Notes From Underground: Merkel Doesn’t Approve of Macron’s Package

It seems this would be a good headline for the New York tabloids if any mainstream U.S. media outlets actually paid attention to what took place in Europe. Again, EU leaders failed to agree on a large fiscal stimulus backed by a common funding mechanism, or as George Soros and others recommended, a perpetual EUROBOND of at least a TRILLION EUROS or more. The Germans and their running dogs fail to acknowledge that the collapse of the European financial system if the Italians choose the “nuclear option” and say CIAO to the EURO the cost will far exceed any amount being discussed.

In a PROJECT SYNDICATE piece written by former Greek finance minister Yanis Varoufakis (“Solidarity Is Not What Europe Needs”), the bane of Brussels makes the case for eurobonds not being a benevolent act but one of the German and Dutch self-interest. Varoufakis said:

“Dutch and German savers need to recognize that their savings would be much, much lower had indebted Italians, Greeks and Spaniards not shared the euro with them. After all, it is southern deficits that keep the euro’s exchange rate low enough for Germany and the Netherlands to maintain their net exports. Eurobonds’ merit thus has nothing to do with solidarity. By shifting debt from deficit countries a strong Union and, in the process, shrinking total eurozone debt [thanks to the lower long-term interest rates implied by the EU’s greater creditworthiness], Eurobonds would would keep a country like Italy in the euro–thereby preventing Dutch and German savings from vanishing.”

This is a more tactful way of saying that the current situation in the EU is untenable and if not resolved will end in CRASHING the entire global financial system. Thursday’s failure (yet again) to acknowledge the inevitable should be met with concerted action by the FED and BOJ through a massive program of purchasing EUROS, especially if it sends the DOLLAR lower. The FED is still failing to alleviate the GLOBAL DOLLAR SHORTFALL as emerging market currencies continue to WEAKEN against the greenback. MEXICO, SOUTH AFRICA, BRAZIL, TURKEY … the BRICS are turning into straw.

Europe’s failure continues to put upward pressure on the DOLLAR at the detriment of the global financial system. If Treasury Secretary Steve Mnuchin and Fed Chairman Jerome Powell had forward vision they would be  threatening to drive the EURO higher in an effort to get Europe to move forward in alleviating the debt overhang creating problems for the future of the currency.

Otherwise, it is time for ECB President Christine Lagarde to call into question about the euro’s future. And watch the German, Dutch, Austrian  and French banks go into financial STASIS as the rapid rise in yields in Italian bonds creates massive losses for the banks and even the ECB.

***I recorded a podcast with Daniel Lacalle on Wednesday morning moderated by Richard Bonugli of the Financial Repression Authority. Enjoy it with a libation and get ready for potential trades and investments as the fear of a deflationary outcome prompts the FED and others to keep the money flow at maximum ability.

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46 Responses to “Notes From Underground: Merkel Doesn’t Approve of Macron’s Package”

  1. Stu f Says:

    Since there are riots all over the EUSSR, could have EU country vs EU country war…? ________________________________

  2. Michael Temple Says:

    Sadly, I think Mnuchin and Powell will do nothing about Italy vs Germans as it is “their” problem and they are working 24/7 on US matters.

    I don’t think their gaze extends beyond our shores.

    Perhaps Christine will simply buy Italian debt directly and kick the can forward


  3. Trader 1 Says:


    If they don’t issue a Eurobond what is there plan B, if any??? How much time do they have to just limp and do nothing ??

  4. asherz Says:

    We are having our own Germany/Italy pickle, the saver and the prodigal, when Senator Mitch says he will not bail out profligate states. Why should Montana and Texas pay for New York and Illinois multi-billion deficits which predated the pandemic?
    Why were the Too Big to Fail banks bailed out by taxpayers who paid their bills on time and saved some of their earnings? It led to no good. Moral Hazard and Moral STASIS result.
    The big bad wolf will eventually blow down the little piggies straw house but the brick house will survive after the storm passes.
    “Precious treasure and oil are in a wise man’s dwelling, but a foolish man devours it. ” Proverbs 21:20

  5. David M. Says:

    Guess what Yra. I am from Czech Republic – a small EU country, which receives from EU more funds then contributes. And in our local media (Political, Tabloid or Economical) nobody writes about this negotiation/problem. EU is politically dead, no one cares, even local economical media dont. EU countries are locking its borders at will, the only mentions of EU in media is how it failed at everything.
    Bad times for EU. To me it feels that the future of EU will be just a trading union.
    People epecially dislike disfunctional EU bureaucracy and rigid overregulation. In such political environment it is difficult for German politicians to do what makes more financial sense in regards to the weaker countries.
    I think there is fear that something like German backed euro bonds can spark huge popular descent similar to opening imigration flood in past.

  6. StoprunTrader Says:

    I am from Czech Republic, a small EU country, which receives more from the EU then contributes to it. And guess what Yra – nobody cares about the EU any more. Local media (Political, Tabloid or Economical) is silent about EU. Nobody even knows there is a problem. The only mentions are how EU fails at everything (corrupt subsidies of agriculture, obscene overregulation cases, failure to maintain democracy in Poland or Hungary, etc) . Feels like the strong and tight EU project is politically over.
    As for Germany, the fear of their politicians is that bailing out weaker countries (even if it makes more sense then not) will spark public descent similar to opening borders to imigration in past.
    EU must be forced to undergo deep revamp and restart to get any political traction. Brexit didnt force this rusty organisation. Perhaps the covid will finaly do.

    • yraharris Says:

      Stop Run—glad to hear your voice.You may be correct that no one cares about the EU but the massive liabilities it has piled up makes the world have to be concerned about what takes place.JMH ,below, lays it out in depth and he reiterates has Merkel has trapped herself by bypassing the highly qualified Axel Weber and then of course Jens Weidmann.This BLOG has argued for 9 years the necessity of a German heading the ECB —it is the German credit card guaranteeing the entire edifice therefore the Germans have had a RIGHT to a more direct input—Merkel has laid the groundwork for a catastrophe–as many on the BLOG have asked,being astute traders and investors—-what is the exit strategy.Wait to the CZECHS have to write a check to Brussels/Frankfurt rather then receiving one—BREXIT SEEMS LIKE A DREAM TO ME NOW—as we walked off to look for EUROPICA

  7. David Richards Says:

    Yra, your excellent piece today ties back to your previous article about dollar “strength” of late, which is largely attributable to Euro weakness as the European debacle is the world’s worst.

    In contrast to the Euro, the dollar is down month-over-month and continues down against many other pairs, especially in east Asia ex-China across-the-board, as in the East they’ve generally handled the coronavirus much better and with far less unconventional monetary and fiscal policies than in the West. Currency-wise for example, the major AUDUSD, which FX traders consider an east Asian proxy, is up 10% month-over-month after crashing mid-March.

    It’s also worthwhile for market participants to keep an eye on AUDUSD as a barometer of the battle between global deflation versus global inflation.

    • David Richards Says:

      Also, some traders expect the down-spike in AUDUSD in mid-March marks a multi-year, capitulation swing low. Unless you’re in the global deflationary, mega-depression camp like Raoul Pal, Bob Prechter and some elliottwavers.

      Others believe governments can and will be able to generate inflation (although it’ll be under-reported), ultimately to the huge discomfort of everyone. I agree. You have to be older to have lived the slippery slope into inflation in the US from 1965-1980. I did. IMO, inflation is worse than deflation because inflation is more difficult & painful to stop. Let’s watch. Got gold?

      • Pierre C Says:

        Good info on the AUD/USD. Thank you for the insight David

      • David Richards Says:

        Oh, that’s fabulous Pierre, you’re welcome. In addition, AUDJPY is considered to be a quintessential FX barometer for risk seeking or risk aversion. That’s because AUD is the major most sensitive to robust commodity demand, global trade and economic activity, whereas Japan, being the world’s largest creditor nation (even slightly bigger than China), tends to experience capital outflows seeking higher returns abroad (into other currencies) when capital-rich Japanese investors feel emboldened, but then Japan experiences capital repatriation (and JPY buying) when the investors feel risk-averse/skittish.

      • Pierre C Says:

        Thanks again=)

  8. Arthur Says:

    The Euro Trap

    • yraharris Says:

      Arthur—that was a great post on the previous blog—my nephew had sent that to me and actually discussed with Lacy Hunt—-hope people will take quarantine time and read it

  9. JMH Says:

    Maastricht treaty with crystal clear ‘No-bailout’ clause was what got Dutch, Austrian, German and Finn voters to accept the Euro.
    These relatively well-managed and highly productive countries didn’t need the ClubMed deadbeats for anything other than holiday destinations and olive oil. Germany was an export powerhouse despite the strong DM. Without the Euro they’d have done what they always did: get more productive and innovative, like the Swiss who are managing without the weak-Euro crutch.
    Essentially we got into this mess because of Kohl’s megalomaniac ego, and his successor’s cowardice to admit the mistake and correct it.
    Draghi became head of ECB with Merkel’s approval. She sabotaged the excellent Axel Weber to get a confirmed Italian trickster in because she needed someone who’d be ready to disregard all rules to keep the Eurozone house of cards from collapsing by printing whatever it takes. For the same reason she ok’d Lagarde, knowing full well that Weidmann could not be relied upon to continue the many illegalities. Hence The ECB got its 2nd French head before even 1 German got the job. Lagarde is a lawyer/political hack (with legal issues) who is underqualified to head the ECB.
    Here’s why the Eurozone (as opposed to the EU) is doomed:
    60 mio West Germans are paying since 30 years to support 17 mio East Germans, essentially because they’re compatriots who had the bad luck of being caught under a totalitarian regime for 44 years.
    Do you really believe that German/Dutch/Austrian/Finn taxpayers will indefinitely agree to support the -largely unearned- life styles (incl. receiving pensions many years earlier than northeners) of about 10 times as many ClubMeders?
    And if they did, or if politicians would succeed in manipulating those voters forever: the northern economies are simply not strong enough to support all the deadbeats forever.
    Germany already has Target claims approaching Euro 1 Trio. As Prof. Sinn and others say, this money is gone. As every trader knows there’s only one thing worse than being wrong, which is staying wrong. Better and end with terror than terror without end.
    TPTB recklessly gambled that they could keep kicking the can until miraculously a economic gravity defying solution would appear. It hasn’t and it won’t. Either the ClubMed leaves the Euro (perhaps under a ‘Euro B’) and the long avoided but necessary reset causes some short term mayhem in the markets. Or they continue to be subsidized by northern tax payers until the various extreme right parties there become the majority – and the mayhem will be orders of magnitude more severe.
    I have 1 question for Merkel, Lagarde, Macron and their fans:
    What is your LONG TERM solution? (other than disappearing safely into retirement before the stuff finally hits the fan)

    • yraharris Says:

      JMH—-you are in good company as F.Z. sent a very similar response –which is expected and of course right on target.I would vehemently have been word for word with you 4 years ago but to me the situation has changed where there is no going back without a financial calamity—the question persists—whose EURO is it

  10. JMH Says:

    And in the current Euro zone the North to South subsidies WILL continue indefinitely, as the Euro doesn’t permit them to maintain competitiveness by devaluing their currencies as a way of life – instead of becoming more productive, better managed and less corrupt.
    The Euro and its much lower interest rates had offered the South a unique opportunity to invest in becoming stronger economies. Instead they went on extended orgy of consumption, created millions of unproductive government jobs and artificially raised their living standards.
    The jig is up, the piper has to be paid and hopefully heads will roll.

  11. Chicken Says:

    Please correct me if I’m mistaken and surely astute PM traders have been on top of this but has the FED actually purchased any junk bonds or ETF’s?

    • yraharris Says:

      YEEESSSSS as far as we have been told—-you have any other sources that proclaim it to be a rouse—do you think they can do this without actually buying

      • Tinky Says:

        Yra –

        Wolf Richter has repeatedly stated that the Fed has not bought any junk bonds, and has only jawboned to this point.

        In his most recent post he says this:

        Primary credit: $34 billion, down from $43 billion two weeks ago. Expanded to include “fallen angel” junk bonds. But since the expansion, the balance has dropped and the Fed hasn’t bought any fallen angel bonds.

        Secondary credit: $0. Designed to purchase corporate bonds, bond ETFs, and even junk-bond ETFs. None were purchased, but the Fed’s jawboning about it was enough to trigger a massive rally in junk bonds and junk bond ETFs.


        So over the past four weeks, the Fed has not done any of the things with these SPVs and Primary Dealers that the markets were raving about it would do. It didn’t buy junk bonds, it didn’t buy ETFs, it didn’t buy stocks, it didn’t buy old bicycles. But Wall Street sure loved raving about it.


        If Richter is wrong, I’d love to see some evidence of it!

      • yraharris Says:

        Tinky–nobody can say definitively —the Powell may have gotten away with jawboning as did Draghi with the OMT effort in 2012—but the market will test the FED as the economy will not have a V shaped recovery as it will take time to sort out the ramifications from the deflationary impact of the demand shock .But corporate profits will certainly be a drag as we move forward.Did the FED actually buy fallen angels —Please allow me to introduce myself as they certainly have proclaimed sympathy for the devilish

      • Tinky Says:

        Thanks Yra.

        I am entirely sympathetic to your view. What I am wondering is whether there may actually be more going on behind the curtain (e.g. buying) than the data released by the FED suggests.

        Observers like Richter rely on “hard” data, and as a cynic in today’s “whatever it takes” world, I remain skeptical by default.

  12. JMH Says:


    If the various international ‘leaders’ want to escape responsibility for said financial calamity -the cause of which are primarily their own
    manipulations- by breaking the promises made to about 100mio German, Dutch, Austrian and Finn voters, then let their respective countries shoulder a significant part of the required bailouts/transfers. No reason whatsoever to expect the 100 mio northern taxpayers to hold the fetid bag alone.
    Instead let all economic powers in whose interest it is to avoid such a calamity (esp. the FED) contribute to keep the insolvent ClubMed on life support – forever.

  13. JMH Says:

    Also the north should make any further transfers south conditional upon:

    Minimum retirement age in ClubMed countries to be raised to same age as in the north, namely 67 years, with immediate effect.
    Northern taxpayers can hardly be asked to pay for generous and customary much earlier retirements in the south.

    Tax collection in ClubMed countries to be credibly enforced.
    Why should northerners pay with THEIR tax Euros for the lax tax discipline/enforcement in the south??

    If other nations whine that these conditions are too ‘austere’ and ‘harsh’, they’re welcome to ask their own taxpayers to generously aid their brothers and sisters in ClubMed.

    At some point the nonsense has to be called + stopped.

    • David Richards Says:

      Well, it worked in Star Trek, do what more convincing do you need?

      Frankly, IMO she’s on the wrong side as nation-states are trending toward fragmentation. How long until the EU breaks into 2 or 3 or more? How long until the US also splits up? So will China, Canada and numerous other diverse or large nation-states. The bigger questions perhaps is whether or not the fracturing of nation-states into smaller sovereigns happens violently.

      Martin Armstrong’s AI computer claims the US will cease to exist in its present form by 2032. Actually, per Armstrong’s computer and world economic conference, the world will profoundly differ by then, including a capitalist China becoming the financial capital of the world in 2032. IDK but let’s watch.

    • David Richards Says:

      Oops… my previous reply was intended for Pierre C, regarding Christine Lagarde advocating one-world government.

      • Pierre C Says:

        David, I guess I posted this essay from Lagarde to show her mindset. Because she is thinking this way, I believe she will do everything in her power to hold the Euro together.
        I go back to what Charles Dumas has to say: What is good for Germany is not necessarily good for Italy. How long can this last is anybody’s guess.
        It goes back beyond the creation of the Euro. If one reads “The Rotten Heart of Europe”, they had the same problem trying to stay within the interest rates parameters. At least with that system a country could drop out more easily, it seems to me, and reset their economy to what they needed.
        From what I’ve learned
        One currency + multiple economies = trouble.
        2 + 2 = 5

      • David Richards Says:

        Yes, very insightful. Also, when I look around Europe and even elsewhere, it seems to me that the best-managed countries tend to be small nation-states, not the big ones. More small states should be formed in the future due to the Fourth Turning. More people should be satisfied with that result I think, as government decisions and accountability will happen closer to home.

      • Pierre C Says:

        David, very interesting, smaller more nimble countries to navigate turbulent times.

  14. Pierre C Says:

    Christine Lagarde:
    “Car nous n’avons qu’un seul monde. Un jour ou l’autre, il lui faudra une seule gouvernance”
    “Since we only have one world, sooner or later, we will need one government”

    Essay from 2010

    • yraharris Says:

      Pierre–that list of authors minus Lagarde is the arrogant machine of the EU—only one missing is J.C. Juncker—-what a line up and look how much they have accomplished—my response is pepper spray Davos

  15. JMH Says:

    No points for guessing who wants to be among those calling the shots in said seul monde.

    • yraharris Says:

      JMH—George Soros who has advocated the Popper Open Society as long as he is the philosopher king

  16. Solidarity is a poor justification for Eurobonds | Evocatively Ambiguous Says:

    […] from Solidarity Is Not What Europe Needs by YANIS VAROUFAKIS. Here is Yra Harris of ‘Notes from the Undergound‘ who puts it […]

  17. ShockedToFindGambling Says:

    Yra- I have a question.

    I hear continuously about the USD shortage……..but the FED has flooded the system with USD via Repos.

    As far as I know, these USD can be sent outside the U.S. banking system, or be exchanged for another currency, in a millisecond……so why is there this seemingly perpetual USD shortage?

    My feeling has been that any shortages of USD in the U.S. banking system, is because people are afraid to hold USD in banks, above the $250 FDIC guarantee amount.

    I also continuously hear about how safe the banks are……now that they are deleveraged.

    Think of what a bank owns……loans, customer deposits that they hope to make a good spread on. a derivatives book, wealth management/brokerage, credit card business/debt, M&A dept……just about everything they have gets hit heavily during a moderate recession, and demolished in a severe recession.

    If 20 % of a banks loans go bad, assuming a 50% recovery rate, I would guess a lot of banks would have very little shareholder equity left.

    So why would anyone put non FDIC guaranteed money in a bank account?

    • Pierre C Says:

      I know you asked Yra, but I thought this article may provide you with some insight

      • ShockedToFindGambling Says:

        Thanks Pierre……..Good article

        The debt levels they talk about have to come to an end, either by defaults, or by making the currencies they are denominated worthless. or both………they will never be paid back with a valuable currency.

    • Pierre C Says:

      I agree

    • yraharris Says:

      Shocked—a good question and I field this discussion quite a bit and the weekend brought the conflict about the DOLLAR to a discussion between Hugh Hendry and Raoul Pal—one sees a much higher dollar and Hendry in the NOTES camp of the necessity of alower dollar–if the DOLLAR storms higher the full force of a deflationary feedback loop will plague the global financial system.The DOLLAR goes higher as those borrowed heavily in dollars around the globe are in battle to secure funds and the fact the dollar doesn’t weaken makes dollar borrowers more nervous as the expectation is that with all the FED and Treasury activity the dollar would be lower.The fact that it is not pushes it higher and the Europeans which could provide some relief just can’t get the nerve to really create a quality alternative to the dollar.If commodity prices go lower the feedback loop intensifies—to Jerome Powell I say take a trillion of your printing and begin purchasing a global basket of currencies ala Switzerland–if you don’t know how to effect such an outcome hire Yra or bring Bob Lighthizer in –he was privy to Plaza Accord—as long as the FED is building its balance sheet it might as well diversify

      • ShockedToFindGambling Says:

        Yra, Thanks for the answer… me, this means it’s really a matter of the price of the USD, not a shortage.

        I don’t know if you noticed, but the FED O/N Repo operations have been getting almost no interest lately, and still some interest for the term Repos.

  18. msvceo Says:

    Friends of Yra,

    THANK YOU! We received a $1,000 gift that put us over the top on Yra and Janice’s $5,000 match challenge. That puts the total from this group at $10,050 (and counting) !!!

    I wrote to you about Ashleigh when I posted two weeks ago. I spoke to her yesterday. You’ll be glad to know that her husband is off the ventilator and out of the hospital after being there a month. Ashleigh was called back from being laid-off and is working at the hospital two days per week. She’s very excited to have some work! Disability insurance through her husband’s job has also kicked in. It is still tough making ends meet for the two of them and their three children (8, 7, & 5). However, she was in very good spirits and incredibly grateful for your generosity.

    Let me share one more story of someone we helped last week. Yisma is a dad at our St. Vincent DePaul Center. He and his wife enrolled their two boys in our birth-three program last fall. Yisma is a wonderful father, he is very kind and friendly. Yisma is a taxi driver, and his hours have been significantly cut. Obviously, he is no longer able to bring in the same amount of income as before. When our staff reaches out to him, he is very appreciative of our assistance, thanks to all of you, as well as just being checked on.

    We have had another donor follow in Yra and Janice’s footsteps and issue a match challenge. If you haven’t had a chance to make a gift, and find yourself in a position to do so, whatever you can give will be matched dollar for dollar.

    Please go to to donate on-line to our COVID-19 Relief Fund. Be sure to put “Friend of Yra” in the comment box.

    Alternatively, send a check to:

    Marillac Saint Vincent Family Services
    2145 N. Halsted
    Chicago, IL 60614

    ATTN: COVID-19 Relief Fund – Friend of Yra

    Thank you, again, for being generous to the working poor here in Chicago as they navigate the impact of COVID-19 on their families AND for your perspectives on the economy. It has been fascinating to follow Notes From Underground!

    Wishing you and your families the best of health,

    ~ Pete

    Peter Beale-DelVecchio
    Marillac Saint Vincent Family Services

  19. Reading Lounge | Evocatively Ambiguous Says:

    […] 4. The EU-Italy conundrum in a nutshell […]

  20. Michael Temple Says:

    It is not Powell’s remit to weaken USD.
    That comes from Mnuchin.

    USD is not on Mnuchin’s agenda right now, not when DC is busy with the next multi trillion dollar aid package

    Europe is safe for now with Italy remaining INV Grade.

    Stocks are soaring.

    Relax, be happy


  21. Chicken Says:

    Dollar chart reminds me of this (FWIW):

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