Europe: A House of Cards, a Potemkin Village
February 21, 2013 • 10:22AM

In an article on the pros and cons on the inflation/hyperinflation issue, the Swiss daily Neue Zürcher Zeitung (NZZ) cites Charles Gave of the Hong Kong-based investment research firm GaveKal (Gave-Kaletsky) as warning (in an article headlined, "The Last Potemkin Village") that only on the surface does the European debt crisis seem to have calmed down. In reality, the entire region is one huge Potemkin Village. Behind the (not even so nice-looking) facade, southern Europe is in a deadly spiral, because the industrial basis has been destroyed in Italy, Spain, and France since the introduction of the euro.

The continuing loss in industrial output and competitiveness has been compensated for by the unabated growth of state quota and debt mountains. Whereas the production indices of these countries have fallen below the level of 1998, production in Germany has grown by one-quarter in spite of a relapse after the beginning of the financial crisis. Instead of leading to convergence, the euro project has led to the most extensive divergence. None of the measures for the fight against the crisis has changed anything in these structural problems, which are turning into the test of cohesion of the euro region, Gave says. And if the Eurozone blows apart, it will share the fate of many empires that have collapsed in history: Hyperinflation will be the consequence, the NZZ writes.

Again, it is interesting to note that the NZZ has to quote an analysis from outside Europe, to make an important point about the ailing state of Europe and of the euro system. And the picture that Gave paints of Germany, is too rosy.