Tag Archives: Merkel

Nurse Merkel Offers More Bandaids

At the European Summit, Italy, France, and Spain did their best to gang up on Germany, but didn’t get much in return.  Merkel is still vehemently opposed to euro bonds, and I don’t see that changing, no matter what.

Italy and Spain will find it easier to get aid from the European bailout fund (the European Stability Mechanism or ESM), but the ESM didn’t get any more money.  Its maximum is still about $633 billion, when Italy and Spain owe about five times that amount.

The ESM will put money directly into Spanish banks rather than using the Spanish government as a pass-through.  And private bondholders of Spanish banks won’t be subordinate to government bond holders.

Such tiny steps have failed to satisfy the markets in the past.

By refusing to “go big,” Europe’s leaders are setting up the euro zone to go bust.

 

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.

 

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.

Our Electoral Votes in Merkel’s Handbag

The Greek election reminds me of the cartoons where a character falls off a cliff, and at first falls very slowly and gently, like a leaf in a breeze, but then gravity catches up with him, and he lands with a thud.  Greece is falling in slow motion, but it will land with a thud.  A thud we will hear in this country.

The question, if you’re the White House/Chicago, is how long will it take?  I’m reading predictions of three to six months.  The shorter time frame is a disaster for Obama, the longer time frame gets him past the election.

Merkel ultimately isn’t going to save Greece, but she could certainly slow things down.  If you’re the German Chancellor, it’s not a bad thing to make the President of the United States your bitch.  So she can help Obama stay in the Oval Office — or she can help Mitt get there.

I know we’re all focused on the Koch Brothers and Sheldon Adelson, but probably the single individual with the most power over this election is Angela Merkel.  And you thought we won WWI and WWII.

The Great Unraveling

Yesterday the “risk premium” for ten-year Spanish bonds versus German bonds grew to 5.1%, the biggest difference since the euro was born.  The divide between Spain and Germany, and not just on bond rates, grows wider each day.

Solutions exist — euro-wide deposit insurance, like our FDIC, to stop bank runs; euro bonds as a parallel system to country-specific bonds that would offer lower interest rates, but also lower risk.  Merkel said they are studying euro bonds, but that’s like when we were small and our parents said, “We’ll see.”  “We’ll  see” always meant no.  Solutions delayed are simply solutions denied.

No one knows where or how this will end.  I think what we can predict is that economic events will overtake political leaders.

This is the moment before all hell breaks loose.  It’s frustrating to watch the moment slip away.  A controlled crisis is always better than an uncontrolled one.

 

Leaders in Europe Ceding Control by Their Inacton

If Europe’s leaders don’t set policy at the top soon, the street is going to take over, and panic and fear will dictate events, not elected officials.

Spain is experiencing a run on its banks (either moving money from weak banks to stronger ones or out of the country entirely) that is only going to gain more momentum, and Spain’s deposit insurance system is bankrupt.  There is still time for Europe to offer European-wide deposit insurance that would quell this run before it becomes a full-blown panic.  Of course, Germany doesn’t want to do this.

European leaders have to decide if they want to cut Greece loose, but try to save other countries like Spain.  That’s the first decision.  Are you going to try to save everyone, are you going to try to save everyone but Greece, or are you going to let the whole thing go to hell?

Europe could offer euro-zone deposit insurance to everybody in the euro zone or dump Greece and offer it to the remaining countries.

Europe could offer euro-zone bonds guaranteeing countries’ debt to everybody or dump Greece and offer them to the remaining countries.

But Europe’s leaders are in a state of paralysis, which in itself is a form of decision-making, an abdication of control and responsibility.

Greece has become an excuse for not addressing the problems of other weak periphery countries, like Spain and Italy.  But ignoring these problems doesn’t make them go away.  Not deciding becomes a decision.

We saw what happened in this country when events overtook our leaders in September 2008, and our entire financial system was brought to the brink of collapse.  We saw Treasury Secretary Henry Paulson go down on his knees, begging Nancy Pelosi to stay in bailout talks after the Republicans walked out.  For Paulson, the arrogant former head of Goldman Sachs and the quintessential Master of the Universe, to be brought to such a shocking state tells you how close we came to tipping over the edge, how close we came to another depression.

Europe is on its knees, and Angela Merkel is on her way out of the room.

Timing Is Everything

The big fear in Europe now* is that Greece will leave the euro zone at the same time that Spain’s banking system has a meltdown.  The European bailout fund of about $1 trillion couldn’t handle both these events.

The big fear at the White House has to be that the great unraveling in Europe, which seems inevitable and will cause our financial markets to panic at least short-term, will happen so close to the election that Americans freak out and Mitt wins before our markets settle down.

The European death spiral and our election seem to be on a collision course.  Obama needs it either to happen soon or wait till after November 6.  We know it won’t happen in August because they’re all on vacation.

Merkel would much rather have a President Romney to share her gospel of austerity.  I’m guessing she will do what she can to help him, just as the Iranians helped Reagan get elected back during the hostage crisis.

*See “Europe’s Worst Fear:  Spain and Greece Spiral Down Together,” Landon Thomas, Jr., NYT

Alex Tsipras Gets Some Help from Obama and Hollande

At the G-8 summit, both President Obama and new French President Hollande gave a boost to Alexis Tsipras, who is expected to win Greece’s new round of elections next month, by urging Germany’s Angela Merkel  to soften her tough austerity stance and focus more on growth.  Tsipras, leader of the far left Syriza party, is campaigning on keeping Greece in the euro zone, but forcing its creditors to renegotiate the tough terms of their loans to Greece.

President Obama has to thread the needle carefully here to try to avert disaster in Europe.  If he is seen as being too much in bed with the socialist Hollande and the even-further-left Tsipras, he gives ammunition to the crazies on the American right and their Obama is a socialist/communist meme.  His support for leftists in Europe will be touted as a warning for what he will do here in a second term.

But the truth is that what needs to be done, both in Europe and the United States, is classic Keynesian economics, which both Democrats and Republicans used to accept and follow.