Thursday, December 08, 2011

Germany, Europe and the Princess Angie von Merkel

The European euro crisis has always been about the weakness of major European banks. It manifested itself for a long time as a sovereign debt crisis. But know it has morphed publicly into an intertwined crisis of banks, national debts, political power within the EU and democracy legitimacy for both the EU and national governments and political parties.

Angie and Nick bring a Trojan horse to (now-deposed) Greek Prime Minister Georgios Papandreou
The EU summit news on Friday will mark another temporal milestone in this increasingly fast-moving slide toward the disintegration of the euro currency and the European Union. A new stress test of major German banks by the EU agency EBA charged with bank oversight has shown that several of the biggest are seriously undercapitalized: Geldmangel.Sechs deutsche Banken rasseln durch Stresstest Spiegel Online 08.12.2011. The article's headline says six but the text lists seven of serious concern: Commerzbank, Deutsche Bank, DZ Bank, Helaba, LBBW, Nord LB, West LB. In current conditions, raising more capital will almost certainly mean greater restrictions of lending to businesses, the problem that the recent central bank interventions from around the world to provide more dollar reserves to European banks were intended to forestall.

One of the puzzling aspects of recent days has been Standard & Poor's threatening to downgrade seemingly everything in sight in Europe: countries, banks, the EU bailout fund. Since the rating agencies showed themselves in the 2008 crisis to have been singularly incompetent and corrupt, I'm not sure why anyone listens to them at all. And just last month, less than a month ago actually, European officials were huffing and puffing and threatening the rating agencies over their mischief-making in the euro crisis.

But the reaction the last few days has been muted. I suspect that Princess Angie von Merkel and her court jester, French President Nicolas Sarkozy, think that S&P's dancing and stomping around is increasing pressure on other EU countries to adopt Angie's latest proposal for increased austerity policies all over Europe during the current depression.

Not everyone in Europe is happy with Angie, to put it mildly. A Controversial Paragon.Europe Shudders at Germany's New-Found Power Spiegel Online 12/06/2011 looks at current European worries about the overbearing policy of Germany under Merkel's Chancellorship toward its allegedly equal partners in the European Union.

This bit about French President Nicolas Sarkozy, who has acted as Angie's willing partner in destroying the euro and the EU, is very telling:

When Sarkozy appeared in front of his supporters in Toulon last Thursday, he spoke of the "fear that France could lose control of its own destiny." His dramatic words were an appeal to French national pride, but his response to those fears was anything other than nationalist: "France and Germany have decided to unite their fate," he announced. So-called "convergence" -- greater alignment of the two countries -- was the only way out of the crisis.

There is no doubt which country wants to align itself with which. Later that day, one of his advisers said Sarkozy wanted "supply oriented economic policies and debt reduction modeled on those of Gerhard Schröder," Merkel's predecessor. In his speech, the president even announced a "jobs summit" between employers and unions just like the one initiated by then-Chancellor Schröder six years ago.

The very next day the French daily newspaper Libération ran an article under the headline "A President Modeled on the Germans," which claimed "If you closed your eyes, you could hear Merkel speaking" during Sarkozy's speech.

During a televised interview back in early November, Sarkozy uttered almost unimaginable words for a French president: "All my efforts are directed towards adapting France to a system that works. The German system."
And it's a very practical problem that France and other countries are choosing, under various levels of German coercion, to adopt Angie's disastrous austerity economics:

Throughout Europe, wherever austerity measures have been either announced or already implemented, Germany has been or is being blamed for it. After all, it is the Germans who are demanding these reforms. Very quickly, praise is being replaced by criticism that Chancellor Merkel is meddling in the domestic policies of other countries.

... Many in Spain were appalled by the wording of a telegram the German chancellor sent to Mariano Rajoy to congratulate him on his election victory.

"Dear Mr. Rajoy," she had written in the message, which the left-leaning newspaper Pùblico quoted from both the German and in translation. Now that he had been given a clear mandate, Merkel said, Rajoy should "rapidly" take the necessary steps. If, as seems likely, the text was leaked by someone close to the prime minister-designate, it was a shrewd move indeed, for the Spanish now have someone to blame for their suffering.
As Martin Wolf says, "like the Bourbons, the leaders seem to have learnt nothing and forgotten nothing." (Merkozy failed to save the eurozone Financial Times 12/07/2011) And he writes that, even if the immediate crisis is overcome, something he doesn't count as highly likely:

The failure to recognise that a currency union is vulnerable to balance of payments crises, in the absence of fiscal and financial integration, makes a recurrence [of the current euro crisis] almost certain. Worse, focusing on fiscal austerity guarantees that the response to crises will be fiercely pro-cyclical, as we see so clearly.
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