The acrimony at the G-20 is more than even I expected after the preliminary round in late October. Political leaders are trying to assuage feelings and massage the message but even U.K. Prime Minister David Cameron has said this is not the G-20’s finest hour. Heated words were/are being exchanged about how to resolve global imbalances and restructure the entire global economy to prevent future imbalances from wreaking havoc on economic growth. Secretary Geithner even went to the airwaves to criticize Alan Greenspan for suggesting that the U.S. was deliberately depreciating the DOLLAR.
Sir Alan had a piece in the Financial Times Wednesday pointing an accusatory finger at the Treasury and China. Ill will is the theme of the day and more was added to it by Frau Merkel, who in a statement about the Irish BOND situation, sounded as if she was running for the Senate seat in Kentucky. While at the G-20 summit, Merkel found the time to say this about the PIIGS and their DEBT:
“Let me put it quite simply: In this regard there may be a contradiction between the interests of the financial world and the interests of the political world. We cannot keep constantly explaining to our voters … Why the taxpayer should bear the costs of certain risks and not those people who have earned a lot of money from taking those risks.”
These words from Merkel could easily have emanated from Rick Santelli, whom we admire, for this is the backbone of the TEA PARTY origination. I have been adamant throughout the year that the European situation would be very problematic when the good Bavarian Burghers grew angry about having to bail out the profligate ways of the peripherals. Merkel’s statement reveals that the domestic situation in Germany is very unsettled about EUROPEAN debt relief. As the situation in Ireland worsens, Portugal is struggling with the pain of high interest rates and today the Spanish and Italian debt markets got battered. The differentials on all of these 10-year bond spreads widened to the highest levels since the advent of the EURO in 1999.
Beside all the stress in the European credit markets, the continued finger-pointing, and blame laying, the Russians threatened retaliation at the U.S. over a high-level double agent that revealed the spy ring that U.S. officials uncovered in the spring. The markets are very nervous as so much was promised from the G-20 Sherpas going into this meeting. South Korea wanted to present a good face for the meeting’s outcome but that becomes more difficult by the hour. After the meeting adjourns and the communique is issued, the G-20 leadership will pass to French President Sarkozy, a JOIE DE VIVRE.
Tags: Angela Merkel, Bond, David Cameron, Debt, Dollar, Euro, G-20, Geithner, Germany, PIIGS, Portugal, Rick Santelli, Sarkozy, Sir Alan Greenspan, Tea Party
November 12, 2010 at 2:37 pm |
I’m German, and unfortunately had to realize that German politicians and mass media are (so far) successfully conspiring to pull the wool over said burgher’s eyes:
most citizens simply don’t know that the various bail outs, stabilization mechanisms etc. don’t serve to ‘save the Euro’, but rather the French and German banks and their managers and shareholders (in that order).
They also don’t know (yet) that the cost of these mechanisms (incl. losses incurred by the ECB on above fair value purchases of PIIGS bonds) is borne in large part by them.
I see the defining moment for the whole ‘save the European project’- exercise, when the burghers finally cotton on and resolve to kick out any politician throwing more money into the bottomless pit of the profligate European periphery, instead of using it to improve the lives of German taxpayers.
That moment may not be far away.
November 12, 2010 at 4:42 pm |
Johannes Heine—thanks so much for the high quality comment.I agree with you and am not German but have followed this for 16 years –since KOHL pushed the people of germany into full monetary union—your words are appreciated and I will be watching and writing more.I read the Spiegel pieces in English so I follow best as I can.Are you a relative of Heinrich ?????
November 12, 2010 at 5:17 pm |
Alas, Heinrich is not a relative.
November 13, 2010 at 11:02 am |
PS
The situation of the German political leadership is really schizophrenic:
At the same time they have to appear
a)
supportive of (read generous to) the PIIGS, in order to avoid a total meltdown of first the latter’s bonds, followed by the European stock markets in general (especially the big banks) and the Euro;
b)
tough to the PIIGS, superficially in order to protect the German taxpayers/voters, but most importantly to pacify the German constitutional court, whose decision on the legality of the whole bail out construct is still pending and who seems to have drawn a clear line in the sand as to where the limits of constitutionality lie – it appears we have reached them.
That’s why one day in Seoul Merkel says that holders of PIIG bonds have to share the pain, and the next that this only means after 2013 – if ever.
But this game on its last legs as important elections for German regional parliaments are coming up in March 2011 (Sachsen-Anhalt, Rheinland-Pfalz and most importantly Baden-Wuerttemberg) and Merkel surely remembers the recent elections in Nordrhein-Westfalen, were she got a thumping and lost her majority in the German upper house.
So I suspect that over the coming weeks/months we’ll watch the German position tilt increasingly towards a).
If not, Merkel’s party will likely suffer another defeat in March, which will almost certainly lead to a much tougher German stance towards the PIIGS, inevitably followed by the overdue reevaluation of their bonds and general mayhem in the markets.
IMHO it’s just a matter of when, not if.
Time will tell.
Best,
Johannes
November 13, 2010 at 11:04 am |
PPS
correction:
“…we’ll watch the German position tilt increasingly towards b)”
November 13, 2010 at 6:58 pm |
Johannes thanks for that correction because I was going to raise that issue that it has to be “b”—good points and then thanks for your input.It is important to hear from European readers as they are the boots on the ground
November 15, 2010 at 2:40 am |
I agree with you guys… a good sentence: “Bernanke has proven that he is more a college professor and less a trader, which will cost the world dearly.” John R. Taylor, Jr., Chief Investment Officer, FX Concepts