Merkel cannot have it both ways. She has gone to the furthest extent imaginable to save the Euro. Her ambition is to save not just the currency itself, but also to keep aboard every one of its current members. She could possibly succeed with the first objective if she abandoned the second.
The currency seems unwilling to appreciate (pun) these efforts, whereby yet more credit is issued to countries that are already indebted to levels that they cannot pay off. Not surprisingly traders don’t buy this strategy.
Only one event can stop the gradual, or not-so-gradual fall of the currency. On financial charts going back thirty and more years, you see an interesting thing. The Euro is referred to as the DM/Euro. The rates with the DM are equalised so that 1999 is not the launch of the currency. The Euro was launched at almost exactly two to one to the Dmark, and markets to this day, still fundamentally see the Euro as basically a continuation of the Dmark.
That indeed is how the project was sold to the Germans – that the currency would be a highly disciplined affair, where borrowing was strictly limited to the Maastricht Convergence Criteria of a maximum of 3% of GDP to be borrowed in any one year by any member state, and 60% of GDP the maximum borrowing level allowed.
The currency is now being re-rated from that original aspiration to the current situation, where the debts of many of the eurozone’s member states are not possible to ascertain.
This could all quickly change.
If any of the countries that are already beyond effective rescue, whose currencies urgently need to devalue, decides to quit the Euro and default, the event which markets supposedly fear the most, in fact the situation would at last start to improve.
It will far cheaper to allow insolvent countries to partially default on their debts, than to keep bailing them out with fresh money. This is something which will not be affordable for long, in any case. The crisis will not be made any worse by, say Greece deciding to re-launch her own currency. Far from it. Markets would breathe a heavy sigh of relief that things were moving away from the crazy solution being sought right now.
The objective of holding the Eurozone together in its entirety is a political one. Once this is abandoned, the markets will see the way open for the Euro to become the DM-Euro-DM, as it slowly returns to its original form, or possibly as a collection of fiscally-disciplined economies that are able to link successfully.
92% of Germans want these changes to happen, according to a recent Newspaper survey. Financial consultants in London are advising Greece it’s interests would be better served by relaunching the Drachma. It will happen. So why delay and put the world through maybe another year of this uncertainty which is hammering markets? The eurozone is simply too big a problem to leave lying around, rotting the other economic apples in the box.
Cutting out the rot will save as much of the fruit as is left, and so too will the default of a Eurozone country bring about its own salvation. Who will be the first to leap?
The rot meantime is spreading. Germans will be shocked when the currency goes through parity to the $. Maybe that will spring them into action, bring a new political leader to the fore, and start the process of repair.
British motorists in France are always surprised when they buy petrol(gasoline) to find that on their receipt, the bill is presented in two currencies, the Euro and the French Franc. The French still convert things back into Francs to assess their true worth. The Euro is truly a sham that fewer and fewer people believe in.
OPEN EUROPE – The farce continues…
Der Spiegel reports that the Bundesbank suspects a French “conspiracy” over the €25 billion which the ECB has spent purchasing Greek bonds so far. According to the magazine, Bundesbank officials suspect that the move is intended to allow French banks to unload their Greek bonds. One high ranking official is cited suggesting that ECB President Jean-Claude Trichet gave into pressure from French President Nicolas Sarkozy to change the ECB’s stance opposing the purchase of member state governments’ bonds.
Additionally, German banks are not allowed to sell their Greek bonds to the ECB, following a promise made by them to the German Finance Minister to keep the bonds until May 2013. Le Monde reports that “a perfume of divorce is floating between the Germans and the ECB”.
France to revive agenda for an EU “economic government”
Saturday’s Le Monde reported that French President Nicolas Sarkozy is reviving the idea of separate economic management of the eurozone. According to his ‘entourage’, he envisages a forum for the heads of state and eurozone governments, with its own secretariat which will be “the real economic government of Europe”, according to the article. It also suggests that Germany is not yet ready to accept the proposals.
The article adds that the French President has chosen not to discuss his view of an economic government publicly, because a French-German rift at the moment could be “fatal for the euro”.