[P2P-F] Article : "Germany will not accept monetization"

Sat Oct 29 14:10:15 CEST 2011

below or on
http://www.pippamalmgren.com/80.html

note : http://en.wikipedia.org/wiki/Monetization
hence in this case, in my understanding,
the issuing of ( central bank ) money ( and not, here, commercial bank
credit ) in exchange of buying debt / government bonds.
also see :
http://en.wikipedia.org/wiki/Money_supply#Fractional-reserve_banking

---------- Forwarded message ----------
From: Arno Mong Daastoel <amd at daastol.com>
Date: Thu, Oct 27, 2011 at 12:51 PM
Subject: Re: [gang8] Abolishing the euro
To: gang8 at yahoogroups.com

**

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****
Germany will not accept monetization****

*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<http://blogs.ft.com/the-a-list/2011/10/18/germany-will-never-leave-the-eurozone/#ixzz1bQFPH0FM>.
*****

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 ****

** **

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