In France, the litany of job reductions continues. Today, it was Air France. It followed automaker PSA Peugeot Citroën, French banks, nuclear-power conglomerate Areva, drug maker Sanofi, newspapers, ferry operator Seafrance, etc. It’s tough out there. And now, France’s heavily subsidized signature industry—wines—got slapped in the face. By China.
“I’m very happy with the result,” Merkel told the cameras. But the agreement may be illegal under EU law and may devastate weaker economies. It elevated Germany to a leadership role that other countries perceive as domineering. By isolating the UK, it cut a deep gash into the EU. And it can’t be put into a treaty. But it did offer a compromise of sorts.
The Swiss government is preparing for a collapse of the euro while 27 heads of state convene for another EU summit in Brussels to find that elusive solution to the debt crisis. Goal: treaty changes that would impose Germany’s new religion of budgetary discipline on all 27 member states. But opposition has cropped up, and timing turns out to be impossible.
As the euro debt debacle unfolded, Germany benefited from a reputation as safe haven: yields on its 10-year bonds dropped below the rate of inflation while yields spiked in other countries. So when it offered €6 billion in 10-year bonds at a record low yield of 1.98%, it expected them to fly off the shelf. They didn’t. “Disaster,” the media screamed worldwide. But….
My German contacts want to keep the euro. They’ve gotten used to it. They like it in their wallets. It’s so convenient for cross-border travel and commerce. And it has been strong. But now that the European bailout fund has descended into irrelevance, they fret about the euro’s future. They want it saved. And they’re increasingly willing to pay a price.
The ink wasn’t dry yet on the European bailout fund when it paid $1.3 billion to bail out Proton Bank in Greece. Turns out, Proton had siphoned off $1 billion in a scheme of fraud, embezzlement, money laundering, and offshore front companies. Galling: the Bank of Greece knew of the criminal activity before the bailout. And then a bomb exploded….
Judging from the stream of rumors and energetic denials, German bureaucrats, experts, and politicians are furiously working on dozens of projects that all deal with the debt crisis, and they go off in as many directions. But at the end, there is what they call in their inimitable German a Worst-Worst-Case-Szenario.
For months, rumors China would use its foreign exchange reserves to bail out the Eurozone with the stroke of a plastic pen goosed financial markets. But China has a list of demands. German industry refuses to cede ground. People shudder at becoming dependent on money from the communist regime. Clearly, the debt crisis isn’t deep enough yet.
No country is economically more dependent on the survival of the euro than Germany: the export powerhouse thrived because Eurozone countries could borrow unlimited amounts of euros to buy German goods. But now that the gravy train has stopped in front of a mountain of unmanageable sovereign debt, Germany finds itself at war—with itself.
Participants in the G-20 meeting in Cannes thought it would be a relaxed affair of photo ops, handshakes, and fancy dinners, interrupted by rubber stamping the Grand Plan of bailing out Greece, bondholders, and European banks. But then Giorgios Papandreou, prime minister of Greece, fired his bazooka. And the Greek extortion racket was back on.