Did Germany Just Blink?

So who’s going to bail out the banks?

By Don Quijones, Spain & Mexico, editor at WOLF STREET.

A most unusual thing happened in Europe this week. In a rare climb down, Angela Merkel’s government decided not to push the European Commission to impose a punitive fine on Portugal and Spain for their persistent failure to comply with their budget deficit targets, leading one Eurogroup minister to declare that the euro zone’s Stability Pact is “dead.”

Of Europe’s 27 commissioners, only four voted in favor of applying the fines; the other 23 voted against. According to El País, the deciding factor in the decision was an impromptu phone call from German finance minister Wolfgang Schäuble to some of the more conservative commissioners, giving them the green light to forego the fine.

The U-turn offers Spanish and Portuguese taxpayers a brief but welcome respite from Troika-enforced fauxterity. As we previously pointed out, if the Commission had imposed the fine, it would not have been paid by the politicians who failed to play by the rules agreed upon in Brussels; it would have been paid by the citizenry who are already suffering the consequences of the recession that helped cause the deficits.

But does this rare act of benevolence from Germany represent a genuine shift in policy toward the Eurozone’s Club Med members or is it merely an act of political expedience?

Naturally, Schäuble and Juncker would much prefer Mariano Rajoy, a man cut from pretty much the same ideological cloth as themselves, to stay in power. Spain has been an important ally of Germany under Rajoy’s charge and the support of his party was essential in propelling Juncker into the European Commission’s top spot. What’s more, if Rajoy does eventually form a government, a new round of pre-ordained fauxterity will quickly kick in.

But there are also signs that Germany may be beginning to marginally soften its stance on austerity, prompting rating agency Fitch to lament Europe’s abandonment, once again, of fiscal discipline and economic reforms.

Merkel’s government seems to have realized that for the European project to have any kind of future in a post-Brexit world, it will have to offer a little more carrot and a little less stick. If it doesn’t, the single currency that enables German manufacturers to export at a discount rate all over the world will eventually crumble under the weight of its own contradictions.

“The problem is this,” warns U.S. rating agency Standard & Poor. “The EU, as it is currently constructed and operates, doesn’t embody a coherent ‘pooling’ of the various dimensions of nation-state sovereignty, and therefore it’s unsustainable in its current form.”

Put simply, the EU is a half-way house with too much democracy and nothing in the way of transfer union.

“There are too many moving parts in the electoral politics of 28 nation states, and too many conceivable random-like events that could push political and economic developments in one direction or another, with impossible-to-predict consequences and timelines,” the agency added.

The perfect case in point is Italy’s banking crisis. If the country’s struggling banks are not saved with a combination of public and private money — a process that, to all intents and purposes, began on Friday with the announcement of Monte dei Paschi’s suspension of the ECB’s stress test as well as a €5 billion capital expansion later this year — the resulting carnage could unleash not only a tsunami of financial contagion but also an unstoppable groundswell of political opposition to the EU.

For a taste of just how disastrous the political fallout would be for Italy’s embattled premier, Matteo Renzi, here’s an excerpt from a furious tirade given by Italian financial journalist Paolo Barnard on prime-time TV, addressing Renzi directly:

“You went to meet Mrs. Merkel to ask for a minor public funded bail-out of Italian banks and you got a sharp NO. But did anyone tell you that Germany from 2009 onwards bailed out its failing banks with public money?

“Banks, that is, with holes in their balance sheets visible from the Moon. Germany bailed them out to the tune of 704 billion euros. It was all paid for by European taxpayers’ money, public funds that is.

“It was done through the EU Commission of Mr Barroso and by Mr Mario Draghi at the ECB. Didn’t you know that Mr Renzi? Couldn’t you have barked this right into Ms Merkel’s face?”

Barnard rounded off his rant with a rallying call for Italians to follow the UK’s example and demand an exit from the EU — a prospect that should be taken very seriously given that one of the manifesto pledges of Italy’s rising opposition party, the 5-Star Movement, is to call a referendum on Italy’s membership of the euro.

Such a vote would be impossible since the Italian constitution expressly forbids referendums on international treaties such as those that hold the EU together. But as Reuters reports, Matteo Salvini, the leader of the right-wing Northern League, a member of the opposition center-right, and Beppe Grillo, founder of the 5-Star Movement, have vowed to pursue a legislative change to allow an ad-hoc exception to the Italian constitution.

Whether or not a referendum on the euro takes place, one thing that’s clear is that a post-Renzi Italy will be a much more difficult, unpredictable force to deal with than the current Renzi-governed Italy. And if Italy ever did decide to leave the Union, whether in an orderly or disorderly fashion, it would be the end of the road for the European project.

For that reason alone, the Commission and Germany will almost certainly end up granting further concessions to Italy and its Southern European neighbors, including a taxpayer-funded rescue of MPS. It may even include a bail-out top-up for Portugal’s crumbling financial system, which was left out of last week’s stress tests.

The challenge for Merkel and other leaders of core euro zone nations will be trying to persuade their already disgruntled voters of the need for increased solidarity with their struggling neighbors to the South. That may well be a bridge too far. By Don Quijones, Raging Bull-Shit.

There’s a pervasive sense of inevitability to Italy’s banking crisis. Read…  Contagion from Italy’s Bank Meltdown Spreads

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  54 comments for “Did Germany Just Blink?

  1. Chip Javert says:

    Always fun to read about EU socialists and money, bank stress tests, rule bending, bureaucrats telling elected officials “NO!”, loss of national sovereignty, infinite taxpayer funding and lots and lots of unemployment. Italy, France and Greece are especially good at this (WE DEMAND CHANGE AND WE REFUSE TO DO ANYTHING DIFFERENTLY). And still, none of these guys have figured out why Britain voted to get out…talk about your low SAT scores.

    The EU reminds me of a cartoon I once saw of two fisherman sinking in an 8 foot row boat. The guy in the bow is way above the water as the man in the stern slips under the waves. The guy in the bow says he refuses to help bail because the hole is plainly in the other end of the boat.

    Brexit breaks the mold for this national insanity. The collateral issues are unclear, but the uncertainty of independence and self determination look far better than the never-ending EU keystone cops routine being played with the money of 500 million people.

    One hopes the USA watches and learns.

    • nick kelly says:

      And the US does what after learning that the EU is unsustainable?
      The finances of several states are in similar dire straits, with one I believe paying in IOU’s. so do they or the solvent ones secede?
      Then the broke ones could print their own currencies- the apparent cure for everything ailing the EU?
      Puerto Rico although not legally a territory, has had its tax free bonds peddled as though it was a state, is going to be bailed out EU style. It’s just the first.
      And the cartoon about the guys in the boat- surely the point is that the guy refusing to help, refusing to understand they are in the same boat is acting against his interest. Now they are both going to drown.

      This is not a sarcastic rant BTW, I’m genuinely puzzled as to what you mean.

      • Chip Javert says:


        This is what I mean:

        Europe has been through this time after time after time in the last 2-300 years since before Napoleon. A few Eurocrats (Kings, Emperors, whatever) are fighting over personal power as the lives, wealth and dreams of hundreds of millions evaporate.

        Currently, EU socialists are trying to do anything except what is actually necessary to solve the quickly evolving existential problem (example: EU will not rigorously stress test banks because they know most will fail – EU population will not accept that result & associated costs). Without realistic necessary changes, The EU experiment will fail – hundreds of millions will be poorer – and human history is littered with the results of European bad behavior (over 100 million people killed in WW1 & WW2).

        You express pessimism for the USA, and not without reason. However, I view the glass as half full – there still is a chance to continue the American experiment.

        Yup, various states are in financial trouble (USA succession issue was settled in 1865); as for Puerto Rico – frankly, I don’t give a damn. It’s time that remnant of the Spanish-American war grew up and accepted responsibility for their own destiny, Legally they have the right to vote independence from the USA and I hope they exercise it.

        The critical advantage USA has over almost the entire rest of the world is we continue to create things (iPhones) and services that the rest of the world values (will pay for). Our banks are not perfect, but they’re literally 20 times healthier than EU (or Russian, or African, or Japanese or South American) banks.

        You got the message about the guys in the boat – narrowly defined self-interest can cause the whole ship to go down.

        Now that we desperately need leaders (Roosevelt, Churchill), all we have is Trump and Clinton (current British PM is a complete unknown).

        Hopefully this helps explain what I meant.

        • nhz says:

          the Netherlands and several other EU countries have repeatedly voted against the current EU regime, which is of course really the US occupation since WWII. Nothing happened … the only option is a real revolution in the streets, something I haven’t seen from the US in a long time either.

          As for ‘create things and services that the rest of the world values (will pay for)’: don’t make me laugh, do you consider the US super-STASI (Facebook, Google etc. etc.) a service to the world? It’s outrageous (maybe US citizens call this clever?) how the world has to pay massively for the crooks that keep the US and their elites on top of the world by e.g. massive tax evasion.

      • Intosh says:

        Funny how you explicitly mention “EU socialists”. Are you suggesting this is unique to socialism? The same problem exists and have existed elsewhere, a problem which took root from an ideology that is not even remotely related to socialism.

        • Chip Javert says:


          Not sure I understand the point of your comment.

          This is a thread about the EU, Germany and the banking crisis. I mention EU socialists because it is exactly those guys who are ruining the lives, futures and fortunes of 500 million relatively wealthy Europeans (compared to global average).

          I’ll grant your point that other ideologies can be toxic, (Mugabe is having the same end result in Zimbabwe, and he isn’t a socialist), but this is an EU/German/banking thread.

          Re-read my post – at no point did I say or imply this behavior is unique to socialists. I’m simply granting socialism the horrific respect it earned as a butcher of both economies & human beings in the 20th century.

        • Intosh says:

          Chip Javert,

          That is what I do not understand. Why are you saying socialists are ruining the “lives, futures and fortunes”? Please explain. Why are you saying socialism is a “butcher of both economies and human beings”. Please explain.

    • Karl McGaugh says:

      Nicely said.

    • Wynona says:

      I agree 100% Chip…keep preaching…the sinking boat analogy was spot on…

  2. john folger says:

    merkel wants to set up her own 4th rich /eu army an have all eu pay for it

    • chip javert says:

      And you know this because?

      • Gil Obrero says:

        In the same way that when you open your eyes in the morning you see the sun rise.

        • Chip Javert says:

          Gee Marty & Gil, if you actually think that is a 4th reich, you might want to consider:

          1) learn how to spell “reich” (makes you look like you know something about what you’re talking about)

          2) Read some history about exactly what the 3rd reich was (in terms of sheer numbers & terror, it makes ISIS look like Cub Scouts; it also participated in killing around 60-80 million people – 60%+ were civilians). The reich was a nasty, murderous piece of business from day 1 – it was never hidden.

          3) EU citizens may be sheep, but they realize ISIS is now slaughtering them almost at will. Other than partnering with USA, Europe effectively has little or no military (guys in fancy uniforms – yes; fighting military – no; Britain & France somewhat excepted). Even sheep panic and want security

          4) Do your audience the favor of sharing the critical thinking you’ve done to identify an evil 4th reich rising in Europe. Simply brandishing the word “rich” doesn’t cut it.

        • Marty says:

          Your comments missed the mark completely. Wondering if you read the link. The powers that be are planning an EU army and using “ISIS” (read Gladio B, courtesy of the USG) to scare the sheep into accepting it. Your smart alec quips both about John’s spelling and your twisted “history” don’t change this, nor do they do your audience a favor. Did you forget to take your happy pills today by any chance?

        • Chip Javert says:


          Yup I read the link.

          Unfortunately, I think ISIS is doing an excellent job of scaring the European sheep – European governments are doing a poor job of protecting them. Europe lives in a rough neighborhood and needs military protection from a variety of threats.

          Hard to comment on your thinking I’ve stated history incorrectly – you didn’t take the time to share any examples. Please do…

          I’ll give you a mulligan on the reich spelling “reich” – that appears to be sensitive for you. However, you still have provided no examples of how the these current German proposals compare to the 3rd reich. Please do…

        • nhz says:


          “Unfortunately, I think ISIS is doing an excellent job of scaring the European sheep – European governments are doing a poor job of protecting them. Europe lives in a rough neighborhood and needs military protection from a variety of threats.”

          Yes, and who started ISIS (and Al Queda, and most other ‘terrorist organizations’ we have dealt with in the last 25 years or so)? The US. The US stirs up trouble all over the world, destroys a whole nation every few years and Europe has to pay for their own military (NATO, which is simply the occupation army of the US) to ‘stay out of trouble’ and for the millions of migrants that flood to Europe as a result of US policy.

          With most of the ‘ISIS attacks’ (and some of the ‘Al Qaeda’ attacks before them) it is obvious that the EU intelligence services were involved, they always come at a very opportune moment and there are often similar loose ends like known contacts of the intelligence services involved. And who directs the EU intelligence apparatus? It certainly does nothing on behalf of EU citizens.

        • Chip Javert says:

          If you actually believe the USA started ISIS, you must be having a tough time understanding the rest of current events, let alone history or almost anything involving human beings.

          Over 90% of the people ISIS slaughters are Shia muslims (roughly 100,000 since 2014; primarily women and children). ISIS considers Shias to be infidels, just as they do westerners. Apparently unknown to you, this Islamic fight has been going on since about the 6th century AD (for the historically challenged, that’s 11 centuries before the US Declaration of Independence).

          Yes, it is quite possible for people to do horrible things without the USA having started it.

          However, please do not study history or let facts stand in your way – the entertainment value of your opinion is terrific.

        • Marty says:

          NHZ, clearly Chip is not going to accept the reports and obvious evidence that the US is behind Isis and al queda. He probably doesn’t know what Gladio was, forget about Gladio B. He’s probably also not aware that Wall Street funded Hitler. Anyone who thinks that the world is beholden to the US for Apple’s spyPhone can’t be reached. No point in trying to argue facts with him. ;-)

          Chip, If you will review, I did not misspell reich. That was someone else, so i have no personal sensitivity about it. I do however think it telling that you find it necessary to correct another’s spelling rather than try to understand his point of view. Down right rude, ad hominem and all that, imho. If you are as smart as you seem to think you are, there’s no need to resort to rudeness to win an argument.

          How’s my grammar, big guy?

  3. Copernicus says:


    It isn’t almost certain Germany will do the sensible thing. Although I agree they should see things your way. The Germans don’t think like that.
    There are three types of economics
    B) Macro (which isn’t simply pumped up micro)
    And the kind of economics the Germans apply
    C) Theological economics.
    The Germans are trying to persuade the rest of Europe the Protestant way is the only virtuous path to economic salvation. Burning Catholics at the stake the priests, they wonder why the corrupt Catholics complain so loudly. Don’t they realise they are about to ascend to heaven if only they accept the Protestantism? Don’t they see if the Italian banking system collapses and the Italian economic is destroyed it will be so much easier to switch to manufacturing? Don’t they see we are trying to help? We are doing them a favour? Don’t they see we get nothing out of this? Our motives are pure.

    • Lex Lutheran says:


    • nick kelly says:

      Not bad but just a few points- not only are the Germans not the only ones critical of the Italians, Greeks etc. they aren’t the only ones in the EU.
      Finland drives an even harder line.
      Second: of course Germany does not want the Italian banking system to collapse as a way of ‘switching to manufacturing’, manufacturers need banks.
      The point of the article that you are commenting on is that Germany is trying to give Italy wriggle room.
      Finally- ‘that macro isn’t simply pumped up micro’- I encounter this a lot whenever I suggest that maybe countries should live within their means. like a household. One UK called this ‘handbag economics’ – I wonder if he is living on someone’s handbag.
      In physics and chemistry of which I have some knowledge, the micro
      DOES explain the macro- that’s one of the reasons scientists are always probing smaller realms. E.g. water is highly unusual in that it expands when it is cooled below a certain point- this is ultimately explainable by the bonds between the atoms.
      With the idea that the national economy is not understandable as an aggregate of its parts but as something ‘other’, the other seems to be the right to issue currency and bonds, and to gradually do more and more borrowing from the unborn.

    • Chip Javert says:


      Great rant.

      One tiny issue – things were a little garbled in your post, but you seem to imply Germans burned catholic priests in the inquisition. I humbly submit it was called the “Spanish Inquisition” for a reason.

      However, if your point was Germany was not as welcoming to Catholics as southern Europe, that’s a more accurate statement.

      PS: got a kick out of your 3 types of economics – never saw that before.

      • John says:

        Not to be picky, but it was the refermation, not the inquesition.

        Just saying.

  4. Michael Revy says:

    Accept the foibles of partner countries and devalue the euro. Increase taxes upon the productive and attempt to pay for the generosity of politicos, incur recession, more devaluation .. repeat,rinse until all productive assets are indentured and easily aquired by the state. At the end blame capitalism and embrace venezulean economic model. Learn to luv the state.

    • nhz says:

      yup, that’s the plan.

      whatever happens, the banks and the elites win. The rest is theater.

  5. MC says:

    I always find funny how even otherwise hard to fool people fall for the Punch & Judy Show starring Germany, Italy and other European countries.

    Let’s get the ox through the door: Germany has been blessing and enabling the irresponible behavior by successive Greek, Spanish and Italian governments since the Maastricht Treaty was signed if not before.
    German politicians and bureaucrats turned the other way (and cooked the books themselves to hide the monster deficit generated by their healthcare system) in return for that devaluation of the mark the big exporters they are beholden to have been salivating for decades but which ran against popular will.

    Between 2003 and 2008 the Greek GDP grew as much as China’s. Granted, just like Beijing, Athens cooked the data but where are the containers full of Made in Greece chainsaws, dresses and lightbulbs? Where are the oil wells and the copper mines? What was Greece producing or manufacturing to justify those figures? The answer is depressingly simple: debt to fuel consumption.
    Germany was a major beneficiary of this debt binge in two ways.
    First, through massively increased exports to Greece, starting from the machinery, materials and equipment used for the 2004 Olympics.
    Second, through those securitized loans and bonds German banks loaded up with and which led to that tiny issue a few years back.

    Schauble can snarl as much as he wants for the cameras but he (and his predecessors, colleagues and subordinates) is as guilty as corrupt Greek politicians.
    Germany could have stopped the charade at any moment. Not only she didn’t, but in many way enabled it.
    It’s useless to impose limits on debt when the ECB not only buys that debt through member banks on a strict no questions asked basis, but keeps interest rates so repressed you need a microscope to see a scrap of yield.
    What’s more effective to keep Italian and Spanish debt in check and to spur them toward some measure of fiscal discipline? Fines slapped at will and for wholly political reasons? Or interest rates you can actually discern with a naked eye?

    • nick kelly says:

      I agree with your general drift but disagree only quantitatively- I don’t think Germany thought the Spanish, Greek and Italian politicians would be THAT profligate.
      True, Germany did run big deficits- but didn’t the labor reforms under Schroeder, and essentially German discipline cure most of the problem before the 2008 EU crisis?
      Re: your point ‘where are the Greek exports to fund its spending’ agreed- but Germany did have them- it was borrowing against some collateral, its economy.

      BTW: there has been a lot of comment about the supposed wealth of Italy. Now it turns out that 300 billion of it, or the GDP of Australia, does not exist. It is held as the bonds of insolvent banks.

      • MC says:

        They had under their eyes the stupendous buildup of Italian sovereign debt from the late 70’s onwards, which built up as fast Japanese debt from 1990 onwards.
        They themselves had the example of how Western German sovereign debt, which as a GDP percentage had stayed comatose since 1950 thanks to the Wirtschaftwunder, shot up around 1974 to plateau in 1982.
        In short they knew the capability to build up enormous amounts of debt in post-WWII Europe existed but chose to ignore it or lull themselves to sleep with the idea that a scrap of paper could be a better deterrent than market-imposed interest rates.

        Regarding that Italian wealth. I fear you may be too optimistic as the latest news (Friday) say the amount of toxic waste inside Italy’s banking system may be “as high as €384 billion”. It was €360 billion just the week before.
        To quote Captain Blackadder “Baldrick, this is a crisis. A large crisis. In fact, if you’ve got a moment, it’s a twelve-storey crisis with a magnificent entrance hall, carpeting throughout, 24-hour porterage and an enormous sign on the roof, saying ‘This Is a Large Crisis’.”

        • Don Quijones says:

          MC, hat tip for the Blackadder reference. Always welcome around these parts.

          While on the subject, right now, arguably more than ever, the EU needs a cunning plan, one “as cunning and subtle as a fox who’s just been appointed Professor of Cunning at Oxford University.” And who probably now works for Goldman Sachs.

      • Chip Javert says:


        I agree.

        Germany had a huge cross to bear for WW2 sins. This was the impetus for the current EU project (a couple iterations advanced from the European Coal & Steel Community).

        For over 50 years Germans stuck to their engineering & manufacturing, avoiding powerful leadership & military roles on the world stage. They certainly had problems, but they seemed to solve them on their own (no IMF, World Bank, etc).

        It’s not just Germany – the entire western world is probably stunned at the extent and corruption of Spanish, Greek and Italian monetary profligacy (probably more to come).

        Stripped of all the Keynesian stimulus, all southern Europe and chunks of other EU countries are probably as poor and financially ruined as Greece. This is just beginning to sink in on 500 million EU citizens.

        I’m amazed how quickly German finance was compromised by association with the ECB. Secret middle-of-the-night pacts designed to hide consequences from the voting public is yet another way the EU eliminates sovereignty.

        I literally cringe every time I hear about Obama and another “secret” trade deal.

    • pogohere says:

      Greece “defense” spending as part of NATO: #2 by GDP after the US:

      Defence Expenditures of NATO Countries (2009-2016)

      NATO Members’ Defense Spending, in Two Charts


      • nhz says:

        would be interesting to know though how much of Greece “defense” spending is really for military purposes and not simply bribes and corruption of the type that we are now seeing with e.g. 1MDB. Individuals have been able so skim hundreds millions of euro’s through the defense ministry and very few have been prosecuted until now.

  6. Mario says:

    Dear Don Quijones, excellent article about Italy`s state of affairs. Please allow me to correct one point. Matteo Salvini is not the party leader of the 5 Stars Movement. He serves in the openly racist and separatist Northern League Party (Lega Nord).

  7. unit472 says:

    If the UK had joined the Euro Brexit would have caused the Euro system to collapse. That is why Germany will have to do ‘whatever it takes’ to keep the PIGS in the sty. To have those Target 2 imbalances and bank Euro loans reconfigured into lira, escudos, drachmas or pesetas would blow the system up.

    Merkel is a much weakened leader now owing to her open door refugee policy. The Bavarian leader has said ‘nein’ so Merkel is going to have to increasingly depend on her Socialist coalition partners to cling to power. She will not be re-elected. Hollande will not be re-elected, Renzi will not be re-elected so the Euro will crumble after the 2017 elections. Then the real crisis will be upon us.

    • Julian says:

      I happen to agree totally with this. The coming GFC 2.0 will be with us soon, but it needs some kind of political crisis to set it off.

      There are so many ‘Black Swan’ Elections baked into the cake between October 2016 – October 2017 at some point, probably in 2017, perhaps 2018, there stresses will become too much and something somewhere will snap.

      September 2016
      China hosting the G20. Will Turkey swing decidedly and decisively East at this meeting?

      October 2016
      Austrian Presidential Election Re-run
      Hungarian Refugees Referendum
      Italian Senate Reform Referendum
      China admitted to the IMF SDR Top Table – surely this gives China more flexibility in how to respond to events and weakens the influence of other IMF SDR currency partners

      November 2016
      The Big One. Trump v Clinton. Who wins? I am increasingly confident of a Trump victory. But what does that mean? Who can really know – but more chaos and instability will inevitably follow such an outcome.

  8. nick kelly says:

    OK, lets concede for the sake of debate that the great evil austerity- that for some reason the ratings agencies love, is NOT the solution to the debt crisis.
    Fine, but surely no one can maintain that the excessive spending on what everyone agrees is Italy’s public sector ( to name one area of overspending) was austerity when the debt mountain was being created.
    Unless we are going to redefine some English words it was the opposite of austerity.
    BTW; when EVER a politician suggests a cut in spending, on not matter what boondoggle or unproductive sector, there is always the cry: but it’s not his salary that’s being cut.

    • Chip Javert says:


      Nice point.

      Secondly, I suspect Germany might do just fine as an independent (or at least non-euro) nation:

      1) They actually make things the rest of the world is willing to buy

      2) Germany has over 100 years of recent experience successfully recovering from political/military/financial disasters.

      Germany could survive loss of the euro (and EU); however, the EU could not exist without the German piggybank.

      • nhz says:

        People in the know in Germany like e.g. Hans-Werner Sinn doubt your statement that they can survive loss of the euro, due to the Target 2 imbalances. Their financial system would be completely bankrupt when the euro blows up, all the fake ‘wealth’ in Germany would vaporize and everyone would be able to see that wealth was squandered by the ClubMed countries. It’s a prisoners dilemma.

        • Chip Javert says:

          Do you think the solution is to stay in the EU and do (much) more of the same so the balances get worse?

          From what little I know of Target 2 balances (essentially each EU nation’s share of all the central bank craziness), it will be painful, but so was absorbing East Germany.

          The sooner you get off the crazy wagon, the less the pain.

        • nick kelly says:

          Look NHZ – I don’t know how old you are but I grew up with and remember the Deutsche Mark.
          True-Mercedes wasn’t overjoyed with the DM being a safe haven currency, unlike the (then) toilet paper, the US$, but they managed to survive and prosper.
          (Funny thing though, when they had entered the euro and it became cheaper to market their cars in North America, they didn’t lower the price. Their excuse- we didn’t want earlier buyers to feel ripped off. A sensitive car company.)

          This idea that Germany, the world’s most successful economy, needs a cheap euro to survive is nonsense.
          I would also like to critique the commenter who said Germany wants EU members to become German.
          I would say the opposite- the problem is that EU members want to be Germany- they want the standard of living even though their economies don’t produce it.

      • John S says:

        If EU was to break up Germany would probably have to undergo a larger adjustment than southern Europe.

        Loss of European markets and newly issued DM that is much more expensive than the Euro would obliterate German industry. Germany would have to readjust drastically as living off of exports would no longer be viable, initially this would mean huge unemployment as German manufacturers downsized.

        Euro and Euro zone has enabled huge imbalances to develop as Germans worked and southern European industry got hollowed out. This was covered up with lots of borrowed money but that doesn’t seem to be viable for much longer. This change could actually be positive for southern Europe, they would actually get to make stuff like they used to.

        • nick kelly says:

          Try telling the American buyer of BMW or Mercedes that he should buy an Escalade.
          Or the buyer of Porsche that he should buy a Corvette

  9. Chicken says:

    Merkel won’t be leaving, that won’t happen for various reasons. The German law specifies anyone seeking asylum will be allowed, the law didn’t anticipate millions might although that may or may not have made a difference, LOL. I wonder what else the laws haven’t anticipated and why Draghi is given the responsibility of Germany’s hedge fund management?

    “Italian constitution expressly forbids referendums on international treaties such as those that hold the EU together. ”

    Racist or not, to relinquish sovereignty to criminal enterprise seems foolish.

    Seems like an economic sacking of southern Europe has been in progress, is anyone claiming German companies weren’t beneficiary of this debt accumulation? Can’t we all agree politicians are cheaply bought or do we prefer to ignore reality at out own economic and social peril?

    Apparently we need a come to Jesus meeting!

    • Chip Javert says:


      I don’t think the EU banking/financial problem is Germany’s talent for manufacturing (full disclosure: I love their BMW 550i); The problem comes from Germany’s lack of consumption (they’re not buying other people’s stuff). In this paradigm, profits do stack up at German companies.

      My last time there (couple years ago), restaurants stayed open in the evening and on weekends, but essentially all other retail activity closed.

  10. sinbad says:

    The Euro, was always a way for the northern European countries to keep the value of the Euro, artificially low.
    It’s great for the northerners, their economies have boomed on an undervalued Euro, that was dragged down by the southern European economies.
    For the southern economies however, the value of the Euro means they simply cannot compete.

    Eventually Spain Portugal Italy and Greece will have to leave the Euro, or they will end up poorer than Kosovo.

    • nhz says:

      It isn’t great for the normal citizens in the north either, they only get the receipt for the debts that are build up all over Europe.

      It’s only great for the big companies in the North because it creates artificial demand for their products. And of course it is also great for the elites from north and south (probably even more so for those in the south), because a bigger economy means that more can be skimmed. It’s great too for the small speculators like many people with a mortgage, as long as it lasts and paying the debt can be postponed.

      The ClubMed countries got products that they haven’t yet paid for and probably never will, the countries in the North mostly got loans that are counted as fake wealth but will never be paid.

      • JWRebel says:

        Indeed. The only way to redress the imbalances is if northern countries import tons of stuff from the south, going from trade surpluses to trade deficits, say for a 20 year period.

        It’s impossible to have both sides score enough to beat the other team 6-4

    • nick kelly says:

      The euro has fluctuated wildly, way down, way up, then since the EU crisis, down again.
      The northern countries of course did not count on or plan the first plunge in the euro when many were saying it might have to be abandoned.
      There seems to be no limit to the number of conspiracy theories that can be spun using the turbulence of the past few years.
      I can agree that the SPIGs should leave the euro. Then they can go back to being perfectly respectable, but fundamentally less well off than their northern neighbors.
      Their downfall was not Germany, it was getting Germany’s credit card.

  11. JWRebel says:

    The article mentions too much democracy, but what ails the union is actually too little democracy. It’s all run by unelected bureaucrats and commissioners. There is no European party culture, only representations from national political parties. It is true that national democratic side-shows derail the EU, but this can only be remedied by more accountability and democracy. See for instance: https://www.franck-biancheri.eu/francais-lettre-ouverte-aux-dirigeants-europeens-bloquer-le-coup-detats-britannique-par-un-coup-democratique-europeen/

    • Wolf Richter says:

      “Too much democracy” … I think you missed the biting irony for which Don Quijones has become legendary (happens to me all the time).

    • nick kelly says:

      Or maybe accountability and democracy are antagonists. Maybe given a choice between prudent (or dare I say, austere, budgeting) or deficit budgets where we borrow present goodies from the unborn, we choose the latter. If 25% plus of the work force is public sector, will they vote to limit wage increases?

      It has been said of the US Fed that ‘its job is to remove the punch bowl just as the party gets rolling.’
      But what if that is put to a vote? Will that glorious and blood stained entity: ‘The People’, vote to curb good times now, in return for a more stable future?
      There is an anecdote about a cub newspaper reporter/ columnist who is told by his editor to ‘go out and lampoon some sacred cows’.

      The next day the kid turns in a piece on India’s sacred cows.


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