courtesy of The Economic Collapse, Copyright © 2015 The Economic Collapse

ETFs: GREK, FXE, EZU, FEZ, HEDJ

The most unreported story in the Greek negotiation is the unknown impact of the derivatives contracts that underlie the economic system. What banks have exposure? Who is the primary U.S. regulator dealing with the banks that have Greek derivatives exposure? How inner connected is that exposure and what are the trigger points that could ignite another issue similar to the 2008 derivatives crash?

In a Wall Street Unfiltered podcast released today, U.N. sovereign debt expert and Executive Director of Jubilee USA Eric LeCompte reveals behind the scenes discussions regarding concern over the lack of transparency in the unregulated derivatives contracts behind the Greek economy.

Connections to a shadowy world of finance found in Greek derivatives and debt forgiveness

Pointing to what has recently become a “problem” in Greece and even a point that is obstructing Greece from getting debt relief – debt forgiveness is said to trigger a technical derivatives default, but no one knows for sure because the issue is non transparent – LeCompte said the derivatives have “connections to a more shadowy world of finance. Generally most governments in the world express concern with how it operates.”

Read more from ValueWalk

This material is reproduced with the prior written consent of ValueWalk.  Please visit ValueWalk at http://www.valuewalk.com

ETFs: GREK, FXE, EZU, FEZ, HEDJ

Panos Kammenos, the Greek Defence Minister, suggested that his country is willing to consider different options. He indicated that Greece could look for help outside of the Eurozone.

On Tuesday, during one of the Greek television shows, Kammenos said “What we want is a deal. But if there is no deal and if we see that Germany remains rigid and wants to blow apart Europe, then we have the obligation to go to Plan B. Plan B is to get funding from another source“. As potential candidate countries to help with funding he indicated the United States, Russia and China.

The Eurozone has shown no willingness to ease its requirement with respect of further austerity measures and economic reforms. On Wednesday last week the European Central Bank (ECB) announced that it would no longer accept Greek government bonds and government-guaranteed debt as collateral [Euro Bankers Kick Syriza In The Face – The Latest Assault On Greek Democracy – OpEd].

Mr Panos Kammenos is the leader of Independent Greeks, an anti-bailout party that is the coalition partner of the radical left Syriza party.

ETFs: GREK, FXE, EZU, FEZ, HEDJ

By Mark Weisbrot

Although Greece would still be eligible for other, emergency lending from the Central Bank, the immediate effect of the announcement was to raise Greek borrowing costs and squeeze its banks, and to increase financial market instability within Greece.

We should be clear about what this means. The ECB’s move was completely unnecessary, and it was done some weeks before any decision had to be made. It looks very much like a deliberate attempt to undermine the new government. They are trying to force the government to abandon its promises to the Greek electorate, and to follow the IMF program that its predecessors signed on to.

Clarity is important here because the European authorities, or the troika, as they are commonly called, plunged the eurozone into at least two additional years of unnecessary recession that began in 2011 because they were playing a similar game of chicken. The ECB, for its part, deliberately and repeatedly allowed the eurozone to go the brink of financial meltdown during this period. It was not because the financial markets had the power to collapse the euro when they pushed the yield on the 10-year sovereign bonds of Italy and Spain to unsustainable levels in the range of 7 percent. It was because the ECB deliberately allowed these market actors to create an existential crisis for the euro, in order to force concessions from the governments of Spain, Italy, Greece, Portugal, and Ireland.

These concessions were not just about paying off debt but also “structural reforms” that sought to remake the European welfare state in the weaker countries, including shrinking the size of the state; cutting spending on health care, pensions, and unemployment compensation; and changing labor laws that favored workers.

The European authorities were willing to take great risks in order to force these changes, and as is now widely recognized by most economists, their macroeconomic policies added additional years of unnecessary recession and mass unemployment (currently at 11.5 percent, more than twice that of the United States).

If we understand this recent history, we can see clearly what they are doing to Greece right now. The main difference is that, since the ECB reversed course and made a firm commitment to the survival of the euro in July of 2012, the blows that they are dealing to the Greek economy are much more contained. The yields on Italian and Spanish bonds have risen a bit since Syriza was elected but are still very low — 1.58 percent for Italy, and 1.47 percent for Spain.

The ECB could also stabilize Greek bond yields at low levels, but instead it chose this week to go to the opposite extreme — and I mean extreme — to promote a run on bank deposits, tank the Greek stock market, and drive up Greek borrowing costs.

Syriza’s leadership, headed by Prime Minister Alexis Tsipras and Finance Minister Yanis Varoufakis, are playing it smart. They responded to the ECB’s assault without animosity or denunciations. They are not going to voluntarily leave the euro or even suggest the possibility. Like the peaceful protesters of the U.S. civil rights movement in the 1960s, they are facing down the police dogs and fire hoses with courage and equanimity.

They want the world to know who is the aggressor here and who is being reasonable. This is important because we are witnessing a political battle for democracy in Europe, and the outcome of this chapter will be partly decided by what the troika can get away with politically. Much noise is made about German voters opposing concessions to the Greeks, but this is only possible because the whole fight has been misrepresented to them for years. The European authorities transferred massive amounts of debt from reckless private lenders to EU governments (including Germany) and at the same time increased Greece’s debt load from 115 percent to more than 170 percent of GDP by shrinking the Greek economy at a rate comparable to the worst of the U.S. Great Depression. Most Europeans, including Germans, would not blame the Greek people for the resulting unpayable debt if they understood what really happened.

The troika should be happy with what they have already “accomplished.” The Greek state has been shrunk by 19 percent of its labor force. Six years of depression and a 25-percent decline in living standards (actually much greater than that if you count the decline in imports) should discourage any European country from ever reaching the terrifying predicament of having to borrow from the punishers at the troika. The economic adjustment has been done: The country is running a primary (not including interest payments) budget surplus and a current account surplus.

Syriza has backed off from its initial demand that Greece’s debt stock be reduced and is offering reasonable proposals to allow them the fiscal space to be able to recover (i.e., a primary budget surplus of 1 to 2 percent of GDP rather than 4 to 5 percent under the troika’s program). After six years of depression, that is hardly too much to ask. Nor is reversing some of the worst abuses such as the minimum wage cuts.

The ECB should be ashamed of its latest assault on Greek democracy. And they should not be able to get away with disguising it as anything less than that.

Mark Weisbrot is co-director of the Center for Economic and Policy Research, in Washington, D.C. He is also president of Just Foreign Policy. 

This article originally appeared on Huffington Post.

The statements, views, and opinions expressed in this article are solely those of the author and do not necessarily represent those of EMerging Equity.

This article was originally published on Counterpunch

Copyright © Counterpunch

ETFs: GREK, FXE, EZU, FEZ, HEDJ

By Sputnik News

Gold prices rose on Monday, February 9 recovering from an almost three-week slide, triggered by both shrinking European share indexes and growing concerns regarding the Greek economy.

Spot gold rose by 0.4 percent reaching $1,238.46 per ounce after it slid to $1,228.25 on Friday, February 6, hit by a strong US dollar after solid US jobs data was reported. Experts point out that gold’s volatility could have been caused by numerous issues, including US interest rate hike talks as well as concerns over the future of Greece and its austerity policies. It is believed that gold prices will fluctuate for the next few weeks.

European equities could come under tremendous pressure both on Wall Street and in Asia, media reports say, citing China’s poor trade data and rising worries over its economic growth rate. At the same time, the US dollar also lost some of its gains won on February 6.

The rise in gold bullion was bolstered by increased physical gold purchases in China on the eve of its Lunar New Year holiday, February 19-20, experts note. Chinese gold buyers traditionally boost the gold market ahead of the holiday. So far, Chinese premiums mounted to $4-$5 an ounce on Monday with the highest volumes traded on the Shanghai Gold Exchange this week.

Meanwhile, spot silver rose by 1.3 percent to $16.89 an ounce, and palladium remains at $779.50 an ounce. Platinum dropped 0.9 percent to $1,209 an ounce.

Courtesy of Sputnik, © 2015 Sputnik

ETFs: GLD, GDX, GREK, FXE, EZU, FEZ, HEDJ

By Michael Snyder

This is the month when the future of the eurozone will be decided.  This week, Greek leaders will meet with European officials to discuss what comes next for Greece.  The new prime minister of Greece, Alexis Tsipras, has already stated that he will not accept an extension of the current bailout.  Officials from other eurozone countries have already said that they expect Greece to fully honor the terms of the current agreement.  So basically we are watching a giant game of financial “chicken” play out over in Europe, and a showdown is looming.  Adding to the drama is the fact that the Greek government is rapidly running out of money.  According to the Wall Street Journal, Greece is “on course to run out of money within weeks if it doesn’t gain access to additional funds, effectively daring Germany and its other European creditors to let it fail and stumble out of the euro.”  We have witnessed other moments of crisis for Greece before, but things are very different this time because the new Greek government is being run by radical leftists that based their entire campaign on ending the austerity that has been imposed on Greece by the rest of Europe.  If they buckle under the demands of the European financial lords, their credibility will be gone and Syriza will essentially be finished in Greek politics.  But if they don’t compromise, Greece could be forced to leave the eurozone and we could potentially be facing the equivalent of “financial armageddon” in Europe.  If nobody flinches, the eurozone will fall to pieces, the euro will collapse and trillions upon trillions of dollars in derivatives will be in jeopardy.

According to the Bank for International Settlements, 26.45 trillion dollars in currency derivatives are directly tied to the value of the euro.

Let that number sink in for a moment.

To give you some perspective, keep in mind that the U.S. government spends a total of less than 4 trillion dollars a year.

The entire U.S. national debt is just a bit above 18 trillion dollars.

So 26 trillion dollars is an amount of money that is almost unimaginable.  And of course those are just the derivatives that are directly tied to the euro.  Overall, the total global derivatives bubble is more than 700 trillion dollars in size.

Over the past couple of decades, the global financial system has been transformed into the biggest casino in the history of the planet.  And when things are stable, the computer algorithms used by the big banks work quite well and they make enormous amounts of money.  But when unexpected things happen and markets go haywire, the financial institutions that gamble on derivatives can lose massive quantities of money very rapidly.  We saw this in 2008, and we could be on the verge of seeing this happen again.

If no agreement can be reached and Greece does leave the eurozone, the euro is going to fall off a cliff.

When that happens, someone out there is going to lose an extraordinary amount of money.

And just like in 2008, when the big financial institutions start to fail that will plunge the entire planet into another major financial crisis.

So at the moment, it is absolutely imperative that Greece and the rest of the eurozone find some common ground.

Unfortunately, that may not happen.  The new prime minister of Greece certainly does not sound like he is in a compromising mood…

Greece’s new leftist prime minister, Alexis Tsipras, said on Sunday he would not accept an extension to Greece’s current bailout, setting up a clash with EU leaders – who want him to do just that – at a summit on Thursday.

Tsipras also pledged his government would heal the “wounds” of austerity, sticking to campaign pledges of giving free food and electricity to those who had suffered, and reinstating civil servants who had been fired as part of bailout austerity conditions.

Prior to the summit on Thursday, eurozone finance ministers are going to get together on Wednesday to discuss what they should do.  If these two meetings don’t go well this week, we could be looking at big trouble right around the corner.  In fact, Greece is being warned that they only have until February 16th to apply for an extension of the current bailout…

Euro zone finance ministers will discuss how to proceed with financial support for Athens at a special session next Wednesday ahead of the first summit of EU leaders with the new Greek prime minister, Alexis Tsipras, the following day.

However, the chairman of the finance ministers said the following meeting of the Eurogroup on Feb. 16 would be Greece’s last chance to apply for a bailout extension because some euro zone countries would need to consult their parliaments.

“Time will become very short if they (Greece) don’t ask for an extension (by then),” said Jeroen Dijsselbloem.

The current bailout for Greece expires on Feb 28. Without it the country will not get financing or debt relief from its lenders and has little hope of financing itself in the markets.

And as I mentioned above, the Greek government is quickly running out of money.

Most analysts believe that because of the enormous stakes that one side or the other will give in at some point.

But what if that does not happen?

Personally, I believe that the eurozone is doomed in the configuration that we see it today, and that it is just a matter of time before it breaks up.

And I am far from alone.  For example, just check out what former Fed chairman Alan Greenspan is saying…

Mr Greenspan, chairman of the Federal Reserve from 1987 to 2006, said: “I believe [Greece] will eventually leave. I don’t think it helps them or the rest of the eurozone – it is just a matter of time before everyone recognizes that parting is the best strategy.

“The problem is that there there is no way that I can conceive of the euro of continuing, unless and until all of the members of eurozone become politically integrated – actually even just fiscally integrated won’t do it.”

The Greeks are using all of this to their advantage.  They know that if they leave it could break apart the entire monetary union.  So this gives them a tremendous amount of leverage.  Greek Finance Minister Yanis Varoufakis has even gone so far as to compare the eurozone to a house of cards…

“The euro is fragile, it’s like building a castle of cards, if you take out the Greek card the others will collapse.” Varoufakis said according to an Italian transcript of the interview released by RAI ahead of broadcast.

The euro zone faces a risk of fragmentation and “de-construction” unless it faces up to the fact that Greece, and not only Greece, is unable to pay back its debt under the current terms, Varoufakis said.

“I would warn anyone who is considering strategically amputating Greece from Europe because this is very dangerous,” he said. “Who will be next after us? Portugal? What will happen when Italy discovers it is impossible to remain inside the straitjacket of austerity?”

After all this time and after so many bailouts, we have finally reached a day of reckoning.

There is a very real possibility that Greece could leave the eurozone in just a matter of months, and the elite know this.

That is why they are getting prepared for that eventuality.  The following is from a recent Wall Street Journal report…

The U.K. government is stepping up contingency planning to prepare for a possible Greek exit from the eurozone and the market instability such a move would create, U.K. Treasury chief George Osborne said on Sunday.

A spokeswoman for the Treasury declined comment on the details of the contingency planning.

The U.K. government has said the standoff between Greece’s new anti-austerity government and the eurozone is increasing the risks to the global and U.K. economy.

“That’s why I’m going tomorrow to the G-20 [Group of 20] to encourage our partners to resolve this crisis. It’s why we’re stepping up the contingency planning here at home,” Mr. Osborne told the BBC in an interview. “We have got to make sure we don’t, at this critical time when Britain is also facing a critical choice, add to the instability abroad with instability at home.”

And if Greece does leave, it will cause panic throughout global financial markets as everyone wonders who is next.

Italy, Spain and Portugal are all in a similar position.  Every one of them could rapidly become “the next Greece”.

But of even greater concern is what a “Grexit” would do to the euro.  If the euro falls below parity with the U.S. dollar, the derivatives losses are going to be absolutely mind blowing.  And coupled with the collapse of the price of oil, we could be looking at some extreme financial instability in the not too distant future.

When big banks collapse, they don’t do it overnight.  But we often learn about it in a single moment.

Just remember Lehman Brothers.  Their problems developed over an extended period of time, but we only learned the full extent of their difficulties on one very disturbing day in 2008, and that day changed the world.

As you read this, big financial troubles are brewing in the background.  At some point, they are going to come to the surface.  When they do, the entire planet is going to be shocked.

The statements, views, and opinions expressed in this article are solely those of the author and do not necessarily represent those of EMerging Equity.

Courtesy of The Economic Collapse, Copyright © 2015 The Economic Collapse

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