Peter Spengler has drawn my attention to a good analyst.
Malmgren's point is that Germany is commited to price stability asnd
therefore cannot accept a carte blanche to printing money for the
euro's souther periphery. She claims the euro may die but only to
return more realistic and stronger.
Arno
http://www.pippamalmgren.com/80.html
This commentary was submitted on the 19th of October in response to the Eurasia Group CEO Ian Bremmer's article in the FT entitled "Germany will never leave the Eurozone". The article can be found here.
I respect Ian's opinion but he does not capture the issue that is forcing Germany's hand. They increasingly fear having to choose between permanent price instability and temporary currency appreciation. What Germany cannot do is accept monetization of the debt. The social contract between Germany's citizens and its leaders preclude this option given their history.
If the ECB under the new leadership of Mario Draghi buys
so-called
PIG bonds or attempts to print
money, Germany will feel it has a central bank
that has no
"rules" and which simply serves as a blank check to the other
member states.
This means permanent price
instability. If the ECB refuses to monetize the debt and no
other white knight
can be found (the IMF cannot fill the hole, Germany and China
won't fill the
hole, Tim Geithner would love to but the American public won't
permit it, and
the idea that the G20 can do it provokes howls of laughter from
G20 government
officials), then multiple sovereign defaults will occur well beyond
Greece. The
Greek default will continue with new haircuts leaving
investors lucky to
get 20 cents on the Euro. That would mean a substantial fall in the
Euro and
no possibility of recovery until the last element of default was
done. That will
feel like permanent price instability to the Germans.
Either
way, Germany
will find itself hostage just as a skilled and
prepared
mountainclimber might find himself fully locked onto the
mountainside but his
colleagues are dangling in the wind. National interest will demand self
preservation
no matter how much Germany might like to keep the climbing team
together. They
don't want to cut the rope but they may be forced to.
A return to the Deutschemark will not mark the end of Europe, the European Union
or the effort to
enhance integration. Instead, Germany has already begun
to emphasize the
need for a new EU Treaty that would compel fiscal harmonization,
penalties for
those that break the Maastricht Treaty rules and other
undertakings that would
harden Europe's defenses against economic default risks going
forward. 100
years from now the Euro will be a trick question on a history
test, given that
it only survived for 12 years. How many people in the market today
even
remember an earlier version of the Euro which was called the Ecu?
The FT should
start a competition to name the new "Euro" that will have more
substance behind it.
For those who argue that the Germans will never survive the
massive
appreciation of the DMark, should they decide to go down that
road, they forget
that throughout history the Germans have usually got an appreciated
currency and almost
never compete on price anyway. They compete on quality. And, is there really a
European export
market that would be sacrificed? It's hard to imagine many Greeks
or Italians
buying Mercedes in the next few years.
The European
project
will move forward much more robustly once everyone finally
realizes that
the Euro in its current format is unworkable. Nothing stops
Europe from
moving forward other than public opinion. The fact is that Germany's
social contract is
very different from the social contract between the
citizens and the
state in any of the peripheral countries. What is required to
satisfy
Germany brings riots in southern capitals. What is
required in Southern
capitals breaks the social contract in Germany. The failure
of the Euro
will bring this conflict into sharper focus and set the stage for
new commitments
to create a Europe that can satisfy the needs of the members
without destroying
civil society in Europe