The turbulent waters of the 2008 recession seem to be calming, there is optimism in the air that maybe, just maybe, things are getting back to normal. Yet as the Eurozone crisis continues to breach the otherwise calming surface, experts warn the worst may not be over.
She describes herself as a roving gypsy, travelling the globe – giving the unaware a heads up about the economic, environmental and energy “perfect storm” coming our way.
The Canadian “gypsy” and economic analyst, Nicole Foss, on a recent visit to New Zealand, labelled the financial crisis as a perfect storm, with its complex financial fronts that have converged into today’s present crisis.
The European Union (EU) is at risk of being engulfed by the storm, as factors including international trade imbalances, high public and private debt, big real-estate bubbles, slow economic growth, governmental monetary policies and the early 2000’s easy credit conditions, encouraged high-risk lending.
Media across the globe have quoted experts saying the crisis is at a boiling point and once it overflows the implications will be felt globally – the governments of Greece, Italy, Ireland, Portugal and Spain with their huge debt to GDP ratio and huge budgetary deficits are struggling to repay debts and may be left in the dust by the richer nations such as France and Germany.
A sign of things to come
Nicole takes it one-step further saying Europe is just the sign of worse things on the horizon. It’s the tip of the iceberg and the globe is perched precariously on the edge, about to fall into a deep dark depression that will be worse and longer lasting than that of the 1930s.
Though recent reports from International Monetary Fund (IMF) chief Christine Lagarde reported a positive outlook for the economy, Nicole claims such optimism will be short-lived.
On her recent visit to New Zealand, she stated it is a question of when, not if, the Euro falls. Greece will be the first of the Eurozone dominos to fall and default, followed by Portugal, Ireland, Spain and Italy with the potential for the rest of the Eurozone to follow.
She says when the Euro falls, the face of international relations as we see it will change forever. Nicole claims we are heading into an era of de-globalization; as the economy fails things will no longer work on a large level, but on a small community level.
Not crazy talk
Though Nicole a.k.a Stoneleigh resembles somewhat the gypsy part she plays, with her stark blond windswept bob, flowing skirts and warm capes, this down to earth woman’s claims are not just wildly plucked out of the dark recesses of her mind.
Rather, they originate from an impressive list of qualifications; a degree in biology, focusing on neuroscience and psychology, a postgraduate diploma in air and water pollution control and a Masters in International Law development – there appears to be a reasonably broad knowledge base behind her speculative suspicions.
Other experts have also backed up her not-so-wild claims. The BBC’s Russel Hotten reported in 2011 that experts have long predicted the Euro’s demise. He quoted the British Labour Party MP Jack Straw who warned the United Kingdom to prepare for the Euro’s slow death.
Nicole and her travelling partner Raul “Ilargi” Meijer, first began their campaign to raise the awareness of the economic, environmental and energy storm through their website, which began in 2008, called The Automatic Earth. Two years later Nicole and Raul decided to take their work onto the road.
“There is no substitute about being there in person to motivate people to change, face to face enables us to find more opportunities,” she says. When challenged about the environmental cost of riding on so many planes, she laughs saying “you can’t tell me any one of those planes wouldn’t have taken off without me”.
In fact the cost of making and distributing a DVD would cost just as much – if not more – and would most likely be less effective.
“We are able to tailor our presentations to match the local circumstances and help people identify to our message.”
The naked emperor
“I prefer to warn people,” Nicole says. “Our focus is not academics, rather we are interpreting complexity so anyone can understand it.”
She says at present it’s like the story of the emperor with no clothes. Everyone knows it, but no-one is willing to acknowledge it until the little boy points it out. “We are that little boy,” she says. “Not just to tell people there’s a problem, but to get people prepared.”
Nicole says the governments have been papering over the cracks in the economic system for sometime now. “They are using public dollars to fill the gap between the buyer and the supplier, increasing the monetary value [for example the Greek government bonds] but in reality it is all fiction.”
She highlights how Greece is now worth so much less than all the public dollars that have gone into saving it, “But people aren’t being made aware.”
Travelling partner Raul chips in saying there was one point when Greece’s interest rates were up to 400 percent. Nicole says this compounds the problem, as rising interest rates increase the risk of default, the very thing the Eurozone is battling against.
This risk of default in turn raises interest rates, which in turn increases the risk of default. “It is all a spiral of fear, which is quickly spiralling contagion throughout all of Europe.”
Greece is the predominant face of the crisis. Many experts are saying despite its two bailouts – a combined €240bn from the EU and IMF – it may still default.
The weight of its debt may simply make it impossible for the country to grow economically, causing Greece to default from the Euro, sending the financial markets into turmoil as they try to cope with the new unchartered territory – no-one has left the Euro before.
It is certainly a terrifying situation. Nicole points out if Greece does default it will shut itself out from the world with a worthless currency, unable to trade in or out of the country.
The exact value of the Drachma will be unknown. “Its currency won’t be able to buy a single unit,” she says “You can’t do business outside of the country if your currency is not worth anything. It will end up in a civil war, there will be no jobs and there will be no money.”
And once Greece defaults, the other dominos – Portugal, Ireland, Spain and Italy won’t be far behind. The BBC’s Hutton backs Nicole’s claims saying the financial markets would take a dim view on the default and refuse to lend to Athens for years. It’s a precarious situation, one which Greece and the EU are understandably trying their best to avoid.
However, economist Mark Weisbrot says despite everyone’s dire predictions, there could be some good that could come out of a default. He says people should look to Argentina. The nation defaulted from the dollar in the early 2000s and has economically blossomed in the years since – thanks to being free from monetary policies stifling its growth – Greece could yet do the same.
The domino effect
Nicole says despite Greece taking up most of centre stage, Portugal and Ireland are not far behind – they are kept alive only by the EU and its banks who are desperately trying to save face.
Despite the second bailout, market confidence in the struggling Eurozone remains fragile, long term prospects appear weaker, influenced by an ageing population and economic restrictions. A virtual economic standstill is predicted, with weakened banks, high unemployment and low growth – not just for Europe but all across the globe.
“The Euro as a common currency is dying, we are likely to see countries defaulting, the collapse of a single currency within the year is a likelihood. When it does fall the impact will be monumental, it is not clear how quickly the dominoes will fall – but one thing is certain shockwaves will be felt throughout the world.”
The Euro is one of the currencies which dominate trading relationships, once that is gone, Nicole says no-one will have any idea of what their currency is worth or how to do business with it.
“Once the Euro dies, so too will numerous trade relations, the economy will freeze, trade-relationships break down as the level of trust disappears, trade wars will occur, credit ratings will go down – or even worse won’t exist.”
She says there is no room for complacency – the shockwaves will come and when they do they will be huge.
Globalistion is at its peak, few corners of the world are unreachable, but it all comes at a cost as already people are feeling the crunch of the Eurozone crisis.
People have watched in bated breath for Greece to be saved, not for altruistic reasons, but out of fear. John Baylis in his 2011 edition of World Politics: An introduction to Globalisation, summarises it in one succinct sentence; “The pace of economic transformation is so great a new world politics has been created, states are no longer closed, the world is more interdependent with trade and finances ever expanding”.
If Greece had defaulted, this interdependency would have meant all would have felt the cost of the default – not just Greece – as financial markets and governments tighten their hold on their wallets in response.
As the financial crisis hits its peak it is the essentials which will become the least affordable, as they are in high demand. Affordability is what is important, Nicole says. “It can cost $10,000 for a cup of coffee, but if everyone is a billionaire it doesn’t matter. It can cost five cents for a cup of coffee but if no-one has five cents it doesn’t work.”
She points out even countries that currently appear well-off such as the Netherlands and Germany will not be safe. She illustrates the case of the Netherlands. Its bank holds 150 percent of the GDP, when the bank goes it will be too big for anyone to bail out.
In addition it has a huge housing bubble; no-one is paying off mortgages, real-estate debt is blowing out of control. Once this pops people will lose the value of their property, and since no-one has money, no-one will be able to buy homes at the value they are worth.
On our shores
Nicole, who is Canadian-born, says she admires the strength of character New Zealand has a nation and as people. She says we appear to have an understanding that bad things can happen to good people.
In less than two years we were hit by the Pike River Mine disaster and shaken by the Christchurch earthquakes – yet we as a nation show resilience and tackle things as they come.
Our overall picture, though not on the edge of the cliff like Greece, is still not flash. Auckland is the sixth least affordable place in the world for the housing market compared with income. There is a huge housing bubble waiting to burst. People are in debt – thanks to the relatively low interest rates which have trapped people into big mortgages, remortgages and loans.
Nicole prophesises when the economic depression really hits the breakdown in trade relationships will hurt New Zealand. “As a nation you rely heavily on trade. New Zealand imports 97 percent of its oil, it is virtually totally dependant on the outside for oil.”
In addition, New Zealand has a “huge moat” cutting it off from the rest of the world. “Isolation creates an exaggerated period of boom and bust,” Nicole says. New Zealand may suffer more but recover quicker.
Another big problem is many of our banks are foreign-owned, so when the internationall banking system breaks up, we will be exposed to the risks associated with Europe and Australia, adding risks to our already local risk.
“New Zealand’s banking system can expect some disruption – so be prepared and do what you can to fix it.”
But on the plus side, New Zealand also has a more robust power system, and covers a land mass that is not overpopulated. It has good soil and good rain, all that we need to do now is learn how to live with the resources that we do have.
Never too early
It’s never too early to prepare. If you don’t, Nicole says, “it’s like the rug will have been pulled out from under your feet”.
Though no-one can predict exactly when the system will go belly–up it is still important to prepare, because as the near-complete financial crash in 2008 showed, it can happen in one night.
“The Euro will die,” Nicole says, “In a year or two at the most. Credit will get tighter, we won’t be able to get the same credit for homes, it will become harder to borrow dollars – it could happen this year or the next – we simply don’t know. What is known, is there is a general risk out there – but once it does happen it will take some time to get out of it.
Nicole says there are three key things that can carry you over the financial hurdle.
1. Get out of debt
Burgeoning debt is compounding the financial crisis.
How can we do this? Firstly try not to get into huge debt in the first place Nicole says. But if you’re already in debt – get rid of it. One idealistic, perhaps not realistic, idea is to use the wealth and pool it across the generations. “The older generation has a significant amount of savings sitting in the grip of the system, they could come together as a family and decide to wipe off everyone’s debt.
2. Hold liquid cash
Because the banks are at risk of a systemic failure, it is important to have cash on hand. Not thousands, otherwise you may become a target for brigands when the world does go under, but hold enough for a few months worth.
“When the bank closes its doors people will go hungry – the money will go. Having a certain percentage of something is better than 100 percent of nothing.”
3. Gain control over you own existence
It seems to be a monumental ask, considering many of us are unsure of what we are doing next week. But Nicole says it’s simple. “Grow your own food, have supplies of water, be dependant on yourself as much as possible and look to the local community.”
It’s simple (if not entirely practical for all city dwellers) advice – not just for the potential economic wobbles, but for any disaster, be they earthquakes, floods or storms.