Europe’s Dangerous Game 1

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Rates on Greek debt soared to an astounding 21 percent last week. The end game on the Greek debt crisis could be near. If Greece defaults on its debt, it could trigger a domino collapse across Europe. But do the strategizers behind the euro have a secret plan that could totally reform the union?

One thing for sure is that the Greek government cannot long afford to borrow money at such high rates. It is virtually locked out of the debt market. That means that sooner or later, somebody isn’t going to get paid. In this case it mostly means big banks in France, Germany, Austria and Belgium.

The consequences could easily go global. European Central Bank executive member Jürgen Stark warned on April 23 that Europe may be about to suffer a banking crisis worse than that of 2008. It “could overshadow the effects of the Lehman bankruptcy,” he warned.

Bigger than Lehman?

According to Stark, a default by Greece would be the worst option for the eurozone. This would trigger massive and immediate government spending cuts and the inevitable social unrest that would ensue.

More critically, it could easily cause lenders to balk at loaning money to other troubled states like Ireland and Portugal—causing interest rates to soar in those countries and causing them to default too. Even Spain and Italy could be pushed over the edge, which would throw the whole eurozone into question.

If the big banks in Germany, France and elsewhere are unable to absorb their loan losses (which many probably can’t), then all bets are off. Credit markets could seize up and the world will be back where it was in 2008. A “European banking crisis is the number one monster in my worry closet,” writes Millennium Wave Advisors President John Mauldin. “The disconnect in Europe just gets worse and worse.”

According to Stark, the only solution to Europe’s debt woes is for countries like Greece to “strictly push through reform programs and repay debt in full.”

But here’s the problem, and it is a big one.

No country in history has ever avoided defaulting on its debt once it has reached 150 percent of gross domestic product. At that point, debt levels are just too high for an economy to overcome. That’s the conclusion reached by Citigroup analysts last month.

Greece’s debt-to-gdp ratio is projected to hit almost 160 percent next year. If nothing is done, Greece is almost guaranteed to default.

Knowing the ugly alternatives, there may be only one viable solution for Europe.

“The nations of Europe have been striving to become reunited. They desire a common currency, a single combined military force, a single united government. They have made a start in the Common Market. They are now working toward a common currency. Yet, on a purely political basis, they have been totally unable to unite,” wrote Herbert W. Armstrong in the January 1979 edition of the Plain Truth (emphasis mine).

What we are witnessing in Europe now may be the event that will necessitate the political union of Europe.

Ever since the fall of the Roman Empire, Europe’s strongest leaders have striven to resurrect a European-wide superstate stretching from the Baltic to the Aegean. It is a dream that has intoxicated leaders from Charlemagne and Napoleon to Adolf Hitler.

The dream has not gone away. Total union is the goal of Europe’s most powerful leaders. The current economic crisis in Europe is just the most recent tool to force the pace of union, just as the creation of the euro and eurozone was also a tool.

And it is working.

The only reason Greece has not already collapsed is because the European Union has been providing revolving short-term loans to it. That in itself is an unprecedented step toward European integration. And it has bought Europe some time to figure out what to do about its crisis countries.

However, time is running out—and a bigger crisis may be approaching.

Last month, elections in Finland brought to prominence two parties that are balking at further bailouts for Greece. They are tired of paying for the Greek mess and want the Union to pull the plug and let Greece at least partially default on its debt. The German public too is losing its appetite for bailouts, not realizing that if the rest of Europe collapses the German export juggernaut will grind to an abrupt halt too. The German chancellor may be about to lose control of her fragile coalition.

For the bailouts to continue, unanimous approval is needed from all EU nations. If they stop, and Citigroup is right, Europe might be thrust into another, possibly bigger, Lehman-style banking collapse.

But there is a solution to Europe’s debt crisis. It won’t be easy to adopt. And it means more national sovereignties will need to be signed away to the Union—especially the power of taxation. But it might preempt the domino collapse facing Europe.

The solution? A common debt market to back Europe’s common currency and interest rate regime. In other words, Europe needs a Eurobond backed by a centralized government, issued by the European Central Bank in Frankfurt, and guaranteed by taxpayers in all states of the Union.

It is the kind of solution that could only be justified by a massive crisis. Is that crisis looming?

A common debt market would be a hugely symbolic moment. Europe would issue debt in union, and back it in union (one for all—and all for one). And it would be a huge step to creating a true European superstate.

“Is this a good outcome?” asks the Financial Times’ Wolfgang Münchau. “It is the most toxic route imaginable towards a fiscal union. But it may be the only one.”

When the next euro crisis arrives, far from heralding the end of the European Union—it may actually be the exact moment needed for the powers that be to further the pan-European dream.

In fact, this is exactly what your Bible indicates will happen. As Mr. Armstrong said time and again, the Bible prophesies of a rising European superpower that will be more powerful than Russia or America.

Keep watching Europe. The euro’s founding fathers knew when they established the eurozone that it would be prone to economic crisis—but they accepted that, even looked forward to one, as a way to promote further integration. And they are sure to take advantage of it now.

But the current crisis may be even bigger than they imagined. National bankruptcies threaten. Some small nations may even be forced from the eurozone. A restructuring of the eurozone may be imminent.

It is a dangerous game that Europe is playing. And the financial carnage of a miscalculation could go global all too easily.

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