For a few years I wrote how the EU is basically cooked. The Eurozone is in collapse and it not going to recover. This is not something I state lightly and certainly am not a doom and gloom person.
However, the EU has screwed the pooch so bad it is done.
Unfortunately, this is not an isolated case. Throughout history, we see the rise and fall of empires. This is true whether we are talking about a monarchy, nation, or city-state. The EU is mirroring history.
Another sad reality is they are not the only ones heading down this path. The EU will be the first to implode but far from the last. It is a process that will be repeated numerous times over the next couple decades.
Human history tends not to change. For centuries we mucked around with trying to eliminate the business cycle only for it to rise up and wipe out everything. The EU is going to feel this reality first.
The Cycle of an Empire
Cycles of this nature can last a long time. The United States, for example, if nearing 250 years. This is a case where we saw the timeline measure in centuries. For the EU, it is decades. Both will end up the same, as is always the situation.
The cycle these entities follow is similar.
Here is what we can call the Cycle of Empires:
People are attracted to a central gathering place, usually called cities. The appeal is low taxation along with regulation. This, in turn, helps to create jobs which leads to culture. Society forms around the assembly of people. Of course, the economic benefits are rather obvious.
As prosperity increases, governments (or the people in them) get greedy. They grow in size. In the beginning, government might only focus upon defense. In times of peace, there is little involvement. As the years pass, the reach grows. Government inserts itself into all facets of life, causing those involved to become greedy. The public sector overwhelms the private as taxation and over-regulation explode.
People adapt by leaving. This puts the economy on the downside of a Bell Curve. Without a decline in people, economic productivity follows. Governments compensate by further overreach, trying to maintain relevance.
Ultimately it all collapses. This was true for the Roman Empire. It was mirrored in the 1500s by Spain. The Brits experienced this.
Of course, there is another characteristic that is common: the defaulting on debt.
Failure to Grow the Economy
At the root of all this is the failure to grow the economy. This is what always propels a society forward.
Government gets addicted to revenue, something that cannot be broken. It is often accompanied by corruption. Here is where the "power of the state" (crown, city hall, or whatever) comes in. Basically, it can legislate theft.
Of course, the masses always seem to love this. We get a lot of rich versus poor. This has gone on for centuries. If governments were successful in creating equality, why are there still poor people?
The reality is that government only starves the economy. Argentina is a prime example. A century ago, it was the second largest economy in the Western Hemisphere. After Peron, the country is mired in the abyss.
Government does not grow the economy. If this were the case, the Soviets would have been the leading economy in the world. It was not. Even the successor, Russia is barely in the Top 10.
Getting back to the EU, it suffered from abysmal growth rates the last couple decades. Even without recession, it was in danger of going negative. Now that most agree we are going to suffer globally, the EU certainly will post some negative readings.
The challenge for the Eurozone is nobody wants it debt. The only way to fund the deficit spending is by selling sovereign bonds. When entities are buying, this is sustainable. Yet, when that stops, a train wreck is on the horizon.
This is what the EU is facing.
Right now, EU debt is ending up on the balance sheets of the European banks. This stems from the ECB taking rates negative in 2014. A side benefit to that is, not only did it blow up the bond market, it is crushing the pension funds. They require 6%-8% to be solvent.
As you can guess, negative rates means they are really underwater.
The Future
A default of EU debt is just about guaranteed. This will sent shockwaves throughout the entire global economy since most listen to the economists and their silly theories.
Once this happens, they will have to stem the growing discontent. Look for the EU to implement a Universal Basic Income to appease the citizenry. This will be framed as to the benefit of the population. Unfortunately, here is where we see the handiwork of Klaus Schwab entering.
The Europeans will have nothing but I am not sure they will be happy about it.
I look for some countries to follow Britain and to start exiting. The EURO is going to keep falling, especially against the USD. It is likely capital flow remains heading out of the country, with much of it finding its way into the US.
Those in cryptocurrency would be smart to get at least some portion of their holdings into these assets. It might be good to consider a stablecoin like HBD which can give one USD denominated exposure, even if it isn't dollars.
As stated, this is the first of a number of governments that will find themselves in this pickle. Ultimately, even the U.S. is going to suffer a similar fate since it is unlikely to change course.
We humans like to keep repeating the same mistakes.
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