Beryl Blobby gets ready to burst into song

Great Collapse rolls on, but EU still looks favourite for Crash2 catalyst

Asian shares slid last night after something of a rout in the West on Friday; and European futures look well down. Today is Labor Day in the States, which could be a very good (no panic) or very bad (no positive Fed response) thing. As we’ve seen, the Greek bailout is in a shambolic state for three reasons: the Greeks are behind schedule, the troika/Denmark et al can’t reach agreement with Athens on the next lot of loan costs or collateral, and this Wednesday the German Bundestag’s supreme court will deliver a verdict as to whether EU bailouts are legal in the first place.

If the Court rules them illegal, I’ll eat my hat naked in Trafalgar Square. But it will probably ask for more of an MP/People role in the decisions. This too will slow things down, and disappoint the markets.  However, just in case Angela Merkel was in any doubt as to what Helmut und Helga in dem strasse think, local election results yesterday made it abundantly clear.

Merkel’s Party the CDU dropped its vote share by 20% in the north-eastern state of Mecklenburg-Western Pomerania, whereas the opposition Social Democrats (SPD) won 50% more votes than the CDU. Merkel’s Coalition partner the FDP was wiped out, having scored under 5% of the vote. If these results hold firm in 2013, Frau Merkel will be out of a job. FDP leaders have already called the result “a complete disaster for us”, which is refreshingly off the fence about it. If their National MPs decide to distance themselves now from Merkel (and I would if I was them) then Geli could be jobless by next month.

Meanwhile, over in Italy the Economy Minister Giulio Tremonti promised on Sunday Italy would meet its budget commitments. This came  after the European Central Bank gave the Italians a major poke in the ribs about it over the weekend. Things aren’t going well for the Berlusconi cuts programme, mainly because past fibbing about the problem is (as the Slog predicted over a year ago) coming to light as regulators pore over the books. Berlusconi is also facing huge opposition from every quarter to the austerity, and a huge loss of faith in the bond markets. Just to help matters a little, word reaches me that the ECB itself is severely split over how many more bonds the central banks should buy.

And not that it matters in the greater scheme of inevitability, but this Friday Greece finds out how successful its bond swap strategy for private creditors has been. This scam sorry scheme is designed to cut its 340 billion euro outstanding debt. It might, but nowhere near enough. Greece is a corpse into which blinkered liars have been pumping formaldehyde for six months now.

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The eurozone is heading at an accelerating pace towards catastrophe – that much is obvious. But the German election results raise an intriguing possibility: that an SPD/Green Coalition (both did well yesterday) could emerge from 2013. Both Parties would push very hard for a United States of Europe remodelled once the implosion has finally happened. The old Guard SPD character and former German chancellor Gerhard Schroeder yesterday called for the creation of a “USE”, saying the bloc needed a common government with a unified budget policy to avoid future economic crises. Schroeder, a Social Democrat who was Chancellor from 1998 to 2005, said EU member states would have to return to the negotiating table and hammer out a new treaty covering the bloc’s ‘institutional framework’.

This would, of course, give the UK one last chance to make its influence count. If a ‘new institutional framework’ covered things like firing 100,000 bureaucrats, cancelling the CAP forever, and reducing Britain’s contribution by 80%, one could just about make a case for being in it….at an exchange rate of, say, 3 euros to the Pound. Camerlot haven’t got the brains or foresight to achieve any of this, and the French would never accept it: but it’s nice to dream. Even if an EU run by socialists and Greens would more a nightmare than a dream. Instead of USE, we could call it USELESS.

Equally likely, of course, is that the Berlin-to-Brussels axis of torpor will destroy the whole thing before 2013…possibly at enormous theoretical cost to the Bundesrepublik – which would then almost certain welch on that bill under pressure from the electorate. At that point, a lurch to the Left in Germany feels very unlikely. Frau Merkel may yet broker a deal – in the context of global debt forgiveness – that leaves her country sitting pretty, and pretty much in charge. But it’s hard as yet to see how.

What none of this will change is market sentiment towards the euro. More than three quarters of my contacts in the US, eurozone and London see the euro in its current form as a goner. One in three think the EU per se is doomed.

And finally, plucky Slovakia is holding out against any increase in the EU’s EFSF stability fund. This too is very unlikely to play well in the counting houses and on the dealing floors, and although the Slovaks will be bribed to give in, that will take time. If you see an obese lady singing falsetto in the streets of Berlin this week, don’t be surprised. It might even be Angela Merkel.

Related: Why Bank of America could be the first to go.   Cameron steps in to save the Bankers’ secrets.