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The Next Phase of the Eurozone Debt Crisis

Today (Monday), as we digest what happened in Europe, the obvious question arises: What comes next for the Eurozone debt crisis?

For starters, the heads of state coming out of the Council of Europe meeting last week pledged to have the new structure by July 9, even though the new stabilization mechanism will take longer to phase in.

For the first time, there will be a greater accountability (and control) over continent-wide commercial banking and access to some underwriting of debt coverage. It also means that national banking systems will need to relinquish some oversight to the European Central Bank (ECB).

For months, a number of people (myself included) have insisted that the solution to th e Eurozone debt crisis requires greater financial integration. The shortcoming seemed rather straightforward.

The EU had ushered in a more centralized monetary system (single currency and all that) but had no centralized fiscal system to parallel it. Simply put, that required adherence to currency rules without any ability to coordinate the credit and fiduciary end of the spectrum.

Well what came out of the Council in the early hours of Friday will not solve the debt problem in Spain , Italy , Portugal, or Greece. There is no magic short -term fix. But it might just provide the underpinnings for a credit system that may begin to operate.

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The banks are the problem right now

Eurozone Debt Crisis: EU Reaches Bailout Deal

The recent marathon session in Brussels was the EU Council's 18th meeting on the Eurozone debt crisis. As it is comprised of the heads of government from European Union members, the Council was largely thought of as a grand debating society.

Not this morning.

In what may well be the first glimmer of light at the end of the tunnel, the EU will agree to coordinate bailouts across the continent. The details are still incomplete, and there is always devil in the details.

In addition, EU members must approve the substantive plan, meaning more coming politics in parliaments from London to Warsaw.

So this is not a done deal.

Actually, until there is some flesh on the bones, we are still uncertain what the "deal" really is.

But this much we do know.

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The Eurozone Crisis is Far From Over

The Greek election last weekend has brought us a brief reprieve. The nation and the Eurozone have stepped back from the brink.

But the larger truth is that little has changed.

Yes, the Eurozone has survived its latest test, yet there is little indication where it will go from here. Considerable continental support for the common currency remains, and EU officials will soon introduce initiatives to consolidate banking and financial policy in the European Union.

Still, the problems keep mounting, and there is very little resolve to fix them.

At this point, a lot of actions (or lack of actions) could still upset the entire apple cart.

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The Eurozone Bailout: Prepare for What's Next

Q: What will happen in Europe? Greece chickens out. The G20 has its hands out and wants to have Germany's standard of living. Germany should leave the EU and preserve its economy. There is no reason it should sacrifice itself to pay for the malfeasance and incompetence of everybody else. Politicians will kick the can […]

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Eurozone Descends into a Farce as "Grexit" Looms Large

The elections on May 6 only made the Eurozone's problems even worse. The French and the Greeks have rejected sensible policies in favor of self-delusion.

Those elections, and the failure of Greece to form a government, have actually moved the Eurozone crisis one step further – from potential tragedy into a complete farce.

As investors, we can only watch horrified, knowing that a really bad outcome would seriously damage our own wealth.

But at this point, a Greek exit – or "Grexit" as it has come to be known – from the Eurozone would be the best thing that could happen.

Confusion Surrounds the "Grexit"

The Greek election produced a very confused result. But one thing was clear: the Greek electorate has decisively rejected the rescue plan the outgoing government had so painstakingly negotiated with the EU.

The previous ruling party's joint support declined to just 32% of the vote. That might be thought of as just retribution, since those parties produced Greece's appalling fiscal mess by lying for decades about the true position of Greece's public finances. (And let us not forget being abetted by Goldman Sachs in doing so).

However, the winners were not some new paragons of fiscal responsibility and free market government. They were anti-German Nazis (a peculiar combination when you think about it), communists and a truly unpleasant new leftist party, SYRIZA, led by the 37-year-old Alexis Tsipras.

SYRIZA's politics, in that one can fathom them, spell nothing but trouble.

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The Gloss is Coming Off the Eurozone

Europe, Europe, Europe…

I know, you're sick of hearing about problems in the Eurozone.

But the problem with Europe is that it won't go away. And if it does go away, we'll have even bigger problems. What a mess.

Of course, I'm talking about the Euro-currency zone and the European Union, not Europe itself.

I love Europe. I love every country in Europe. I love the different cultures. I love the different languages. I love the different societal models. I love the history of Europe.

And no doubt all the Europeans love all the same things about their Europe – except maybe some of their history.

But even more than loving Europe, Europeans love their own countries. Why? Because they have different cultures, languages, societal models, and differing views of their history. Vive la différence!

So, whose bright idea was it to gloss over (with shiny promises and, later, a shiny new currency) thousands of years of differences and shove all Europeans into a funnel in the hopes that they'd all come out the other end as one homogeneous mass of humanity?

Oh, that would be the bankers and financiers who wanted a United States of Europe so that the free flow of goods and services payable with a common currency would make everyone better off, and make themselves better, better off, by a lot of betters.

And now, what a surprise! There are differences all across Europe about, well, Europe and what it has become and where it has to go to get out of the mess it's created for itself.

How that's going to end is playing out right before our eyes.

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The Fate of the Eurozone Hangs on Sunday's French Elections

It now looks as though Nicolas Sarkozy's days are numbered. In the balance lies the fate of the Eurozone itself.

It appears Socialist Francois Hollande will win the French election runoff on Sunday and that June's legislative elections will give the Socialists a powerful position in France's parliament.

Added to these developments is the good chance that both the major existing parties in Greece's parliament, which had jointly agreed to the bailout deal, will be voted out of office on Sunday as well and replaced by a motley set of far-lefties.

So while the Eurozone has been quiet this week, the calm is deceptive with the elections on Sunday.

Meanwhile, most of the worry in the Eurozone centers on Spain – which is quite foolish.

Spain recently elected a center-right government with a large majority, which is clearing up the mess left by its predecessors. The country does have a 25% unemployment rate, but that's a function of Spanish labor law and excessive welfare payments, both of which the current government is addressing.

Spain's budget deficit is also smaller than France's, as is its debt level. In fact, Spain's debt and deficit burdens are lower than both Britain and the United States. Spain is not the issue.

Considerable Danger in the Eurozone

As for Greece, it is a shambles.

The truth is it should have been chucked out of the Eurozone two years ago, when it was first revealed that its governments had been consistently lying about its budget numbers.

Had that happened, the new drachma would have sunk to about a third of its former value, and Greek living standards would have reduced by half, all without anything but market forces to be blamed.

Now hundreds of billions of euros have been poured into the country, and its ungrateful electorate is determined to elect every nut-job it can rake up. The whole Greek rescue project has been a complete waste of time and money, and should be ended forthwith.

Fortunately, throwing Greece out of the Eurozone will not destroy the euro – after all, nobody was relying on the strength of the Greek economy in their calculations of the euro's value.

However, France is a different matter entirely.

Unlike Greece, if France gets into serious trouble, the remaining "solid" euro economies led by Germany are not big enough to save it.

And, led by Hollande, France looks to be in considerable danger.

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Why the Eurozone Debt Crisis Never Really Went Away

How many times have we been told the Eurozone debt crisis is resolved, only to have it turn up again like a bad penny?

Last year's string of good news/ bad news on the Eurozone debt crisis had the markets going up and down like a yo-yo until the routine grew so tiresome that most people stopped paying attention.

But while the crisis faded into the background, it never really went way.

Remedies that were sold as solutions haven't solved a thing.

The celebrated bailouts of countries like Portugal, Ireland, and especially Greece have served mainly to postpone real solutions that would be far more painful.

"The Eurozone politicians in their infinite wisdom have concluded that it is easier to prolong the agony than to take their medicine," said Money Morning Chief Investment strategist Keith Fitz-Gerald.

In fact, the Eurozone debt crisis is getting worse.

Collective debt among the 17 member nations is on the rise, having increased from 85.3% of GDP (gross domestic product) in 2010 to 87.2% last year. That's the highest level in the history of the Eurozone.

Unemployment in the Eurozone rose in March to 10.9%, up from 10.8% in February and 9.9% a year ago. Manufacturing also declined last month, as new orders fell for the 11th month in a row.

And the austerity imposed on the troubled PIIGS (Portugal, Ireland, Italy, Greece and Spain) to bring their budget deficits and debts under control have actually made the situation worse.

"It's done no good at all," Fitz-Gerald said of the Eurozone's efforts to deal with the debt crisis. "It's an absolute travesty."

The steep and sudden cuts in spending are pushing most of Europe back into a recession, which will eventually be felt here at home.

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The Secret System that Blew Another Hole in the Euro

This may sound arcane and boring, but I promise you it's not.

What I've learned will blow yet another hole in the already shaky euro.

It begins with Bernd Schunemann, a law professor at the Ludwig-Maximilian University in Munich. He has sued the German Bundesbank over its participation in the Eurozone "Target-2" settlements system.

Now I'll be the first to admit that yes, my eyes do glaze over when thinking about settlements systems-and I used to be a merchant banker.

But looking at the details of the case I had something of a banker's moment of clarity.

I realized that Schunemann was claiming that the settlements system had saddled German taxpayers with a potential liability of 615 billion euros, over $800 billion, in exposure to Greece, Italy, Spain and Portugal.

After all, who would have to bail out the Bundesbank if it became insolvent?

What's more, when you un-glaze your eyes and look closely, the risk is entirely unnecessary. It is yet another huge botch-up job by the EU bureaucrats.

Here's what I mean…

The Euro and the Target-2 Settlement System

The Target-2 settlement system was introduced in 2007, as a replacement for Target (Trans-European Automated Real-time Gross Settlement Express Transfer System).

The first Target was the large-scale payments system between central banks that had been introduced with the euro in 1999.

Under the system, when a Greek makes a large euro payment to a German, his Greek bank makes a payment to the Greek central bank, which in turn makes a payment to the Bundesbank. Once it reaches the German central bank, it pays the German bank, which pays the German.

For ordinary trade transactions, that's all fine and good. Greek exports to Germany are balanced with German exports to Greece.

If, however, there's a big trade imbalance between the two countries, then gradually an imbalance grows up between the central banks. As it develops, the Bank of Greece ends up owing the Bundesbank more and more money.

Even more serious is when Greek citizens rush to get their money out of Greek banks and put it in German banks. Every million euros Greek citizens remove from their banks is a million euros by which the Bundesbank increases its exposure to the Bank of Greece.

You can see how this could be big problem-especially since that's the arrangement all around the Eurozone.

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Investing in the “New China” with this Telecom Market Stock

How would you like to get in on the ground floor of the telecom market in a country I've dubbed the "New China"?

It's a country that boasts:

  • 6% annual GDP growth before, after and during and the global economic meltdown.
  • The fourth largest population on the planet. It is also one of the youngest (median age is 28).
  • A centuries-long social and economic connection to China and every strategic Southeast Asian economy.
  • Foreign Direct Investment that has grown exponentially in the teeth of the global crisis.
  • A bigger economy than the Netherlands or Turkey.

I'm talking about Indonesia.

It's a place usually found in the back of the mind of most Western investors. It only crops up if there is an earthquake, a tsunami or political unrest in a far flung province.

But the truth is, Indonesia is nestled in one of the most strategic locations on the emerging market map. It neighbors India, Malaysia, Australia and Thailand.

It also has long historical and economic ties to China.

About 3%-4% of the population is Chinese/Indonesian, and they represent a powerful but quiet voice in the Indonesian economy. That influence, which was buried for many years, is now a highly prized asset.

Investing in the "New China"

From the 1970s until recently, Chinese influence in Indonesian society was largely muted by Indonesian politicians. The Chinese language wasn't taught in schools and Chinese history was stricken from textbooks.

But things are changing rapidly.

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