Why Central Bank Loans Will Not Stabilize The Eurozone (Part II)

This is part two of an earlier Seeking Alpha article entitled "Why Central Bank Loans Will Not Stabilize the Eurozone."

Tomorrow (Friday the 9th) there will be yet another brave announcement from the European economic Community heralding the "saving" of the eurozone and its banks. It will laud, without much actual detail, an agreement to have the 17 euro countries submit their budgets to a central authority for approval, probably via the IMF or associated with the IMF - because of the IMF's alleged "expertise" in such matters.

If the EC cannot quickly get all 17 countries on board for the agreement, it will announce an agreement that covers all those countries who opt to participate.

Whichever way it goes, Greece, Italy and France will be enthusiastic and promise to mend their ways. No one actually thinks they will actually fix their budgets but it sounds nice - and it buys time and it gives the ECB and IMF political cover to channel even more funds to the big European banks either directly or via Greece and the other sovereign debtors.

The national leaders at the meeting will also announce the euro countries, and probably the IMF and maybe even the Federal Reserve, are increasing their deposits into the euro's existing rescue fund. The IMF will promise a lot of money - and then run again to the U.S., China, etc., and attempt to raise it. That, of course, will be difficult everywhere, except perhaps in the U.S., because the money going to the IMF, as all the IMF monies before it, will never be seen again.

All of this will be done in the name of saving the euro and keeping the euro block intact. But the real purpose is to save the handful of big European banks which made high interest loans to Greece and the other high-deficit countries knowing the loans could not possibly be repaid.

The goal of the Friday meeting and its "agreements" is to buy more time while the big European banks build up their reserves and dump their remaining Greek and other shaky sovereign debt. The banks need the time and the money because their ability to unload their shaky sovereign debt collapsed when MF Global went down and the rest of the world's hedge funds realized what was going on and stopped buying.

In the real world, the euro countries really don't care whether Greece and its tiny economy drops off the euro. What they want is to bail out their banks using as much OPM (other people's money) as possible. That's where the IMF and the Federal Reserve come in. The Europeans may even get some money from the Bank of England in exchange for letting the U.K. off the hook on some of the latest financial regulations proposed by the common market's bureaucracy in their never-ending quest for more power.

But what happens to investors when the latest injection of new money runs out and, as will almost certainly be the case, Greece and the others have not reformed their economies?

Greece and the other countries with excessive sovereign debt will certainly drop the euro, remain in the Common Market, and have their own currencies.

There will be winners and losers when this happens and careful investors should be able to find them.

One loser, after a period of fluctuations, will be gold and other "safe haven" currencies - because they will no longer be needed as a refuge and store of value.

Winners will be the investors who have euros or are euro denominated creditors - the euro is going to rise in value relative to the dollar.

Losers will be the shares of businesses in the eurozone whose exports will now be harder to sell because their products and services cost more dollars, rubles and drachma (or "greek euros").

Winners will be the shareholders of the large European banks which have been bailed out and recapitalized with money from outside the eurozone.

Another winner will be Greece and its banks and businesses. With its new currency finally allowed to depreciate Greece will have a huge upswing in tourism and capital investment inflows. Its economy will boom again.

Other winners will be the investors in U.S. businesses competing against companies located in the eurozone whose prices will rise as the euro appreciates.

Investors should anticipate, and may well profit from, excessive upward swings as optimism follows each subsequent brave statement which will be forthcoming from the Europeans in the weeks ahead, and from the excessive downward swings as the reality associated with each brave new statement sinks in.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.