Tag Archives: Germany

Barry’s Other New BFF

Aside from Bill, Barry has another BFF, Mario.

The head of the European Central Bank, Mario Draghi, announced today that the bank will buy lots and lots of bonds from struggling euro zone countries to help reduce their borrowing costs, especially Italy and Spain.   Draghi in effect drew a line in the sand, saying “The euro is irreversible.”

One country voted against the bond-buying plan.  That’s right — Germany.

Do I think this will save the euro?  No.  But it means there won’t be a big panic between now and our election.

It also seems as if Israel won’t attack Iran between now and November 6, although Bibi is not exactly another BFF.

Looks as if Barry has everything under control.  He just has to get through the debates without checking his watch or sighing and rolling his eyes.

Just Because Merkel Should Cave Doesn’t Mean She Will

Eduardo Porter has a well-written and rational story up at the NYT, “Germany Will Pay Up To Save Euro.”  He writes convincingly about how letting the euro zone fall apart will be much more expensive and painful for Germany than saving it.  So he concludes that after holding out for the best terms she can, Merkel will cave.

Porter is intellectually focused on labor costs and export prices, but the Germans viscerally don’t want to bail out a bunch of foreigners whom they see as lazy and corrupt.  He’s arguing numbers on an issue that will be decided by emotion.  The Germans see themselves as the pig who built his house of bricks, and those who hurriedly built their houses of straw and twigs so they could party deserve to get eaten by the wolf.

If countries always did what made sense, we wouldn’t have had our housing crash, the government would have bailed out the sub-prime market and kept housing prices from imploding.  We’ve lost a helluva lot more national wealth than a housing fix would have cost.  And that was the American government refusing to help Americans, not Germany refusing to help a bunch of  racially inferior foreigners with their crappy non-Aryan genes.

Merkel — Euro Bonds Over My Dead Body

With France, Spain, and Italy supporting euro bonds (shared European debt), Germany’s Angela Merkel told them to fugeddaboudit:  “I don’t see total debt liability as long as I live.”

There’s another EU Summit this Thursday and Friday, but I think they’re running out of road to kick the can down.

This isn’t going to be pretty, either in Europe or here.

If you’re Mitt, it’s all good.   For the President and the rest of us, not so much.

 

Unfortunately, I Think He’s Right

From “One Wall Street Seer Says The Greek Tragedy Is Near,” Andrew Ross Sorkin, NYT:

“If you want to be scared, truly terrified, listen to Mark J. Grant.  He might be right.

“For the last two years, Mr. Grant, a managing director at a regional investment bank in Florida, has been predicting the bankruptcy of Greece and a cascade of chaos across the global economy.
“‘Greece will default because there is no other choice regardless of anyone’s politics.’

“Mr. Grant in a Jan. 13, 2010 report forecast that Greece would default on its government debts, one of the first to publish such a prognostication.

“The January 2010 report, written two years before Greece did indeed default, has made him the go-to forecaster for some of the world’s largest investors.

“Sadly, Mr. Grant is not predicting the default of just Greece, he’s already on to Spain (he reached that conclusion before many others, too).

“He has convinced himself that Germany, the only country in a position to help, will not come to the rescue.  ‘You can bank on one thing if nothing else; the Germans will not allow their cost of funding to rise or their standard of living to decline to help the nation that have gotten themselves in trouble.  You can count on this!’

“[W]e are headed for a bad recession with lots ‘of shocks to the system.’  He says this will likely happen in the next four months or ‘it could come sooner.’”  Emphasis added.

 

In Chicago, they’re hoping to keep the sick men of Europe alive till the second week of November; in Boston, they want to remove life support ASAP.

 

 

Different Approaches, Same Result

If the far-left Syriza party had won in Greece, they were going to tell Angela Merkel where she could stick the harsh terms of her bailout.  The conservative New Democracy party, which will form a coalition with the Socialist PASOK for 162 seats in the 300-member Parliament, will tell Merkel they support the bailout, but ask “pretty please” if she can just ease the terms.

Different approaches, but the same result.  Merkel isn’t going to save Greece.

Greeks hope the election results can lead to further negotiation because they fear the unknown of leaving the euro.  Bad as things are, they fear making them worse, although worse seems unavoidable.  But trying to negotiate with Merkel fiscally is like trying to negotiate with Hitler militarily.  The only way Merkel will help is if Greece completely cedes its fiscal sovereignty to the EU Germany.

It seems inevitable that at some point soon Syriza will take power.  It finished a close second to New Democracy with 27% of the vote, having won only 12% in the May election.  New Democray and PASOK, the “mainstream” parties, have brought Greece to her knees and five years of recession.

The Fourth Reich Is Upon Us

From “Conspiracy Theories Fly As Europe Struggles,” Floyd Norris, NYT:

“Imagine for a moment that two decades ago, a newly unified Germany set out to take over the European Continent, as the previous unified Germany had tried and failed to do half a century earlier.  This time it would use money, not guns, to accomplish the goal.

“There is, let me hasten to note, no evidence of any such conspiracy.  But if there had been, things might have played out more or less as they have.

“Conceivably, Germany learned three things from the 1992 experience [when Germany’s raising of interest rates forced other European countries to do the same, hurting their economies], and mapped out a course with those lessons in mind.  First, absent fixed exchange rates, its export-oriented companies faced the risk of periodic competitive devaluations from the rest of Europe.

“Second, a currency union could help German exports if the euro’s value were held down by less competitive economies.

“Finally, if Germany adopted a low-interest-rate policy, and superlow rates arrived in European nations accustomed to high rates, banks could open the credit spigot and create a debt-financed boom in much of Europe.  That would invite a mushrooming of imbalances.  Ultimately, deeply indebted countries would face a crisis, one that they could solve only if they acquiesced to German policies and surrendered a large part of national sovereignty.

“The endgame may be approaching.  Troubled countries are facing an increasingly clear choice.  They can stay in the euro zone, and face years of endless recession.  They can abandon the euro, perhaps bringing catastrophe but giving them the freedom to devalue their new currencies.  Or they can accept the German offer:  Surrender sovereignty.  Accept German leadership and domination of a unified Europe.  Then we will bail you out.”  Emphasis added.

Piecemeal Approach to Euro Cuts Europe to Pieces

For a quick and clear explanation of the mess that is Europe, check out “Why the Bailout In Spain Won’t Work,” Andrew Ross Sorkin, NYT.  Some excerpts:

“By now, it should be apparent that the [Spanish] bailout has failed — or is at least on its way to failing.

“Indeed, it now appears that the bailout could make things in Spain worse, not better.  And market indicators for the next domino in line for a bailout, Italy, point in the wrong direction.

“This was bound to happen.  That’s because bailing out the banks in each European country individually is a fool’s errand.

“Experts often cite — wrongly — that TARP, the Troubled Assets Relief Program that pumped $700 billion into the banking system in the United States, arrested the financial crisis in 2008.  TARP, to some degree, has become the model for Europe.

“But we forget history:  TARP was only one component of the bailout.  Perhaps more important — consider it the unsung hero of the financial crisis — was the government’s unilateral moves to raise the amount of money the Federal Deposit Insurance Corporation could insure, increasing the account limit to $250,000 from $100,000 and fully backstopping the entire money-market industry.

“Investors and bank customers who were considering taking their deposits and running in 2008 no longer had reason to do so….

“That is not the case in Europe.  Customers of Spanish banks still have reason to worry about the solvency of their banks — and their country — making it reasonable for them to take their money from Spanish banks and send it to banks in safer countries like Germany.  Indeed, the bailout makes it less likely Spain can pay back its debts because the new loan of up to $125 billion was just added to its huge debt pile.

“As a result, it could be argued that it would be irresponsible for an individual or company, which has a fiduciary duty to shareholders, not to move its money out of Spanish banks.

“Ultimately, the only real way to begin to ensure the safety of the banks in Spain — and all of Europe — is to create a euro zonewide deposit guarantee system….

“Oddly enough, such a deposit guarantee would probably be pretty cheap.  The psychological effect of such a guarantee would most likely insure the solvency of more banks than the guarantee would ever have to pay out.

“Of course, there a catch.  A euro zonewide deposit guarantee would require agreement from all 17 member countries, which is something the leaders there seem incapable of reaching….

“And here’s another problem with a euro zonewide deposit guarantee:  Unless you believe the euro is going to remain the standard…even the guarantee might not be enough, unless the guarantee holds for all currencies.  For example, if a Spanish bank customer is worried that his euros might one day turn into pesetas — even with a deposit guarantee in place — he might well move his money.”  Emphasis added.

I encourage you to read the whole column.  I think we know whose side Mitt is on here.

We’re going to look back and wonder why solutions like this weren’t put in place before everything fell apart.  In hindsight, it will look so obvious and so easy compared to all the fallout.

 

 

 

Fifty Shades of Sado-Monetarism

From “Another Bank Bailout,” Paul Krugman, NYT:

“Most notably, last week the European Central Bank declined to cut interest rates. This decision was widely expected, but that shouldn’t blind us to the fact that it was deeply bizarre. Unemployment in the euro area has soared, and all indications are that the Continent is entering a new recession. Meanwhile, inflation is slowing, and market expectations of future inflation have plunged. By any of the usual rules of monetary policy, the situation calls for aggressive rate cuts. But the central bank won’t move.

“And that doesn’t even take into account the growing risk of a euro crackup. For years Spain and other troubled European nations have been told that they can only recover through a combination of fiscal austerity and ‘internal devaluation,’ which basically means cutting wages. It’s now completely clear that this strategy can’t work unless there is strong growth and, yes, a moderate amount of inflation in the European ‘core,’ mainly Germany — which supplies an extra reason to keep interest rates low and print lots of money. But the central bank won’t move.

“Put all of this together and you get a picture of a European policy elite always ready to spring into action to defend the banks, but otherwise completely unwilling to admit that its policies are failing the people the economy is supposed to serve.

“Still, are we much better? America’s near-term outlook isn’t quite as dire as Europe’s, but the Federal Reserve’s own forecasts predict low inflation and very high unemployment for years to come — precisely the conditions under which the Fed should be leaping into action to boost the economy. But the Fed won’t move.

“What explains this trans-Atlantic paralysis in the face of an ongoing human and economic disaster? Politics is surely part of it — whatever they may say, Fed officials are clearly intimidated by warnings that any expansionary policy will be seen as coming to the rescue of President Obama. So, too, is a mentality that sees economic pain as somehow redeeming, a mentality that a British journalist once dubbed ‘sado-monetarism.’

“Whatever the deep roots of this paralysis, it’s becoming increasingly clear that it will take utter catastrophe to get any real policy action that goes beyond bank bailouts. But don’t despair: at the rate things are going, especially in Europe, utter catastrophe may be just around the corner.”  Emphasis added.

And that utter catastrophe may put Mitt in the White House.  Catastrophe squared!

A War Between Debtors and Creditors That We Are All Losing

From “Obama’s Fate Rests in Part on Europe,” Eduardo Porter, NYT:

“Battle lines have been drawn across the Continent between a political establishment that defends austerity at all costs in the name of preserving the euro, and increasingly radical oppositions.

“This kind of political polarization may be a standard feature of financial crises.  Economists have noted that such crises naturally widen the chasm between the interests of creditors — like banks, investors and even governments — and debtors, who are suddenly made insolvent by a crisis that takes away their jobs and destroys the value of their homes.

“Creditors push austerity as the best way for debtors to repay their debts.  They oppose efforts to write down or renegotiate loans, or to allow higher inflation to erode their value.  And creditors, better financed and organized, usually gain the upper hand.  Debtors, who are generally poorer, lose.

“This cleavage is evident in Europe, where German voters have staunchly opposed committing more German resources to aid indebted Southern European countries.  It is also evident on Capitol Hill, where Republicans have countered the administration’s stimulus plans with proposals to cut public spending to finance tax cuts that would favor the most affluent Americans.  The ensuing gridlock has paralyzed policy-making on both sides of the Atlantic.  And it could produce a lot of economic damage.

“When Lehman Brothers went bankrupt in 2008, sending the global financial system into a tailspin, its debts amounted to about $600 billion.  Government debt alone in Greece, Spain, Portugal and Ireland…adds up to about $1.9 trillion.”  Emphasis added.