EU Sees Euro Area in Deepest Slump in 10-Year History

The economy of the 16 countries sharing the euro will shrink 1.9 percent in 2009, the Brussels-based commission said today, revising a November estimate for growth of 0.1 percent. European Central Bank President Jean-Claude Trichet today said economic prospects are “substantially” worse than the ECB predicted just last month...

Spain, the euro area’s fourth-largest economy, had its AAA sovereign credit rating removed by Standard & Poor’s today as its budget deficit swells. It was the second downgrade of a euro- region government in five days, after Greece last week

Looks like I allowed too much time in my Surprises for 2009 in that I figured it might take until mid 2009 before Trichet was hit over the head with a shovel. I've underestimated the velocity of the "oh-shit" train, but I'm still about a year in front of Bernanke and Co. (but I'm a year behind others). This shouldn't actually be listed as a surprise as the majority has been debating over when this will happen not if.

My father's brother's nephew's cousin's former roommate who works in the ECB sent me the actual video of Trichet getting hit over the head with a shovel. He was last heard saying 'Our single mandate of price stability has been achieved...'

Video Link Here

I'd like to re-post something back in the start of October. It's worth re-introducing the maastrict treaty and how this will ultimately turn the Gyro into a Hoagie.

On 05 OCTOBER 2008 POST TITLED 'EURO: Dead man walking':

A country in the eurozone can, without being in breach of the Maastricht Treaty, create a new central bank controlling the monetary policy of a new currency. This loophole in the Maastricht Treaty is not widely known

I've long felt we would see a turn in the USD once Trichet realized the deflationary forces at work. His single mandate of price stability will need to be revised in short order. Obviously the cat is out of the bag now as the Euro has broken down and out. It's this very reason the USD has shown strength despite what most call "printing" in the US. There will likely be periods of every kinds of 'flation thrown into the mix due the inevitable fiscal polices, rate cuts (taxation without representation) and stimulus packages, but the overall trend will continue to be deflation. Re-inflating the largest credit bubble in history is an IMPOSSIBILITY. Bottom line is that the amount of "printing" is far less than the money being "lost". But I digress.

The Berlin Wall

Germany will likely be the first to pull out. Germans savers have requested their money in German Euros due to concerns over the stability in the region. They've specifically started avoiding notes coming from certain other countries (Spain, Ireland, Portugal and Italy). Both Italy and Ireland can no longer bear the brunt of the high interest rates that Comrade Trichet sets and may need to pull out for that reason. The EURO is facing a serious threat and I personally think it can be partially attributed to Trichet's unwillingness look anywhere other than the rear-view mirror. With or without countries abandoning the Euro, there will be substantial rate cuts ahead due to the several economies already in a recession.

The flight from risk (EURO, etc...) is underpinning the strength of the dollar because, like the yen, the USD was used as a funding source for higher yielding currencies. Next up will be the Chinese banks. The speculative flow of hot money that went into the Chinese banking system has now "left the building". I'm not here to say there isn't uncertainty in the future or the USDbut that a lot of dollars were sold to fund the higher yielding currencies are now coming back.

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