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Archive for the ‘Angela Merkel’ Category

For all the groundless, starry-eyed optimism permeating Europe’s bureaucratic corridors of the fading oligarchy these days (because this time is not like every other time that, too, was different), there has always existed one sure, never-fail antidote: Germany, which without fail has managed to ground Europe any time its delusion of grandure hit escape velocity. Sure enough, while all the statist soothsayers who threatened with Armageddon if the outcome of the Italian elections happened to be precisely the one that transpired, were stuck in backpedal mode, and scrambling to calm nerves that all shall be well after all, one person who refuses to play by the script is Lars Feld, member of panel of economic advisers to German Chancellor Angela Merkel, who in an interview with the Frankfurter Allgemeine Zeitung tomorrow says the euro crisis is to return shortly and “with a vengeance” as capital loss will lead to higher risk premiums for Italy’s interest rates.

From Handelsblatt, previewing the FAZ Wednesday edition:

The Italian economy would not find their way out of the recession, according to the pessimistic assessment by Lars Feld: “The sustainability of Italian public finances is in jeopardy. The euro crisis will therefore return shortly with a vengeance.”

Apparently, the Italians were not ready to move on the path of reform that has been taken by Mr. Mario Monti, Field said.

“You can not expect that Italy’s European partners or the ECB will stabilize the Italian economy, when its people are not ready for reform.”

And making sure Feld is not alone, he was joined by Anton Boerner, head of Germany’s BGA exporters’ association, who in turn said Italy must reform tax, labor, judicial system or risk “irreparable damage” of euro. Finally, Boerner says if Italy not willing to reform, “we have to think about how to deal with a modified eurozone.”

What exactly a “modified” Eurozone means we don’t know. We will, however, surely find out soon enough.

Zero Hedge

Steen Jakobsen, chief economist of Saxo Bank in Denmark, asks via email: “Is Merkel Misinterpreted? Will the FOMC Move Decisively?”

 The misunderstood Chancellor.

The market clearly believes Ms. Merkel will, ultimately, not withstand the pressure – and she will end up collateralizing rising debt. I remain extremely skeptical. I even dusted off my school German to read Der Spiegel and Focus, two major German weeklies, which give you a very different perspective.

As a generalization, the Anglo-Saxon driven investment banks and media tend to rely on poorly translated English versions of domestic financial papers, hence they lose the subtle difference on what Merkel is REALLY saying. This is what I believe Ms. Merkel, and Germany, think.

• When countries join the euro, they also directly and indirectly accept the Stability-and-Growth Pact, hence anything that moves Germany and Europe closer to Stability-and-Growth will be supported by Germany.
• Germany knows it will take time – more time than the market wants it to take. But Germany also realizes it will probably mean more crisis before the whole of Europe moves in the same direction.
• The big loser if Germany “caves in” is Germany. Bund yields will rise and all of Europe will have to finance itself at higher rates – the exact same reason the Alexander Hamilton sinking fund will not work – why should Germans pay more for issuing debt and the high debtors pay less?
• Germany has a game-theory upside in Greece failing to comply – only through more crisis will Club Med (Italy, France and Spain) move to more Europe. (The only thing Club Med wants for now is more German money, not more Europe…)
• Merkel needs to reach across to SPD, the opposition, to get her 2/3 majority for the Fiscal Compact. Watch closely what “concessions” she is willing to give SPD. That will give us clear indication on where she stands vis-a-vis the Club Med call for the easy solution of Euro-bonds and Banking Union.
• Merkel and Germany are pro-European. They want the EU to succeed and they will never leave the euro. But they are also aware that collateralizing debt without the Stability-and-Growth pact will end in tears as it will be extend-and-pretend squared. Throwing liquidity at a solvency issue avoids any real reforms and will be the fastest way to Japanisation.

From this old cynical trader’s point of view, the more likely Merkel and Germany give up and bow to the pressure, the sooner will we face a full-blown crisis and collapse of Europe.

European Crisis Summit Score 0-19

Rhetoric and non-plans cannot continue to dominate the agenda at the EU Summits. The meeting on the 28/29 June is, by my count, meeting number 19 without a real result. Zero from nineteen games – talk about a team going towards relegation!

FOMC – more of the same The US data is still getting weaker, but not weak enough to warrant a panic from the FOMC tomorrow. Bernanke failed to provide the juice in his speech last week, so now the consensus is it will have to happen tomorrow. Otherwise… you know the rest of the sentence. The Fed will lower growth; it will probably also extend Operation Twist, but I doubt it will go all in considering the banking system issues and the overall need for having reserves.

On the other hand, however, the Fed also realizes that “promising” has a real impact on the market. So, overall, expect some small adjustment from FOMC/FED, but not enough.

Strategy

We would be almost square into this meeting, but looking to be heavily bearish on equities post the FOMC and EU Summit.

We still see a summer of discontent as the misinterpretation of Germany and FOMC will lead the market to realize that, for once, central banks and the politicians can’t buy more time.

It is time to reflect not act, as their five-year experiment of doing the same thing expecting different results is leading them nowhere. Probably naive thinking by me… But I think we will all lose if I’m wrong, as extend-and-pretend squared is the road to the poor house.

Safe travels,
Steen Jakobsen

Market Won’t Wait

I believe Steen has this essentially correct and that Germany giving in would ultimately just make matters worse in spite of all the “mother hen calls” from nearly every other economist.

Yet,  the market cannot and will not wait long enough for Merkel to be proven correct. Interest rates in Italy and Spain are at disaster levels and will likely get worse.

My position is summed up in these three posts.

• It’s Just Impossible
• Six Reasons Why Italy May Exit the Euro Before Spain; Ultimate Occupy Movement
• Greek Election Sideshow; Socialists Win Absolute Majority in France

In the meantime, I offer another musical tribute, this one from The Animals.

Please Don’t Let Me Be Misunderstood

Mike “Mish” Shedlock
Global Economic Analysis

Damn we don’t learn, do we?

Merkel has suggested she would like to see the EU have the right to interfere in national budgets in extreme cases where euro zone stability is put at risk. But Germany has stopped short of that in its proposals and asks rather for sanctions for those that breach deficit rules to be written into the treaty.

This would involve the right to challenge states at the European Court, to have their budgets declared void, without meddling further in the details.

Uh huh.  Void a budget eh?  So what can you spend without a budget?  That would be…. nothing, right?

So what is the fundamental function of a government?  Why it is to provide services to the people that enable it (remember, all governments exist with the consent of the governed.)  What Merkel and the rest of Germany proposes is nothing less than the arrogation to themselves of the sovereign right of other nations.

That’s what happens in a war ladies and gentlemen, and whether its done with a briefcase or a gun it is in fact the same thing.

The inevitable outcome of this action will be the same too, just as it was in the early 1900s and then again in the 1930s.

And people wonder why I have said that the “Tea Party” has no claim to anything here, as they sold out immediately upon election and have utterly refused to demand that the people and institutions responsible for the mess we are in be held to account.  In fact we have both sides of the aisle claiming that “there was no lawbreaking” going on — of course as I have repeatedly documented this is only true if you ignore repeat offenses in securities laws, money laundering for drug cartels and the filing of over a hundred thousand perjured affidavits — for openers.

As a direct and proximate cause of this willful aversion of eyes, along with the complicity and active involvement of both major political parties, we’re seeing the inexorable march of the same dynamics that twice before led to massive armed conflicts once again arise on the land, and originating in the same part of the world where it did the last time.

We learned nothing.

Unlike the Keynesian and Monetarist academic clowns that rule US academia German academics push for EU sovereign default plan

Almost 200 German economics professors have signed a declaration rejecting current proposals to resolve the eurozone debt crisis, instead calling for a way for distressed countries to declare bankruptcy.

More than 200 professors were invited to sign the document, and 189 did so, including prominent figures such as Manfred Neumann of the University of Bonn and Justus Haucap of the University of Duesseldorf, both in western Germany.

Instead of the collective support mechanism set up last year that could be made permanent in a modified form from 2013, the economists argued it would be better to let countries restructure their debts.

“Restructuring allows the countries concerned to reduce their debt and start over,” said the economists.

The solution being mulled at present and likely to be approved by European leaders next month would amount to “a permanent guarantee” of some countries’ debt, with “very serious consequences,” they added.

The signatories also doubted the effectiveness of measures to reinforce the competitiveness of weaker eurozone countries and control members’ public finances owing to the European Union’s “limited firepower.”

The document was published as lawmakers from Chancellor Angela Merkel’s ruling coalition sent her a clear message ahead of negotiations on a permanent EU rescue plan to take place in Brussels.

The German deputies said the future European Stability Mechanism should not be allowed to buy eurozone government debt, as the European Commission and European Central Bank would like.

Those 189 academics simply want the ECB to admit that the debt owed by Greece, Ireland, Spain, Portugal, cannot possibly be paid back. What cannot be paid back, won’t, and pretending that it will just makes problems worse. It is refreshing to see a large group of academics on the right side of an economic issue.

Axel Weber, once heir apparent to ECB presidency to replace Jean-Claude Trichet, resigned as president of the German central bank over the issue of the ECB buying sovereign debt. He did not want the ECB to buy debt, most of the rest of the ECB did.

Academics in Germany are disregarded even though they make economic sense. Keynesian and Monetarist academics in the US make no sense but are revered.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com