Time Running Out For Germany!

June 24, 2012

As the problems of the euro deepen Germany continues to steel itself against measures mooted to cope with the euro growing malaise. Euro bonds, mutualisation of debt, calls for banking and fiscal union and inadequate response on such measures have led to criticism that Germany has sat on the fence without taking the leadership role required to deal with the crisis.

Often criticism of Germany is confused with criticism of the role of the ECB or of political leaders across the EMU or criticism of the response of other individual sovereign governments to the crisis. Its a game of political pass-the-buck with responsibility directed away from any potential target.

In Ireland its argued that the political establishment is in bed with the banks and the Troika; the present government hasn’t grasped the full implications of taking on by guarantee the unconscionable ¢64 bn of banking debt it has foisted on taxpayers.

In response, the political establishment has referred to ongoing negotiations predicated on relief of this burden but has shown no significant success in this project.

We were pointed to the anomaly that bailout engineered by the Troika was contingent on the protection of bondholders; that we would get no ‘bailout’ were we to burn bondholders; whereas ‘bailout’, without the burning of bondholders, would only add to our burden making recovery through austerity more unlikely, and certain to fail.

Such an anomaly has meant that not only would our bailout fail, but our economy will fail in a chicken and egg form. Negotiators undoubtedly behind the scenes have used this as leverage to have our debt burden relieved.

But some commentators believe that the ECB has made a mistake; that Ireland’s debt burden is mistakenly viewed as manageable.

What if there is no mistake? What is we have a usorious relationship based on the simplistic fact of lender of last resort, Germany simply wanting its money back and very unwilling to pay to pay for the party held by the periphery. Enter austerity and severe lending conditions and refusal to burn bondholders as these bondholders are German banks!

In many ways Ireland’s debt problems are a mere microcosm of the overall debt burden of the euro and its flawed design.Take the following example of the broken relationship, unfit for purpose of the euro project expressed in debate over a possible Fiscal Transaction Tax.

Germany and the inner core of the euro represented by its leading members, France, and other northern european neighbours in efforts to broker a FTT Financial Transaction Tax show the divisive rifts at the heart of the euro’s flawed design.


FTT is seen as one way to create a method to insure the financial services industry can pay for fallen banks and remove this burden from sovereigns and taxpayers.

Because of opposition from countries such as Ireland and the UK to this tax, Germany and Denmark have seen this proposal founder, but they will forge ahead with a core group of ten countries to bring about FTT.

Let’s ignore the absence from Ireland from that group but suffice it to say if FTT goes ahead it will not be sued to relieve Ireland’s debt burden.

Germany has benefited from a divided EMU. Its banks have fed the desire for vast lending from the periphery from Greece to Ireland. Countries such as Ireland and Greece who’ve taken on board the largesse and ease of access provided by cheap lending within the eurozone have in turn kept down interest rates and inflation in Germany and the EMU core making Germany’s goods cheaper and more competitive globally.

Cheaper goods, lower inflation, less competition with eg Italy unable to lower its exchange rate as it competes with Germany; Germany’s wealth, invested by banks into cheap loans to the periphery to enable them buy German goods and interest on those loans, has been a winner take all situation for Germany.

Its no wonder commentators are asking for Germany to support a rebalancing of this flawed, built to fail euro design.

In many ways the euro is a ponzi scheme. Those in at the beginning spreading the cheap euro loans in the economy saw their economies boom and bubble. Unwisely economies such as Ireland misspent such lending in Zeppelin property bubbles that were doomed from the outset.

But the EMU is not a true currency union able to cope with these problems. It is not the US FED with FIDC, FOMC and Central Bank authorities forged through the fire of the 1929 Wall Street Crash, Glass Steagal and latterly


It cannot agree a simple FTT tax without dividing. The EMU has deep political divisions the dollar does not have. Though the dollar has enormous problems caused by debt, derivatives, floating and borrowing, the EMU is not even a currency union. It’s a mere credit union with some members expecting their profligacy to be supported by spendthrift neighbours investing in a euro project built to fail.

Many argue those involved should take their winnings and losses and leave the euro casino.

Germany wants its money back. It will not easily give up its erstwhile privileged role in the EMU.

Debt is a form of conquest. ““There are two ways to conquer and enslave a country. One is by the sword. The other is by debt.”
― John Adams.

Arguably Germany has conquered the periphery by debt. Its interests defended by the Bundestag and its own banks are becoming shrouded in dreams of political and fiscal union. The ESM (European Stability Mechanism) has invoked the ECJ (European Court of Justice) to police its debt and ensure no wavering among members of the EMU eg Ireland who might have second thoughts about the fairness of odious debt paid back through promissory notes by way of the so-called ELA (Extra Liquidity Assistance) payment system.

Germany currently is showing little mercy to its debt ridden fellow members of the European Credit Union. The concern is this debt crisis for the periphery will in the long term be fashioned into a steely opportunity of political and economic vanquishing of the periphery.

Germany in the 1930’s did not manage so well a situation of this proportion, that has many striking similarities today to the 1920/30’s in US and Europe.Perhaps the mugs in the political establishment in Ireland and Europe who are clearly wedded to a nostalgia for a clearly badly designed old euro, should remove the veil of nostalgia for the past and be prepared to cast the euro into the bin of history.

Of course Germany may still turn out to be the knight in shining armour that can mend dull criticism of the euro and put on the euro project the suit of clothes the euro should really be wearing!

But you’d need to be a mug to believe that a suit of clothes exist that can save the euro.

It is likely finding the agreement among members of the EMU on what suit should be worn and who pays for it, will be very difficult 🙂



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