Friday 5 August 2011

Germany on verge of declaring War in Europe for a 3rd time

extreme headline, but sadly to all intents and purposes true. As I have written previously Germany has its cake and wants to eat it.

Low exchange rate and competitive position, thank you very much. Finds out Spain and Italy are in need of help, for the opposite reasons and Merkel stays on holiday, by all accounts having told the European Central Bank head to get knotted; which he helpfully told the market yesterday.

I can see why too, Trichet must be exasperated at the position. The Euro is a SINGLE CURRENCY for Europe and as such needs to be defended by ALL its members. Refusal to help out when the going gets tough is unacceptable. It is a betrayl of the European Union which Germany was the main driver of in the aftermath of the terrible World Wars of the 20th Century.

All of Italy, Spain, Greece, Portugal and Ireland are going for UK levels of austerity or worse, it is not as if they have not come up to their side of the bargain in the course of 2011.

So who has not? It is Germany (with small allies in Holland and Finalnd), unwilling to will the measures to make the currency whole. The only alternative is break-up and let's face it that is going to cause a global 1930's depression. All the big UK banks will go bust or need a bail-out - how can we afford that?

This is a crisis and only one actor has the power to stop it steamrollering forward, if they don't .......sigh.


Richard Elliot said...

I'm scared about how far this has to go. I haven't stopped out yet, but wondering if I should.

CityUnslicker said...

no advice to be given in these times, as god knwos what is going to happen next! good or bad...

Anonymous said...

So you want Germany to bail out Greece (unwilling to collect taxes), Italy (unwilling to deal with corruption), Spain and Ireland (gaga on inflated house prices).

It seems that manufacturing world-class products the world wants/needs is just wrong when you can wait for a bail-out.

Have to say your senses have taken a holiday.

Old BE said...

The two solutions: massive redistribution from Germany to the others or massive money printing are both impossible under the German constitution. It may be that Germany should never have joined the Euro for these simple reasons.

This is of course no help now.

This time it should be the BoE that bails out the UK banks not the taxpayer, via a one-off printing of sufficient new money to cover the probable losses on the Euro sovereign debts they hold.

The Eurozone is unable to fix itself, the only thing we can do is insulate our banks from the aftermath.

Sean said...

So the car is hurtling down the autobahn at 150/kph in driving rain and you wish to redesign and modify it in motion?

Sebastian Weetabix said...

Why should the collapse of the Euro be a catastrophe? I should have thought it would be the opposite. Prior to our escape from the ERM we were told it was impossible to leave and even if we could (which we couldn't, damn it!) it was cause a meltdown. In the event we got out of jail... all our problems were caused by trying to stay in, leaving it allowed us to devalue, become competitive & grow the economy again. Why shouldn't that happen for the PIIGS?

Richard Elliot said...

No advice indeed. I think I bought good long term positions so I'm going to stick with them (probably).

Sebastian Weetabix said...

It occurs to me that Germany has already rattled up more than 3 wars. In addition to the late unpleasantness in 1914 & 1939, there were a few away wins for the Hun, in Schleswig Holstein in 1864, Austria in 1866 & France in 1870.
Outside Europe there was the Arab rising in E. Africa in (1888-90), the Wahele war (1891-93), Samoa (1887-1889), Hottentots in 1903, Cameroon in 1904-5, the Maji Maji rising in E. Africa in 1905.

Given the German genius for diplomacy, like the Scots at Fitba, if you can stop them scoring in the first ten minutes there's a fair chance you'll beat them.

Bill Quango MP said...

Best not compare 'warlike' tendencies.
For the whole of Victoria's long reign there was only a few years when the empire wasn't fighting someone. Usually to nick their country.

Anonymous said...

The big question is... Seeing as how this crisis is based only on information we already knew, the Euro is in trouble, and that Europe will fix it in some form, isn't this actually a time to buy?

roym said...

@Anon 10.48
i believe the point CU is making is that euro monetary policy was set to suit production and export of these wonderful engineered goods. Surely in spain and ireland facing this mercantilist attitude property/land was the only growth possible? construction needing german machinery, further supporting their manufacturing base. this beggar thy neighbour policy has been raised several times over the years.

re positions. tin hats on and wait for a white swan. germany will still need oil and gas!

Sebastian Weetabix said...

Nick countries, BQ? I'm sure you mean bring free trade, cricket, the rule of law & enlightenment. Totally unlike the beastly Hun.

CityUnslicker said...

All those defending Germany's mercantilism don't get it. Germany KNEW that setting a policy for it and it alone would break the Euro.

To say tough to everyone else now is unforgiveable. yes the otehr countries should have done more too - but the austerity plans are real for these countries and not so easily dismissed as by anon above.

Meanwhile Germany votes no as if this is going to work.

SW - Of course you are right, in the long term the end of the Euro is a good thing. But if all our banks go bust then we are screwed in 1992 the world was coming out of recession, it was good timing the ERM debacle. Today is more like the 1930's or 1970's with one crisis after another. A bad time for a big bang.

At the end of it. germany made the Euro, it want sit to be a currency area, debt union is the only option or break-up. This is what the markets are now demanding - there is no escape for the Euro now.

Old BE said...

CU I hope you don't think I am disagreeing with you this time! The problem is that Germany cannot now fix the problem, at least not in a legal way. Germany should have enforced the stability pact at the time. Germany should have insisted on proper treaties and EU institutions. So should everyone else.

But Germany cannot fix the problem we are facing right now!

The break-up or collapse of the Euro is now inevitable.

Raedwald said...

I'd like to get back to the 1970s. We looked up to Scandinavia for their wealth, sophistication, cars that worked in Winter and their interesting little reels of Super 8 films, but we felt smugly superior to the entire South of Europe with their infected water, neanderthal sanitary facilities, pungent poverty and compulsory black dresses for women over 45. It all gave one a proper sense of our place in the world. Monetary Union has brought a disturbing homogeneity.

The Hun has always been a great hoarder; dig up the fireplace of any net-curtained little haus in Saxony and you'll find gold, jars of preserved fruit and picked wurst. It's part of the defining constipatedness of the race; even their WCs have little viewing platforms to allow one to decide to save it or flush it. Shaking their gold out of them to assist nations whose sewage systems can't even handle quilted bum wipe is going to be harder than anyone imagines.

Sean said...

The Lay or display design is the way to go Mr R, I have three myself. If you wish to have a good view of your current state of health. German GPs often ask their patients to bring along a photo.

When you have examined it you flush it down in the usual way, I should say with regard to the EUro, its time to flush.

Bill Quango MP said...

Shaking their gold out of them to assist nations whose sewage systems can't even handle quilted bum wipe is going to be harder than anyone imagines...

Hee.Hee..Lovely line.

But wasn't it British engineers that built the Greek sewers in the 19th century?

SW: Of course..that's what I meant..yes..indeed..enlightening the ungodly, introducing civilisation, cricket,bowls, top hats, medicine, steam engines, etc..

Demetrius said...

Tune in to Radio Gleiwitz? See Wikipedia.

James Higham said...

I ran a few posts on Germany having its own agenda. It's doing precisely what you intimated at the start.

John Thomas said...

So the pigs have a debt problem, they are in the EU, how much of that debt is inter Euro country trading and how much external, the UK is in the EU but not in the euro how much does the EU owe the UK and how much the UK owe euro countries. If the big debts are between Euro countries that should not be too big a problem, just as a US state in trouble owing $ to another state or DC so externally result is zero exterally. If on the other hand if the debt is owed to non Euro countries including UK the result is disasterous, Gideon has guaranteed the loans to Ireland by RBS and Lloyds-HBOS, and I note that RBS has written off a load of Italian debt in its results.
The moans on this blog and a certain other blog have frequently moaned about the lack of signed off accounts of the EU these should have been sorted out years ago, unified accountancy rules drawn up, and banking rules unified so that there are consistant rules about how much of their liquid capital as a percentage they can lend, according to monetary theory, banks themselves create money a sort of QE

CityUnslicker said...

BE - Your knowledge/views of economics are really becoming first class.

JT - Agree, more transparency would help, as would have real stress tests that test for the actual scenario faced - Default and disorderly break-up.

Nice commments all - let's keep em coming. The market has rallied alot on a very small US beat on jobs numbers ...a good sign that.

Timbo614 said...

The Dow has opened up 1% .. maybe there will be some relief. But probably just another dead cat hitting the deck.

I am out as you all know - but not completely of course - it's impossible to withdraw my (or my Mums) pension funds. Altho' to my credit I have been drawing down the maximum 8% for the last 4 years, working on the basis that losing 40%-50% of a smaller pot would be less painfull :(

As before and especially given the last two days, I am still bearish even from this point. Total Panic is being held at bay for now. But I have a nasty feeling in my water. During yesterday's worst news I was gardening and planting veg. :) So much more relaxing than watching your shares fall.

CityUnslicker said...

well done Timbo, a good call.

Until the Euro is fixed this is going to be a repeating crisis with incidents like this becoming more regular.

Timbo614 said...

Until the Euro is fixed this is going to be a repeating crisis with incidents like this becoming more regular.

I really do not see it being "fixed". When "Fixing" it possibly requires a 4 TRILLION fund - according to your friendly bank manager - that's a joke. Where the F**K (and I don't swear) as we going to dig up 4 Trillion? Huh? Germany alone? Taxpayers alone? France? Portugal!!? LOL.

The population of the EU is circa 500m if we need 4 Tr. that is €8,000 for every single person say we divide by 3 for taxpayers it's then 24,000 Euro per taxpayer in every country including the poor ones.

That is a debt that can't be paid - so it won't be paid. Simple.

>> The Dow has opened up 1%

Oops, "thump".

"The debt numbers are too big(TM)"

Anonymous said...

Anon 10:48 here.

Yes I get it now. German mercantilism where they take advantage of neighbouring countries in the Euro is bad.

Chinese mercantilism on the other hand which led to an apparent increase in wealth as real prices dropped was good. The difference being the Chinese have got USD to play with while the Germans are sitting on Euros.

There is a relative advantage to the Germans with a weak Euro but their main advantage is their single minded desire to make things the world want at standards few can aspire to.

If the rest of Europe applied the same sort of single mindedness to their domestic issues, perhaps the Euro would appreciate and hold its place as the new reserve currency.

Uber alles, its easier to blame someone else.

CityUnslicker said...

Anon - The Chinese are just as bad and will also get their comeuppence in the very near future when the markets they have hollowed out by holding down the Yuan can no longer buy their goods and their factories go idle. That is a leg of this crisis too.

Also, whilst the Germans are lauded for their manufacturing prowess, their banks are in a lto worse state than even ours and will go under without a bail out.

As Timbo says, the number is too big, but the alternative is something of a goldbug/redenecks dreams. Finally, 4 Trillion is the number needed to keep the markets away, not to use nescessarily - and then there is the inflation which is the tool to reduce the bondholders grip.

THe FTSE collapsed after all, this is messy.

Budgie said...

Anon@ 5pm; the euro is a fixed exchange rate system. Each country that joins fixes its own currency at a specific exchange rate to the euro, once and for all. Mostly this happened about a decade ago.

As time passes, and economies change, contract and grow, each nation's entry exchange rate is only "right" once in a while. Except. Except, if your nation's economy is very very large, the monetary policy just might tend to lean towards your needs, and not those of smaller, or just different, economies.

Greece does not have the same economy as Germany - in size, type, timing, cycle or anything else. This is not Greece's fault, it's just different. It's not Germany's either, but the euro has been tailored to suit Germany, so it has fewer problems and more advantages from the euro.

If Germany had its own currency, the mark would have risen in value as Germany grew, so "compensating" automatically. Germany has an "artificial" advantage by being in the euro, which is not attributable to better products.

Due to the nature of the currency union Germany is beggaring its neighbours to enrich itself. This unfairness is inherent in any currency union, was predicted by eurosceptics from the start, and can only be stopped by either breaking up EMU, or installing fiscal union.

John Thomas said...

Not so long ago I saw a documentary about building 2 bridges which bridged a section an strait in Greece which obviated a ferry journey across the sea, all very high tech because of earthquakes that are prevalent in that area Ibelieve the main contractor was German, it was very expensive into the billions, and wasn't it Germany that renewed the Greek railway system. Of course that is between 2 euro countries.

Mr Ecks said...

Euro cannot be fixed. Face it--it will collapse. Hopefully the begining of the end for the EU itself.

At some point the financial structures of the USA will collapse also.

The insolent, arrogant, dictatorial, overweening states of the world and their jumped up, kleptocratic elites are heading into the end game.
I am tempted to quote Sherlock Holmes "Cold East wind..." speech but I'm sure you know it already.

Electro-Kevin said...

CU - agree with you about BE.

Timbo614 said...

"At some point the financial structures of the USA will collapse also."

Well it got one step closer this morning.

Anonymous said...

" are going for UK levels of austerity "

Are you smoking something?

Devil's Kitchen said...

"All of Italy, Spain, Greece, Portugal and Ireland are going for UK levels of austerity…"

You mean, spending more and more every single year and hoping that by taxing people harder it will increase economic growth?

You're right: that's some austerity right there.


As I pointed out a few days ago (just in case it wasn't obvious enough) the entire social democratic model of government is bust—not merely morally, but economically. Mind you, I've been pointing this out for years.

The countries of the West are going to have to completely rethink their state structures, and about bloody time.

The lack of adopted austerity will lead to real auserity being forced upon us.


Laban said...

I don't think you can compare not being prepared to bail out half the EU with invading more than half the EU (France, Belgium, Denmark, Holland, Poland, Greece, Italy post-Mussolini and a few A8 countries) and slaughtering several million folks.

Inappropriate metaphor.