Eurozone; What's Really Happening?

Greece underwent a major debt crisis in 2010 which required the European Union (EU) to intervene with debt relief and prevent sovereign default of an EU member state while simultaneously the Greek government activated austerity programs which in turn incited national social unrest. There was massive fear worldwide that financial “contagion” was going to spread throughout EU member states and across the Atlantic to the U.S. shores.

Thus, first it was Greece then it was Ireland which needed to be bailed out in the EU. Many observers see a trend as well as rising tide of potential sovereign debt and default in Portugal-Ireland-Italy-Greece-Spain (PIIGS). Some say this can extend to France, UK, Germany and other EU member countries.

Day-by-day contagion from European sovereign debt crises is fast-spreading and the EU fund which has been established in mid-2010 may not be sufficient to provide required liquidity. If there is major liquidation of EU banking system, then it may lead to a potential Euro collapse which may in turn lead to >30% devaluation in order to support various EU member state currencies.

Similar to the U.S. scenario, there is a systemic EU currency problem based on poor fiscal and financial policies along with underlying culprits; in the words of Warren Buffet, “weapons of mass financial destruction”; 1) Over Leveraging; 2) Over-The-Counter (OTC) derivatives; 3) Credit Default Swaps (CDS) and; 4) Collateralized Debt Obligations (CDOs).

Austerity programs have been tried in Greece, however, civil unrest prevailed due to curtailment in social entitlements and sparked immediate public outrage. UK had launched, under the Cameron government, similar course with its own austerity programs. Sarkozy of France lost his re-election campaign based on his unacceptable policies.

It remains to be seen what will be the effect as the EU enters a crucial stage in its recovery plans.