“I cannot be disillusioned because I no longer have any illusions about Europe,” muttered Euro Group President Jean-Claude Juncker last week after the horse trading over Greece’s bailout had failed once again. But he isn’t the only one who lost his illusions. “There are better alternatives to the bailout policies of Chancellor Merkel,” declares the man who’ll run against her in 2013; alternatives that “protect taxpayers and don’t only benefit the banks.”
A Lehman Brothers kerfuffle erupted, this time in Germany, in broad daylight. With a stunning amount: up to €800 million ($1.04 billion) in fees for the insolvency administrator. It blows away the German record of €70 million. Hedge funds are raising a ruckus, on the surface to shame the insolvency administrator into backing off. It worked. Almost. But suddenly, there are new allegations—against the hedge funds.
Young educated Greeks face a wall of unemployment. With little chance of finding a job in their field, they’re competing for any kind of job. Wages have plummeted. The economy has shriveled by 19.4% since 2007. Promises that education would open doors to a better future have evaporated. And Germans march around, telling Greeks how to run their country. Because the euro has become a religious dictum.
“Yellen and Cisco lift US stock futures,” the headline read enticingly in the morning. Priceless. Their pronouncements were driving up the markets. But by the time the markets closed, the manipulative power of Fed Vice Chairman Janet Yellen had dissipated; the DOW was down 1.45%. And across the Atlantic, the German Bundesbank issued a tough warning about the very policies Yellen was propagating.
Bailouts have become known for their so-called “unintended consequences”—however intended they might have been. And now, unintended consequences strike again. The ECB’s purchase of decomposing Greek debt—an under-the-radar bailout of banks and insurance companies—are making the favorite solution to the Greek crisis, namely another deep haircut, legally impossible, says Bundesbank President Jens Weidmann.
Awful as Greece’s GDP has been, it doesn’t do justice to the economic fiasco. Take new vehicle registrations: in August, they plunged 46.7% from prior year. Only 3,886 new vehicles were sold. A collapse of 80% from August 2008 at the cusp of the crisis. For the first eight months of 2012, sales were down 42% from prior year, and 65% from 2008. People have stopped buying new cars. And not just cars.
A pact with the devil—that’s now the official metaphor for the European Central Bank’s “unlimited” bond purchases that are supposed to save the Eurozone. Bundesbank President Jens Weidmann himself referred to it when he discussed the “dangerous correlation of paper money creation, state financing, and inflation.” But it’s too late. Germany has cracked in two. And part of it has embraced that pact with the devil.
Dizzying QE gobbledygook is upon us once again. It would restart its big 480-volt money printer, in addition to the desktop machine it had been using recently, the Fed said, in order “to help ensure that inflation, over time, is at the rate most consistent with its dual mandate,” namely “maximum employment and price stability.” Thus, more inflation magically creates more jobs, and “price stability” requires more inflation in order to become more … stable maybe?
When French and Dutch voters were given an opportunity to vote for the European constitution in 2005, which would have transferred considerable sovereignty from their countries to the European government and its unelected bureaucrats, they “unexpectedly” killed it. An unforgettable lesson for politicians: don’t let the riffraff decide. Such matters are best handled by the elite—politicians, bankers, and unelected bureaucrats. And on Wednesday, they were busy handling such matters.
Slovenia joined the Eurozone in 2007, went on a borrowing binge that blind bond buyers eagerly made possible, dousing some of its two million people with riches, creating a real estate bubble that has since burst, and driving up its external debt by 110%. And in October, it may go bankrupt, admitted its Prime Minister. Because borrowing binges can last only so long if you can’t print your own money. And in Germany, the debate itself may tear up the Eurozone.