Remember the good old days when China suffered the wrath of the toothless tiger of International Organizations and their worthless photo ops and selfies? The Germans are the target of the policy makers struggling to combat global financial imbalances as the German current account surplus as percentage of GDP far exceeds that of China, making the Germans the target of the world’s slings and arrows for creating such outrageous fortunes.
The fact that Christine Lagarde, a previous French finance minister, heads the IMF means that her criticisms of European growth will be directed at the progenitor of fiscal austerity: Germany. China and Japan will be happy to stay off the main stage, especially as China’s recent economic slowing will make the G-20 reticent to anger the Chinese in the sensitive time of political problems in Hong Kong. Helping to set the stage for global criticism of Germany is a piece in the London Telegraph by one of my favorites, Ambrose Evans-Pritchard, in an article titled, “France cautions Germany Not To Push Europe Too Far On Austerity.”
The thrust is of AEP‘s thought is that Germany should not push austerity too far for it will jeopardize the entire grand EU project. Pritchard quotes French P.M. Manuel Valls in warning Germany: “Be careful how you talk to the countries in the South ,and be careful how you talk to France. The adjustment has been brutal and it has tuned millions people against Europe. It is putting the European project at risk.” The French P.M. adds, “You cannot enforce the Treaty rigidly in these circumstances. The austerity policies are becoming absurd, and we have to examine the situation.”
The situation in Europe is becoming dire as economic stagnation leads to increased unemployment, a rise in NON-PERFORMING LOANS and a fear of disinflation as creditors are forced to sell the assets of overly leveraged borrowers. This is the type of liquidation scenario that forced the hand of the Bernanke Fed and also led to the passing of TARP. The fear of a Japanese-type deflation cycle will be devastating for a high unemployment European economy and becomes more problematic because the EU has no central FISCAL AUTHORITY.
The IMF Director Lagarde is French and will be pointing the finger of responsibility at the intransigence of the German authorities. The U.S. will join in the blame game as Treasury Secretary Jack Lew has repeatedly assigned responsibility for Europe’s lack of growth on the frugal habits of Germany’s citizenry. Yes, the G-20 meeting this week can be summed up by the Allman Brothers song, “Whipping Post”:
I’ve been run downI’ve been lied toI don’t know why,I let that mean woman make me a foolShe took all my moneyWrecks my new carNow she’s with one of my good time buddiesThey’re drinkin’ in some cross town barSometimes I feelSometimes I feelLike I’ve been tiedTo the whipping post