“This ends through war,” said Mr. Bass, the founder of Hayman Capital Management in Dallas. “I don’t know who’s going to fight who, but I’m fairly certain that in the next few years you will see wars erupt, and not just small ones,” he told a recent conference.
But while many investors have, like Mr. Bass, bet heavily on chaotic default in countries like Greece, three years of dogged diplomacy in Europe have so far disproved the doomsaying.
And while some popular protests have erupted into violence, notably in Greece, the mystery for many analysts is why Europeans have not fought harder against increasing job losses, social spending cuts and tax increases. Unemployment in Greece and Spain has reached 25 percent.
Mr. Bass bases his apocalyptic view on his calculation that credit market debt has reached 340 percent of global output. The world, he says, has never lived in peacetime with such a burden.
He says some societies will not withstand the social strain when trillions of dollars of debt have to be restructured, inflicting losses on millions of investors.
War in the euro zone — which Mr. Bass does not expect to survive in its present form, if at all — looks far-fetched, to put it mildly.
The European political elite demonstrated in 2012 its determination to preserve the euro. Prophecies that doom has merely been delayed could well prove yet again to be wide of the mark.
But it is reasonable to ask how much those caught in the cross-fire between creditors and debtors will stand for, as the euro’s battle for survival drags on.
Take Portugal, now into a third year of recession, where the president has asked the Constitutional Court to rule on the legality of unprecedented tax increases.
José Adelino a political scientist at Lisbon Technical University, said Portugal “got drunk on Europe” during the boom years. “Now for the first time we have the feeling that we have nowhere to go,” he said. “For 2013 the Portuguese lack a sense of mission. There is a recognition of collective powerlessness.”
In other words, with scant prospect of a swift return to growth, the risk in 2013 is less of outright conflagration in the single-currency area than of a fraying of social and political ties and an insidious erosion of hope.
Jean-Dominique Giuliani, who heads the Robert Schuman Foundation, a pro-European research institute in Paris, says difficult reforms must continue because the crisis shows no sign of going away.
“Changes will now be constant and will demand a great deal of populations, overturn societies, surprise political leaders and unsettle experts,” he said in a commentary on his group’s Web site.
Charles Robertson, chief economist at Renaissance Capital in London, is among those wondering how much more voters are prepared to sacrifice. He expects Greece to quit the euro this year and says Spain might follow by the end of 2014.
Spain has already endured one year of unemployment higher than 25 percent but will probably have to manage three more to meet the financial targets set by its international creditors.
“No economy (as far as we are aware) has ever sustained this unemployment rate and maintained a peg to a fixed exchange rate,” Mr. Robertson wrote in a report.
Most damaging of all, he said, was the absence of hope: “For households, wages are still likely to fall to boost competitiveness. Households are deleveraging and defaulting, not borrowing more to fuel consumption.”
A vibrant black market and a still-generous welfare state mean unemployment is probably sustainable at higher levels, and for longer, than ever before, Mr. Robertson acknowledged.
Article source: http://www.nytimes.com/2013/01/08/business/global/as-crisis-drags-on-a-loss-of-hope.html?partner=rss&emc=rss
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