Mon Jun 21st, 2010 at 04:56:02 AM EST
Is Germany bent on destroying the Euro?
Zero Hedge: Ferocity Of Imminent Spain-Germany Cold War Will Only Be Second To Upcoming Fox Biz-CNBC No Holds Barred (by Tyler Durden on 06/18/2010)
One of the more ominous news of the day came from Reuters, which reported that the previously disclosed rumor that Spain was seeking a 250 billion bail out package, had in fact originated from high-placed German officials. The move, which will could easily set off an intraeuropean cold war, was prompted by the increasing schism between Europe's (so far) solvent core and the insolvent Club Med, and was intended "for Spain to take tougher austerity measures to cut its huge budget deficit." Instead, the tsunami of denial that resulted, only exacerbated matters and made it seems like Spain is truly on the brink. Compounding this animosity, was the disclosure that Spain's direct counterattack took the form of the El Pais story that "quoted Spanish government officials as saying Madrid wanted to publish the results of stress tests being conducted on its banks to reassure markets" a move which has been opposed by Germany and especially by Austria, which believes that publishing the true deplorable state of affairs of its Erste and Raiffeisen Bank would cause yet another bank run. At the end of the day, none of this helped either unlock Spain's frozen interbank or money markets, or encourage a sense of credibility in the euro (turns out that was only courtesy of the biggest short squeeze in Euro history). In fact, if such political low blows are to be expected, it is only a matter of time before all investors completely desert Europe and let it deal with its escalating vendettas on its own. Yet all of this pales in comparison with the very sweaty locker room war that was just unleashed by Fox Business' Charlie Gasparino against CNBC, and particularly its early morning anchor, Joe Kernen.
This is the kind of "accord" that is permeating Europe right about now: what initially was just a war of words between Germany and France, has escalated into a war of actionable attrition, as the German rumor most certainly had a very adverse impact on Spanish bond spread. The simple conclusion is that Germany is now actively trying to scuttle the European rescue, and will not stop before the euro plunges, or goes extinct. It is certain that this media circus will only get worse, although it will wipe out Spain first, before it comes around and test just how stable those sub 3% Bunds really are.
Is a country that would have government officials spread damaging rumours about a fellow Eurozone country "on condition of anonymity" the weekend before a major public debt issue fit to be a member of the Eurozone, especially when said country is the Eurozone's largest economy and its bonds are the benchmark for ther countries'?
Reuters: German-Spanish whispering wars hit euro zone (June 18, 2010)
German, Spanish officials leaking against each other
German sources said Spain on brink of EU bailout
The Germans seem to have fired the first shot, telling journalists in Berlin on condition of anonymity on June 7 -- the day the German coalition agreed on its own austerity package -- that Spain was on the brink of seeking a European Union bailout.
Two German officials told Reuters that the Spanish government would make an announcement concerning the European Financial Stability Facility that day, when European finance ministers were meeting in Luxembourg to finalise details of the 440 billion euro backstop arrangement for euro zone states.
After extensive checks, Reuters decided there were no facts to report. But the rumours were already affecting the markets.
It appears journalistic integrity is in short supply at Financial Times Deutschland and Frankfurter Allgemeine Zeitung.
Diplomats said Spanish Prime Minister Jose Luis Rodriguez Zapatero was furious and demanded to know in Berlin and Brussels where the reports were coming from.
Angela Merkel issued a characteristically unhelpful non-denial denial
Asked about the German media reports, Chancellor Angela Merkel told reporters that day: "If there should be problems -- and we shouldn't talk them up -- the mechanism can be activated at any time. Spain and any other country knows that they can make use of this mechanism if necessary."
As kcurie put it, "Spain's powers-that-be
got fed up with Germany
The counter-attack began on Tuesday, when El Pais newspaper quoted Spanish government officials as saying Madrid wanted to publish the results of stress tests being conducted on its banks to reassure markets -- a move hitherto opposed by Germany.
"If the results of the tests were known there would be more than one surprise," one of the sources was quoted as saying, noting that Spanish banks had performed well.
The next day, the Bank of Spain said it would soon issue unilaterally the results of tests of capital adequacy and risk resilience being conducted on Spanish banks.
The conclusion is that Germany is unfit to be a member of the Eurozone:
EU officials, reluctant to speak on the record about the dispute, said the European Commission was flabbergasted by the leaks, which were damaging the euro zone.
"We simply cannot understand how this can be in Germany's interest, or anyone's interest in the euro area," an official involved in crisis management said.
But we knew that already - even German economists agree...
Eurointellingence: GERMANY IS UNFIT FOR THE EURO (By Joerg Bibow, 21.04.2010)
Not for the first time in its history the German people have been irresponsibly misled by a political leadership that seems to have lost any sense of history, any sense of order and stability in Europe, and any sense of Germany's key contributing role to the current crisis. As ever, the mindset of lawyers frames the political debate among a political class that seems inhumanly uneducated in matters of economics. If economic voices are heard at all, it is usually the voice of the Bundesbank. It is a peculiar democracy that expects either its constitutional court or central bank to have the final word of wisdom.
Germany likes to see its international competitiveness as the fruit of hard work and productivity. Yet, German productivity growth since 1999 does not stand out. What stands out is wage stagnation. Germany's improved competitiveness was derived from reducing German wages relative to its European partners; the equivalent of a beggar-thy-neighbor devaluation in pre-euro times. The consequences of this strategy have proved disastrous: domestic demand stagnation in Germany, housing bubbles in partner countries with higher inflation, given that the ECB sets one rate that has to fit all. One way or another, the country that runs up trade surpluses must either lend or grant transfers to the deficit countries that make its own surpluses possible. Today, German policymakers refuse to do either. Fooled into believing that beggar-thy-neighbor was the right thing to do, popular demands appear to be just that. One cannot fail to see that insane austerity in the periphery serves to keep the euro low enough so that Germany can now grow on external exports.
That is neither what Europe needs nor what the world may reasonably expect from Europe. Sooner or later Europe may have to conclude that Germany is unfit for the euro. Let the Germans have their mark back if they are so keen. Let the new euro-mark rise to US dollars 2 or 2.50, so that the joys of stability are real. Euroland may then regroup around France. With Germany once again proving immature to provide constructive rather than destructive leadership, Europe's fate is in France's hands.
The problem is not only that rules don't apply to Germany, but that France repeatedly colludes with Germany to move the goalposts because it is also in France's narrow national interest.
EurActiv: EU to introduce concept of 'dynamic debt' (18 June 2010)
EU leaders yesterday (17 June) agreed to curb excessive public debt in the wake of the Greek crisis, with sanctions for rule-breakers set to be based on debt trends rather than absolute figures in order to avoid immediate sanctions for member states like Italy, Belgium, France and Germany.
3 months earlier (to the day, on 18 March), I had written:
Eurostat's Selected Principal European Economic Indicators links to a table with annual time-series data on General government gross debt [as a percentage of GDP]. This is Germany's:
In 2005, EurActiv reported:
Heads of state and government agreed at the March 2005 Summit to revise the EU's Stability and Growth Pact reform. Under the revised rules, member states must still keep their public deficits under a 3% GDP/deficit ratio and their debts under a 60% GDP/debt ratio.Gee whiz, when the governments of Germany and France were about to have an "Excessive
However, the pact's rules have been made more 'flexible' across a range of areas. For example, member states will avoid an excessive deficit procedure (EDP) if they experience any negative growth at all (previously -2%), can draw on more "relevant factors" to avoid an EDP and will have longer deadlines if they do move into an EDP.
In essence, big countries such as France and Germany have won concessions making the pact more 'flexible' in various parts, adding up to a considerable relaxation of the rules. In return, countries such as Austria and Netherlands have won references to "enhanced surveillance, peer support and peer pressure".
The two thresholds - 60% for the debt and 3% for the deficit - remain unchanged.
Deficit Procedure" open against them, they lobbied to change the rules. And this was in 2005, not in the middle of the biggest recession since the 1930's.
Back in March, with the Greek bond crisis raging and Germany getting all holy about fiscal probity, it was really, really hard
to take Germany seriously at all given their own fiscal record. Now, having successfully torpedoed Greece, they are going against Spain. It is no longer a question of not taking Germany's moral admonitions seriously, but of recognizing Germany as the leading destabilizing political force within the Eurozone.