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发表于 2010-3-23 03:13 PM
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Has Germany just killed the
dream of a European superstate?
From the Financial Times and the London Telegraph
While the US was focused on the health care drama over the weekend, over across the pond events are rapidly deteriorating in euro land. For this week's Outside the Box I offer two columns, one from the Financial Times and another from the London Telegraph. Both describe the problems that the eurozone faces. It is not pretty.
I was sent this note from a Steve Stough who translated this from a German TV news show' It is a nice set-up for the two short columns.
I was reading an interview with Germany's most-quoted economist and then, all of a sudden, his face pops up on a TV show (a panel discussion on Germany's version of Fox Business News) at the same time, so I paid close attention. Hans-Werner Sinn's remarks are apparently listened to as closely as are the Federal Reserve Chairman's remarks in the US. He said:
 The Greek drama will have a 'frightful' ('schreklich') ending no matter which course of action is taken. The objective is to avoid having a Greek default trigger another banking crisis across the EU.
 The EU member states are too financially fragile to take on any flaky Greek debt. The actual Greek deficit is running at 16% of GDP, not 12% as previously reported. Greece is in a deepening retraction, not a recovery, as previously claimed. [Germany's social security, welfare, unemployment, and health care entitlement programs are all running cash-negative or soon will be, but that is another subject entirely. Angela Merkel has a committee established to work on tax reform, meaning tax rate reductions - Steve].
 There are three bad alternatives. He recommends #3 (effectively, default):
1. A Franco-German bailout. Dr. Sinn believes this is impractical and the worst of the three alternatives because the amounts required for an effective bailout are so large that it would trigger a jump in yields on French and German sovereign debt which would result in a Euro-wide financial crisis. In addition, Angela Merkel said 'no,' and so did Guido Westerwelle (her coalition partner and foreign minister).
2. IMF loans. Dr. Sinn believes that this would accelerate the Greek economic contraction with a dramatic deflation of wages and prices, which could lead to civil war, revolution and a political destabilization of the area.
3. Exit the Euro zone, revive the Drachma, re-denominate the sovereign bonds in Drachma, let the Drachma collapse, and rebuild after the collapse, largely on tourist remittances Assuming a small amount of domestic (internal) default, this would be the least-painful to the Greek populace, but German banks and investors would lose approximately $38 Bn in bond investments +/- what can be recovered after the Greek economy recovers. Eventually, Greece would be allowed to re-join the EU.
 Formation of an EU monetary fund is out of the question, he believes, because it requires treaty modifications that might take many years to pass.
 As an aside, he said that if German tax rates are not lowered, that Germany will slide back into recession.
Steve Stough
As a quick aside, I know I said two weeks ago that I would do an assessment of the affect of taxes on the US economy. I decided to hold off until we can see what the health care taxes rally look like, rather than guessing. I will get to it, as I am quite curious as to the total level of the tax increases.
Now, to this week's OTB.
John Mauldin, Editor
Outside the Box
Has Germany just killed the dream of a European superstate?
By Ambrose Evans-Pritchard from the Telegraph
German Chancellor Angela Merkel has little hope of selling a bail-out of Greece to German voters
German and Dutch leaders have concluded in the nick of time that they cannot defy the will of their sovereign parliaments by propping up a country that lied about its deficits, or risk court defeats by breaching the no-bail-out clause in Article 125 of the EU Treaties.
Chancellor Angela Merkel has halted at the Rubicon. So has Dutch premier Jan Peter Balkenende, as well he might in charge of a broken government facing elections in a country where far-right leader Geert Wilders is the second political force, and where the Tweede Kamer has categorically blocked loans for Greece.
The failure of EU leaders to cobble together a plausible bail-out - if that is what occurs at this week's Brussels summit - is a 'game-changer' in market parlance. Eurogroup chair Jean-Claude Juncker said last month that such an outcome would shatter the credibility of monetary union. It certainly shatters many assumptions.
There will be no inevitable move to fiscal federalism; no EU treasury or economic government; no debt union. It is Stalingrad for the federalist camp and the institutions of the permanent EU government.
I remember hearing Joschka Fischer, then German Vice-Chancellor, telling Euro-MPs a decade ago that EMU was "a quantum leap ... creating an inexorable federal logic". Such views were in vogue then.
Any euro crisis would force Europe to create the necessary machinery to make it work, acting as a catalyst for full-fledged union. Yet the moment of truth has come. There is no quantum leap. We have a Merkel pirouette.
Paris is watching nervously. As Le Monde put it last week, "behind the question of aid to Greece is a France-Germany match that pitches two conceptions of Europe against each other." The game is not going well for 'Les Bleus'. The whole point of the euro for the Quai D'Orsay was to lock Germany into economic fusion. Instead we have fission.
EU leaders may yet rustle up a rescue package that keeps the IMF at bay, but alliances are shifting fast. Even Italy has slipped into the pro-IMF camp, knowing that rescue costs can be shifted on to the US, Japan, Britain, Russia, China, and the Saudis, lessening the burden for Rome.
Besides, too much has been said over the last week that cannot be unsaid. Mrs Merkel's speech to the Bundestag was epochal, a defiant warning that henceforth Germany would pursue the German national interest in EU affairs, capped by her call for treaty changes to allow the expulsion of fiscal sinners from Euroland. Nothing seems so permanent about the euro any more.
Days later, Thilo Sarrazin from the Bundesbank blurted out that if Greece cannot pay its bills "it should do what every debtor has to do and file for insolvency. This would be a suitably frightening example for every other potentially unsound state," he said, pointedly excluding France from the list of sound countries.
Dr Sarrazin should be locked up in a Frankfurt Sanatorium. It was such flippancy that led to the Lehman disaster, requiring state rescues of half the world's financial system. A Greek default would alone be twice the size of the combined defaults by Argentina and Russia. Contagion across Club Med would instantly set off a second banking crisis.
Some suspect that ultra-hawks in Germany want to bring the EMU crisis to a head, deeming delay to be the greater danger. How else to interpret last week's speech by Jürgen Stark, Germany's man at the European Central Bank, calling for tightening to head off inflation.
This is alarming. Core inflation in Euroland was 0.9pc in February, the lowest since the data series began. It is certain to fall further as the doubling of oil prices fades from the base effect. M3 money has been contracting for a year. Business credit is shrinking at a 2.7pc rate.
So, it is not enough for the EU to impose a fiscal squeeze of 10pc of GDP on Greece, 8pc on Spain, and 6pc on Portugal, and 5pc on France over three years, we need a dose of 1930s monetary policy as well to make sure life is Hell for everybody.
Be that as it may, Greece's George Papandreou says his country is in the worst of both worlds, suffering IMF-style austerity without receiving IMF money - which comes cheap at around 3.25pc. So why allow his country to be used as a "guinea pig" - as he put it - by EU factions pursuing conflicting agendas?
The IMF option has its limits too. The maximum ever lent by the Fund is 12 times quota, or |
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发表于 2010-3-23 01:28 PM
