As the markets are settling into the holiday mood of eggnog and the decorating of Tannenbaums, Germany’s EU partners were castigating Berlin for its continued emphasis on fiscal austerity. The ECB’s chief-economist and executive board member Peter Praet was maintaining that ECB policy would be accommodative for a very long time. This was a shot fired at Bundesbank President Jens Weidmann. Make no mistake about it, Mr. Praet was speaking on behalf of President Draghi who didn’t enjoy being “bested” by Weidmann at the December 3 meeting. The German “block” had raised its concern about more QE and prevented Draghi from delivering what he had previously promised.
In an interview with the Financial Times, Italian Prime Minister Matteo Renzi openly criticized the German establishment for pressing fiscal austerity on so many states within the EU. Renzi maintains that it is the rules on austerity that is causing so much election uncertainty throughout Europe. (Most recently, of course, is the rise of the National Front in France and Podemos in Spain.) In the FT article Renzi claims that Italy has earned the right to attack Germany and the EU because Italy has played by the rules laid out by Brussels. “Whether Mr. Renzi ‘s call for new EU economic policies–and an end to German hegemony–will be heeded remains to be seen.”
The combination of Praet’s efforts to undermine Bundesbank President Weidmann and Italian PM Renzi’s very public criticism of the German establishment provides an early look to the great divisions within Europe. The pushback from the German citizens to Chancellor Merkel’s policy on refugees is providing an opening for alternative political voices within the German Republic. The ECB of financially repressing the Bavarian Burghers will provide additional angst for anti-Merkel political action. In 2016, the entire EU project is going to be tested as is the ECB and Draghi. Those who see calm and stability also believe in Santa Claus.
***Also, the IMF is back in the news. Greek Prime Minister Alexis Tsipras has called for the IMF to stay OUT OF THE THIRD GREEK BAILOUT. The Greeks think it is easier to deal with the EU COMMISSION rather than with the intransigence of IMF negotiators. The Germans want the IMF to remain involved so they can carry the burden of being the BAD COP. IMF officials are demanding more pension cuts, which Tsipras is loath to undertake for domestic political reasons. As the FT article says, “Mr. Tsipras’s assertion is likely to anger the German government, which has always insisted that the IMF stay on board. Berlin values the fund’s technical expertise as much as it doubts the European Commission’s resolve.”
The other news involving the IMF, the U.S. Congress finally approved the changes to the voting restructure of the IMF by giving rising emerging market powers a larger quota and say in the IMF’s affairs. Money was also allocated to provide the IMF with more financial firepower. The changing of the weighted vote is a positive but the greater funding is a HUGE MISTAKE. The IMF has enough financial strength if it would find a way to utilize its GOLD HOARD. If the IMF would leverage its GOLD into a type of bond derivative the FUND would vastly increase its financial might. It’s amazing that a Keynesian institution clings to its GOLD like Charlton Heston to his rifle. Christine Lagarde, monetize the gold by changing the IMF rules. In the age of derivatives it is amazing that the IMF and others are back to 1944.
Tags: Alexis Tsipras, Angela Merkel, Christine Lagarde, ECB, Germany, Gold, Greece, IMF, Italy, Jens Weidmann, Mario Draghi, Matteo Renzi, Peter Praet
December 23, 2015 at 2:04 am |
Good one about Charlton Heston!
December 23, 2015 at 4:00 am |
Hey Yra
and so we enter into the Santa Claus rally with the refrain Tina Tina Tina in our ears. Nicely summarized by the way but who would have expected anything different.
As to the IMF gold issue, did you REALLY think the alchemists ever went away? All they did is change the approach to utilize the large hadron collider ( just got an upgrade) and I would expect the announcement soon that they can turn crumpets into gold. I have a team watching the emails over there so I can short the crap out of /gc 🙂
I’m off to chinatown for my xmas snack and to get the real story on our chums in Beijing
have a happy break and see you in the new year.
the american limey.
December 23, 2015 at 4:51 am |
Limey—your Jewish friends have influenced your Xmas dining habits and you will probably follow it up with a movie.Thanks for all your input and most importantly The Nerds of Wall Street—-Merry Christmas and a Healthy,Happy New Year
December 23, 2015 at 9:15 am
Yep
christmas as usual in the limey household 🙂 thanks to YOU for reinvigoUrating my interest in macro economics, you really helped me out. Nerds on wall street is a great warning to the new bugs ( BACKWARD looking), basically almost every mistake we ever made. The rotten heart of europe, however, is FORWARD looking to the disaster we can trade, so you win 🙂
have a happy break, I’m off now shaking my head as my short /ES is taking a pounding by the santa proles.
hugs
the american limeys
December 23, 2015 at 4:02 am |
Yra-Derivatives (in your case gold derivatives) is to that market as fractional banking is to money lending. It increases the fire power of the holder of the underlying asset.
In the case of gold there are estimates that its derivatives (paper gold) is anywhere up to 300 times the underlying bullion asset. Physical gold has been flowing for some time now from west to east. Some believe that the paper manifestation have been used to suppress the free market price of that commodity to allow the QE to save a debt burdened structure. If enough holders of the paper demand delivery, it will be the equivalent of a run on the bank.,
Time will tell if derivatives are the explosive element that will ultimately deal the death blow to our over- sophisticated markets where products are produced by the bankers (think CDS 10 years ago) that will hang them on their own petard.
December 23, 2015 at 4:49 am |
Asherz–i am not suggesting a crazy leveraging but as you cite some leverage on a small,fractional type of reserve basis–nothing Goldman like .Just a small number,no larger then 5X ,which would find huge buyers and carry a low interest rate or maybe a floating rate and we can call them GARDSUMS–in ‘honor’ of Larry and Christine
December 23, 2015 at 8:56 am |
Yra- Bless you for being so trusting the good sense of the financial elites in Brussels. 5 to 1 leverage? Give Draghi a new source of funds to do whatever it takes and the sky is the limit.
December 23, 2015 at 9:09 am |
i meant the IMF–the ecb is another story
December 23, 2015 at 9:39 am |
The IMF in 2015 seems to be in a good place. But if we get the next 2008 will restraint be broken, especially if the Germans get steamrollered by the likes of Renzi or Summers in a time of desperation?
The 2009 bailouts should never happened or at the most lasting for one year. Bank bond and shareholders should have taken the brunt of the pain with depositors guaranteed by the governments, instead of taxpayers. 7 years later the same failed strategy continues (forget about the one and done.)
And the band played on.
December 23, 2015 at 12:46 pm |
2060 resistance
She’s a “Bad Girlfriend” (Theory of a Dead Man) market day.