|Merkel - Sarkozy- Monti Press Conference in Strasburg, 24 November 2011|
On Thanksgiving Day, while Americans ate their beloved turkey and pumpkin pie, the world started falling apart.
It happened in the course of a press conference in Strasburg where Angela Merkel, Germany's Chancellor and French president Sarkozy magnanimously received the visit from the new Italian premier Mario Monti.
Our dear Angela (an angel?) got once again busy stoking the fire that will consume the Euro.
While Monti looked increasingly uncomfortable and Sarkozy smiled benevolently, she was very clear in her school-marmish way: forget about Eurobonds and using the European Central Bank to bailout governments in financial trouble. The European Central Bank's "independence should be preserved"! Of course, she failed to add that she is the first one attacking the Bank's independence and dictating what the Bank should do and should not do.
If her objective was to kill Europe, she came close to achieving it.
She is always saying "Nein!" to all measures that could save the Euro. There has been a lot of talk that Europe has been driven by the German-French Duo, and the arrival of Monti on the scene heralded the start of a European Triumvirate - not something Monti likes, being someone wedded to the cooperative approach to build Europe, without leaving anyone out. A generous position if ever there was one.
But the truth of the matter is, Europe is not driven by a Duo or a Triumvirate.
Europe is driven by Germany - a Germany that refuses to help fellow Europeans. A Germany that always demands more austerity and promotes an economic model that is sure to suffocate economic growth, create untold pain and provoke social tensions across the continent.
Are you surprised that Germany is so negative?
I can't say I am. The spirit of perpetual negation is a profoundly German trait. Goethe knew this well when he wrote his famous line describing Mephistopheles:
Ich bin der Geist der stets verneint!
I am the Spirit that always denies!
(line 1338, in Faust)
So Ms. Merkel is no Angel: she is the Spirit that always says Nein!
She dashed hopes that she would listen to Monti who, being a good economist, had come to her with a sensible Eurobond proposal - sometimes called "stability bonds" but the idea is always the same: they would be collectively backed by Euro-zone governments and the interest rates would settle somewhere between the highest (Greece and Italy) and the lowest (Germany), probably around 5%.
Obviously an idea that is thoroughly disliked by Germans as it would make it more costly for Germany to raise money. But Germany had better think twice: it's latest bond sale crashed as one third went unsold, a clear signal that the Euro crisis has reached Germany at last, the core of the Euro zone. Reminding everyone that Euro zone members are in this all together. They will stand together or fall together.
Go and tell Ms. Merkel, the Spirit that says always Nein!
Instead she vaguely talked about changing the European Treaties first - a process that would take years and that the markets will not wait for. Because markets demand instant responses. And, yesterday, as soon as Merkel had finished talking, they dove down. Wall Street was closed but one may expect the markets to plunge further today.
Because the markets know something Ms. Merkel apparently doesn't. That if the Euro collapses, so will Europe and the rest of the world as we know it. Why? Because world trade will also collapse since Europe is the world's biggest trader and the largest market for both China and the United States. Once world trade goes, the ensuing economic tornado will make the aftermath of the 2008 collapse of Lehman Brothers look like summer rain.
Perhaps the most remarkable aspect of this Euro crisis is the unquenchable optimism of German businessmen. Yesterday, a German survey reported that they felt more optimistic than ever. In what kind of world do Germans live?
How can they get it so wrong? I'll tell you, it's easy to understand. With the establishment of the Euro, things could not have gone better for Germany. First the Euro, launched at parity with the US dollar, plunged immediately below, making it cheap and stoking exports. A boon for the German economy that was in trouble at the time, with relative high wages and social tension. The export-led boom solved many of Germany's economic and social problems in the early 2000s, although it left a large segment of the population outside of the boom - additional reasons why Germans are in no mood to help bail out Euro zone countries that they see as profligate. Even with a high Euro, the Germans kept exporting. No doubt thanks to the quality of their products, but a major reason is also that German business has been able to obtain loans at the lowest rates in Europe. Lately there are signs that German exports are slowing down. Are German exporters worried by the Euro crisis? Not really. In the short term, they see it as something very, very good for Germany: as the Euro finally weakens, exports will become attractive again.
What German businessmen forget, is that currency movements can be very fast and unexpected. If a Central Bank is not allowed to defend its currency's stability when speculators attack it - the case now with the Euro - then the currency will crash, banks will fail, trade will stop, jobs will disappear, income will evaporate, savings will go down the drain, pensions will go unpaid...
It will usher in a new Financial Ice Age that will affect the whole world - yet another unpleasant aspect of globalization. It is likely to last much longer than the Big Depression of the 1930s, with much larger and longer lasting impact on society worldwide. The poor will get poorer - and hungrier - but the super-rich, that famous one percent, will also have lost everything.
And we shall all have Ms. Merkel to thank for.
Because there will be nowhere to go. Savvy investors for the moment are eyeing Dubai's sovereign debt figuring that with the Gulf Oil States, their money should be safe. Let the Euro collapse, one can always run to petro-dollars. But they're forgetting something: in a tradeless world, petrol cannot command the same prices...
Can anything or anyone at this point save the Euro (and the world)?
Yes, there is something.
Ms. Merkel, instead of saying that what the Euro and Europe need is "more Europe" (sounds intelligent but it is singularly bereft of any meaning in your mouth), why don't you start saying "Let the European Central Bank be independent and act as a Central Bank"?
You ackowledge yourself that currency stability is in the ECB's mandate. If it is, then let it work on it. Freely - let it act as a Central Bank should. And if it means issuing Eurobonds collectively backed by Eurozone members, making the bonds like US Treasury Bills, let it be. It will surely cost Germany less in the long run, just a few additional percentage points, compared to losing everything...
Ms. Merkel, which do you prefer?
Or is your aim to go down in History as as the usherer of the New Financial Ice Age?