The euro crisis: The German problem

Also, da ist mir der sonst geschätzte Economist “too British”. Nur weil die britische Notenbank ungestraft Geld drucken kann, muss es ja nicht auch gleich die EZB dürfen. Und wer hat die höchste Inflationsrate in der EU? UK! (hfk)

Date: 20-11-2011
Source: The Economist

To save the single currency, Angela Merkel must take on her own country’s economic establishment

EVEN by Europe’s cacophonous standards, German policymakers sent mixed signals on the euro this week. At her party’s conference on November 14th the chancellor, Angela Merkel, left no doubt about the gravity of the euro crisis. “If the euro fails, then Europe fails,” she said.

On the same day Jens Weidmann, the president of the Bundesbank, roiled financial markets with hardline comments designed to close off options for managing the crisis. He ruled out relying on the European Central Bank (ECB) as a lender of last resort to governments, arguing it would be illegal and wrong for the bank to hold down bond yields. Even the current (limited) bond purchases needed to stop. The only way to restore investor confidence in countries such as Italy, he believes, is for their governments to introduce bold reforms.

Mr Weidmann is not a lone ideologue. Mario Draghi, the ECB’s new Italian president, has ruled out acting as a lender of last resort to governments, albeit less categorically. Mr Weidmann has his supporters among the Finns and the Dutch, too. But the rigidity of his argument is embedded in the solid rock that is Germany’s economic establishment, which holds that big rescues are counterproductive because they both dull governments’ incentives to act and create new dangers. Pooling risks through Eurobonds would tempt dodgy southern European governments to greater profligacy. Central-bank bond-buying would fuel inflation. Far better, goes the standard German line, to remain principled and just say no.

Print or Perish

Aus meiner Sicht eine perfekte Synthese. Kann nur von jemand kommen, der (jenseits des Atlantiks) einen “Helikopter View” hat (hfk)

By John Mauldin | November 19, 2011

Print or Perish
Just Say “Nein”
And Then There Is France
How Will it Play Out?
Some Thoughts on the Super Committee
New York, Hong Kong, and Singapore

Europe is again at center stage. At conferences and meetings and in private conversations, it is the topic of the hour. I have thought a lot this week about Europe and its impact, so once again we delve into what is an evolving situation. This time, we look at possible impacts on the markets, as we ponder the questions, “Are we back to 2008?” and “Is there a Lehman in our future?” and I try once again to keep from making this a book-length letter. And I close with some brief thoughts I brought back from DC on the Super Committee and the deficit cuts.

Now, let’s jump right in to Europe and its own particular Endgame.

Last week I attempted to give a short summary of the problems that face Europe. I called it “Where is the ECB Printing Press,” though I could have titled it “Print or Perish.” If you missed it, you can read it at http://www.johnmauldin.com/frontlinethoughts/where-is-the-ecb-printing-press. (For foreign readers, “publish or perish” is a mantra of the US university system, where if you do not publish in certain journals, you do not get tenure.)

Now let me summarize that letter in one paragraph. Europe has too much sovereign debt, which is on the books of its banks, which have too much debt; and there is a huge trade imbalance between core and peripheral Europe. All three problems must be solved in order to prevent the Eurozone from imploding. And while the debt is the “sore thumb” today, the trade imbalance is the biggest problem. As I outlined in Endgame, it is impossible for a country to balance its government and business deficits while running a trade deficit. This is an accounting identity and is true for all countries at all times. Greece and others are in a monster predicament. No amount of austerity will work until their labor costs drop (for both private and government workers) and their trade deficits are brought into alignment.

Painful Euro Crisis and Lessons for the World – Part II

Date: 19-11-2011
Source: YaleGlobal

While overspending and giving citizens a false sense of prosperity, leaders of wealthy governments anticipated future economic growth to resolve all imbalances. This YaleGlobal series analyzes how the debt crisis unfolding in Europe may offer lessons for the rest of globe. A relatively small group of banks and investors control substantial global revenue, explains researcher Joergen Oerstroem Moeller in the second and final article of the series, and creditors naturally want to protect and further increase profits on their investments in sovereign bonds. Creditors will likely favor Europe’s strategy for addressing the debt crisis – imposing austerity programs while raising taxes. Such a strategy will reduce future borrowing, reduce inflation, and minimize attempts by creditors, many in emerging economies, to control national and global policies. A small group of large financial institutions have emerged, wielding enormous power over fiscal policies of sovereign countries. Their pursuit of profit may pay no heed to the interests of the countries in debt. – YaleGlobal

Phoenix Europe: How the EU Can Emerge from the Ashes

Date: 18-11-2011
Source: SPIEGEL

The old European Union didn’t work, that much has been made clear by the ongoing debt crisis. But many in Europe think there is now a clear path to a new, more integrated — and smaller — bloc. What must happen first? Greater democracy and less nation-state sovereignty.

The jogger is undeterred by the wet, foggy weather in November. Once again, Joschka Fischer, the former German foreign minister and eminence grise of the Green Party, has taken to running regularly through the quiet neighborhoods of Berlin’s Grunewald district. It is the kind of exercise, he says, which gives him time to think.
“While I was running,” he says, it occurred to him “how things could work in Europe.”