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.

Tags: angela merkel, eu, euro, european union, martin wolf

President Obama and the imaginary country

Obama's caving to the Republicans on matters large, small and everything in between in getting comical. Or at least comically sad: Sam Stein, Obama Jobs Speech Thursday Night: President Gives In To Boehner Over Congress Joint Session Address Huffington Post 08/31/2011. This prompted numerous scornful tweets. Nell Scovell: "Obama's jobs speech was asked to leave a resume and come back the next day."

Jamison Foser: "Thinking about having an ice cream sandwich for dessert. I mean, if it's OK with John Boehner."

Polutlas: "Obama's making full use of the bullied pulpit."

Josh Marshall: "Boehner stipulates Prez must wear bag on head"

I'm not really into gratuitous Obama-bashing. But this is an easily-understandable incident where Obama winds up looking like he's endlessly willing for the Republicans to slap him around. At a time when Democrats and Democratic-leaning independents are still disappointed over his debt ceiling debacle, this is just the kind of symbolism he doesn't need. The Republicans in every Presidential election accuse the Democratic Presidential candidate of being a "weak leader." Our national political press is happy to echo that charge. Obama can't avoid the accusation. But he could do a much better job of avoiding giving it credibility.

Martin Wolf in Struggling with a great contraction Financial Times 08/30/2011 has an excellent phrase for the Obama Presidency to date:

Mr Obama wishes to be president of a country that does not exist. In his fantasy US, politicians bury differences in bipartisan harmony. In fact, he faces an opposition that would prefer their country to fail than their president to succeed. [my emphasis]

Wolf's analysis of economic prospects also defines what a serious problem this creates for President Obama's re-election, though that is not his focus:

Yet all is not lost. In particular, the US and German governments retain substantial fiscal room for manoeuvre – and should use it. But, alas, governments that can spend more will not and those who want to spend more now cannot. Again, the central banks have not used up their ammunition. They too should dare to use it. Much more could also be done to hasten deleveraging of the private sector and strengthen the financial system. Another downturn now would surely be a disaster. The key, surely, is not to approach a situation as dangerous as this one within the boundaries of conventional thinking. [my emphasis]

In other words, something the US and the European Union could apply policies that could substantially improve the world economy and the US and EU economies, more particularly. But that requires their government to adopt something more sensible that Herbert Hoover economic policies. And Obama's own conservatism, combined with his seeming delusions about the Republican Party and the bizarre image of voters looking for Compromise regardless of substance, makes that an almost unthinkable prospect at this time.

Cenk Uygur gives his view of the negotiating problem in The audacity of weakness Salon 09/01/2011. Arguing against the die-hard Obama fans who see even the most embarrassing stumbles and failures as the sign of a sophisticated strategy (rope-a-dope, three-dimensional chess, pick your metaphor). Instead, Uygur argues:

He doesn't realize he's getting pummeled. He thinks this is all still a genius strategy to capture centrists by compromising on every single little thing. He is not trying to put on an appearance of weakness to lull his opponent into a false sense of complacency. He doesn't even realize he is being weak. He's the one with the false sense of complacency. As he's getting knocked around the ring, he thinks he's winning.

These guys in the Obama camp are in for a horrible, rude awakening. Sometime in the next year, they are going to blink and realize they are lying flat on their back on the canvas. Then as they finally stumble up, they'll realize they should have started fighting 11 rounds ago. Then a panic will set in, but I'm afraid it will be too late by then.

Yes, a Republican President would definitely be worse. But unless Obama can start being a better President, the chances for a Republican successor in January, 2013 are high.

Tags: barack obama, martin wolf