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Will 2012 be the year that we see an economic collapse in Europe? Before you dismiss the title of this article as "alarmist", read the facts listed in the rest of this article first. Over the past several months, there has been an astonishing loss of confidence in the European financial system. Right now, virtually nobody wants to loan money to financially troubled nations in the EU and virtually nobody wants to lend money to major European banks. Remember, one of the primary reasons for the financial crisis of 2008 was a major credit crunch that happened here in the United States. This burgeoning credit crunch in Europe is just one element of a "perfect storm" that is rapidly coming together as we get ready to go into 2012. The signs of trouble are everywhere. All over Europe, governments are implementing austerity measures and dramatically cutting back on spending. European banks are substantially cutting back on lending as they seek to meet new capital requirements that are being imposed upon them. Meanwhile, bond yields are going through the roof all over Europe as investors lose confidence and demand much higher returns for investing in European debt. It has become clear that without a miracle happening, quite a few European nations and a significant number of European banks are not going to be able to get the funding that they need from the market in 2012. The only thing that is going to avert a complete and total financial meltdown in Europe is dramatic action, but right now European leaders are so busy squabbling with each other that a bold plan seems out of the question.
#1 Germany could rescue the rest of Europe, but that would take an unprecedented financial commitment, and the German people do not have the stomach for that.
#2 The United States could rescue Europe, but the Obama administration knows that it would be really tough to sell that to the American people during an election season.
#3 Right now, banks all over Europe are in deleveraging mode as they attempt to meet new capital-adequacy requirements by next June.
#4 European banks are overloaded with "toxic assets" that they are desperate to get rid of.
#5 Government austerity programs are now being implemented all over Europe. But government austerity programs can have very negative economic effects.
#6 The amount of debt owed by some of these European nations is so large that it is difficult to comprehend. For example, Greece, Portugal, Ireland, Italy and Spain owe the rest of the world about 3 trillion euros combined.
#7 Europe was able to bail out Greece and Ireland, but there is no way that Italy will be able to be rescued if they require a full-blown bailout.
#8 An Italian default may be closer than most people think. As the Telegraph recently reported, just to refinance existing debt, the Italian government must sell more than 30 billion euros worth of new bonds by the end of January....
#9 European nations other than just the "PIIGS" are getting into an increasing amount of trouble. For example, S&P recently slashed the credit rating of Belgium to AA.
#10 Credit downgrades are coming fast and furious all over Europe now. At this point it seems like we see a new downgrade almost every single week.
#11 The financial collapse of Hungary didn't make many headlines in the United States, but it should have.
#12 Even faith in German debt seems to be wavering. Last week, Germany had "one of its worst bond auctions ever".
#13 German banks are also starting to show signs of weakness. The other day, Moody's downgraded the ratings of 10 major German banks.
#14 As the Telegraph recently reported, the British government is now making plans based on the assumption that a collapse of the euro is only "just a matter of time"....
#15 The EFSF was supposed to help bring some stability to the situation, but the truth is that the EFSF is already a bad joke. It has been reported that the EFSF has already been forced to buy up huge numbers of its own bonds.
#16 Unfortunately, it looks like a run on the banks has already begun in Europe. The following comes from a recent article in The Economist....
#17 Confidence in European banks has been absolutely shattered and virtually nobody wants to lend them money right now.
#18 There are dozens of major European banks that are in danger of failing. The reality is that most major European banks are leveraged to the hilt and are massively exposed to sovereign debt. Before it fell in 2008, Lehman Brothers was leveraged 31 to 1. Today, major German banks are leveraged 32 to 1, and those banks are currently holding a massive amount of European sovereign debt.
#19 According to the New York Times, the economy of the EU is already projected to shrink slightly next year, and this doesn't even take into account what is going to happen in the event of a total financial collapse.
#20 There are already signs that the European economy is seriously slowing down. Industrial orders in the eurozone declined by 6.4 percent during September. That was the largest decline that we have seen since the midst of the financial crisis in 2008.
#21 Panic and fear are everywhere in Europe right now. The European Commission’s index of consumer confidence has declined for five months in a row.
#22 European leaders are really busy fighting with each other and a true consensus on how to solve the current problems seems way off at the moment.
China can’t use its $US3.2 trillion in foreign exchange reserves to “rescue” European nations and the country “has done its part” to help the region deal with its financial crisis, Vice Foreign Minister Fu Ying said.