The G-20 meeting in Mexico resulted in Chancellor Merkel being the PINATA for the other 19 guests as they beat her with the stick of moral certainty. U.S. Treasury Secretary Geithner and President Obama were adamant that it was Germany’s moral responsibility to capitulate and be the co-signer for the European Project and thus the global financial system. The onus was put on Frau Merkel to take the great leap forward and have Germany underwrite all the profligate programs of European nations.
THE QUESTION HAS TO BE ASKED: WHY DOES MERKEL HAVE TO BE THE SOBER LEADER IN A WORLD OF THOSE DRUNK ON EASY CREDIT? It is interesting that OBAMA FAILED TO LEAD ON BOWLES-SIMPSON AS IT WAS SLOUGHED OFF THAT THE DEMOCRATIC BASE WOULD NOT SUPPORT THE RESULTS OF OBAMA’S OWN COMMISSION and YET IT IS MERKEL WHO BEARS THE ONUS OF MAKING THE POLITICAL SACRIFICE? AND THE COMING U.S. FISCAL CLIFF, WHERE IS THE IMPETUS FOR LEADERSHIP FROM CONGRESSIONAL REPUBLICANS AND DEMOCRATS?
The world’s financial kingpins are all crying for Germany to lead and do the correct thing to save the global financial system, but again, there is no shared political sacrifice! The markets are all TWISTED as rumors fly about whether MERKEL WILL OPT TO SAVE THE GLOBAL CAPITALIST SYSTEM BY AGREEING TO EUROBOND FORMULA BASED ON A FISCAL UNION. As the old commercial goes: WILL SHE OR WON’T SHE, ONLY HER FINANCE MINISTER KNOWS.
It is interesting how Geithner wants others to take the political risk allowing others a free pass. George Soros has another piece in the Financial Times today, “How To Shift Germany Out Of Its ‘CAN’T DO’ MODE,” in which he tries to craft a plan for MERKEL and Germany to follow, calling for a EUROPEAN FINANCIAL AUTHORITY and BANKING UNION and delaying the need a greater political union.
Soros believes that it is paramount for Germany to accede to the demands of Italy and France for less austerity and more growth, otherwise Germany will wind up with itself as the “CENTER OF AN EMPIRE AND PUT THE PERIPHERY INTO A PERMANENTLY SUBORDINATED POSITION.” He goes on to say “THAT IS NOT WHAT MS. MERKEL OR THE MAJORITY OF GERMANS STAND FOR.” This is a problem, for too many people all think for the Germans while then letting the GERMAN GENERAL WILL SPEAK FOR ITSELF. THIS IS WHY THE MARKET IS CAUGHT IN THE CROSSFIRE OF POLITICS: A fragile global economy and the failure of politicians to lead.
***QUICK HITTER: There was a WSJ article today discussing Japanese auto makers shifting more production out of Japan because of the strong YEN. This morning in Europe and the U.S., the YEN was strong as the JAPANESE DIET moved to raise the Vat tax. The market is looking at the sales tax as being a strain of the economy … again. However, it may mean that the BOJ and MOF may move to weaken the YEN as a counter move to the INCREASED TAX TO IMPROVE THE BUDGET SITUATION. A weaker YEN would stimulate growth and may be a quid pro quo to the fiscal conservatism of some Japanese lawmakers and BOJ policymakers. Hey, how about buying some EUROBONDS IN A COORDINATED GLOBAL EFFORT?
Tags: BOJ, Chancellor Merkel, EU, Eurobonds, exports, fiscal union, G-20, George Soros, Japan, MOF, Yen
June 26, 2012 at 3:50 pm |
How fitting that Secretary Geithner and President Obama (one of “Turbo-Tax” fame, one of “I inherited this mess” fame) should couple with Emperor George to jointly put the “fault” on Frau Merkel for the troubles of the EZ. Accountability is a word not in the vocabulary of aristocracy!
June 26, 2012 at 6:48 pm |
One would think that having experienced one of the worst inflations in human history in 1923 and the resulting devastation of WWII would give Germans an insight to which other world leaders should defer. Such is the arrogance of the know-it-all USA President and his cabal that they should preach to the economically more educated German leader and people.
June 27, 2012 at 4:53 am |
Obama, Geitner , Lagarde can keep asking Merkel and the Germans to give in and fund the failed project all the like but the facts are the German constitution will not allow Germany to move to a fiscal union or anything that looks like a fiscal union. As Shauble said the other day , any further than where we are now and we need a referendum. But not only that, what happens to yields on German debt once they do agree to bailout everyone. If Bund yields were to rise substantially given the open-ended commitment the Germans have to make, Germany may lose its AAA rating, yields could rise substantially, and then Germany’s debt no longer looks so manageable. The numbers just don’t add up for Germany to make the jump into the fire.
June 27, 2012 at 7:57 am |
I think what is missing from the conversation is that Germany is already on the stove top, their pan just hasn’t flamed up yet – but it will. Martin Wolf had a pretty good piece in the FT in which he backs down from his prior beliefs on potential solutions for the crises because the leaders/voters can’t get a “politically feasible solution that offers economic workability”. He offers up some sort of middle ground that might come off as politically palatable as well as economically workable.
But at this point, unless someone would like to kindly argue otherwise, I believe (with maybe 60% confidence, not much) that Germany has more to lose in the medium/longer term by allowing the periphery to fail/drop out of the Euro than the periphery have to gain by staying in the Euro. Many of the problems I have read/heard about between the EU nations shouldn’t have requried a common currency to solve. Sure, with a common currency maybe borrowing costs are lower than they might otherwise be for some countries – but as we have seen…these same countries were able to mask/put off the economic forces (increasingly higher interest rates reflecting deteriorating economic fundamentals) such that now the pain being exacted by the market is seemingly unbearable.
Lets just say for a second that Germany really doesn’t do anything further. They have summits every 3-6 months that really solve little if anything. Eventually the point of no return will be crossed and the ultimate default scenario will actually play out. Maybe my imagination is running too wild, but I have a tough time concluding that ITALY, SPAIN, GREECE will stick with the Euro in a full out beyond 1930’s style depression – especially considering incremental losses from leaving the Euro are already minimal as they are in a full scale depression. In that scenario the German/Franco EURO will sky rocket like a whipsaw in such a fashion that VW will be calling Toyota and Honda telling them to stop bitching about JPY…as German exports are squeezed like an orange through a juicer.
What did I get wrong? This might come off as far fetched, but I think everyone would enjoy a discussion of exactly what the options are for Germany at this point, and the ramification of those options.
FT article: http://www.ft.com/intl/cms/s/0/98dc710e-beb9-11e1-8ccd-00144feabdc0.html#axzz1z050v1cg
June 28, 2012 at 4:20 am |
Danny–that discussion has taken place in this blog for 2 1/2 years but it will be time for a resummary–you make several good points and how will the politics determine the economic outcomes–that is the issue of concern