As you can expect from a blog like Business Insider they had a panic header for the report that Lombard Street research has written for the influential Dutch right wing liberal party PVV about the euro: The report that will blow up the Eurozone (http://www.businessinsider.com/the-report-that-will-blow-up-the-eurozone-2012-1).
This report will be published over a few days and some parts of the report have leaked already (in Algemeen Dagblad). Will this report undermine the talks about Greece and worsen the euro crisis?
The talks about the diminishment of Greek debts with c. € 100B , increase of maturities to 30 year, lowering of interest rates to 3.6% are making progress so we read about every day. Portugal is seen almost every day as a more likely candidate for PSI and debt relief.
In the meantime the patience of Germany c. s. about non complying of Greece with deficit reduction/ tax collecting/ government spending is ending. A budget tsar from Brussels is needed that can overrule the Greek government to stop excessive spending/ not collecting enough taxes. Every new calculation shows it will become more difficult for Greece to bring back government debt/ GDP to below 120% in 2020.
What are the arguments of Charles Dumas of Lombard Street Research to make the politicians so angry about the euro that they don’t take it anymore?
1. Southern Europe needs permanently a support of 5% of their GDP, some € 150 billion, to stabilise the situation. Germany has to supply € 60B, France € 50B and the Netherlands € 15B (each year!)
2. The euro is a kind of suicide pact that only caused misery and no welfare for Germany and the Netherlands. By wage restraints the German business (and Dutch) have gained substantial market share, but the people in the street did not see anything of this. In Southern Europe the wages rose a lot more and they have profited a lot more from the euro: lower interest rates and higher government spending.
3. Joe Sixpack has since the introduction of the euro handed in thousands of euro’s of their income because of the euro adventure.
So, according to Dumas, Germany and the Netherlands should leave the Eurozone as soon as possible. The PVV will act as a good marketing instrument to sell this and together with the party that according to the polls is now the biggest party in the Netherlands, the very left wing SP there will eb almost a majority in the Netherlands to say goodbye to the euro.(It is unlikely that this will happen because other calculations showed that the euro was very profitable for the Netherlands (but only for business) and most political parties have so bad polling results they don’t want new elections, so they are in the mood to support current government). Should the Netherlands leave the euro that should mean an expensive guilder that will reduce exports a lot, softened by much higher government spending for care etc.
Business Insider is probably overestimating the power of the PVV to cause an euro crisis, but the report will influence also the german voters away from Europe.