<div class="gmail_quote">below or on<div><span style="background-color:rgb(255, 255, 255)"><a href="http://www.pippamalmgren.com/80.html" target="_blank">http://www.pippamalmgren.com/80.html</a></span><br><br>note : <a href="http://en.wikipedia.org/wiki/Monetization">http://en.wikipedia.org/wiki/Monetization</a></div>
<div>hence in this case, in my understanding, </div><div>the issuing of ( central bank ) money ( and not, here, commercial bank credit ) in exchange of buying debt / government bonds.</div><div>also see : <a href="http://en.wikipedia.org/wiki/Money_supply#Fractional-reserve_banking">http://en.wikipedia.org/wiki/Money_supply#Fractional-reserve_banking</a></div>
<div><br><div class="gmail_quote">
---------- Forwarded message ----------<br>From: <b class="gmail_sendername">Arno Mong Daastoel</b> <span dir="ltr"><<a href="mailto:amd@daastol.com" target="_blank">amd@daastol.com</a>></span><br>Date: Thu, Oct 27, 2011 at 12:51 PM<br>
Subject: Re: [gang8] Abolishing the euro<br>To: <a href="mailto:gang8@yahoogroups.com" target="_blank">gang8@yahoogroups.com</a><br><br><br>
<u></u>
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<span> </span>
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<p>
Peter Spengler has drawn my attention to a good analyst.<br>
<br>
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.<br>
<br>
Arno<br>
<br>
<br>
</p><p class="MsoNormal"><a href="http://www.pippamalmgren.com/80.html" target="_blank">http://www.pippamalmgren.com/80.html</a><u></u><u></u></p>
<h1><span style="background:lime">Germany will
not accept
monetization</span><u></u><u></u></h1>
<p><em>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 <a href="http://blogs.ft.com/the-a-list/2011/10/18/germany-will-never-leave-the-eurozone/#ixzz1bQFPH0FM" target="_blank">here</a>.
</em><u></u><u></u></p>
<p>I respect Ian's opinion but <u>he does not capture the issue
that is forcing
Germany's hand</u>. They increasingly fear having to choose
between permanent
price instability and temporary currency appreciation. <u><span style="background:yellow">What Germany
cannot do is accept
monetization of the debt</span></u>. The <u><span style="background:yellow">social contract</span> between Germany's
citizens and its
leaders <span style="background:yellow">preclude
this
option</span> given their history</u>. <u></u><u></u></p>
<p><u>If the ECB</u> under the new leadership of Mario Draghi buys
so-called
PIG bonds or attempts to <u><span style="background:yellow">print
money</span></u>, <u>Germany will feel it has a central bank
that has no
"rules</u>" and which simply <u>serves as a <span style="background:yellow">blank check</span> to the other
member states</u>.
This <u>means permanent <span style="background:yellow">price
instability</span></u>. If the <u><span style="background:yellow">ECB refuses</span> to monetize</u> 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<u> multiple sovereign <span style="background:yellow">defaults</span> will occur well beyond
Greece.</u> The
Greek <u>default will continue with new haircuts</u> leaving
investors lucky to
get 20 cents on the Euro. That would <u>mean a substantial <span style="background:yellow">fall in the
Euro</span></u> and
no possibility of recovery until the last element of default was
done. That <u>will
feel like permanent price instability to the Germans. <br>
</u><br>
<u><span style="background:yellow">Either
way, Germany
will find itself hostage</span></u> just as a skilled and
prepared
mountainclimber might find himself fully locked onto the
mountainside but his
colleagues are dangling in the wind. <u><span style="background:yellow">National interest will demand self
preservation</span></u>
no matter how much Germany might like to keep the climbing team
together. <u>They
don't want to cut the rope but they may be forced to. <br>
</u><br>
<u>A return to the Deutschemark will <span style="background:yellow">not mark the end of Europe</span>, the European Union
or the effort to
enhance integration</u>. Instead, <u>Germany has already begun
to emphasize the
need for a new EU Treaty that would compel fiscal harmonization,
penalties</u> 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. <br>
<br>
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 <u>throughout history the <span style="background:yellow">Germans</span> have usually got an appreciated
currency and almost
never compete on price anyway. They <span style="background:yellow">compete on quality</span></u>. 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. <br>
<br>
<u>The <span style="background:yellow">European
project
will move forward much more robustly once everyone finally
realizes</span> that
the Euro in its current format is unworkable</u>. Nothing stops
Europe from
moving forward other than public opinion. <u>The fact is that <span style="background:yellow">Germany's
social contract is
very different</span></u> from the social contract between the
citizens and the
state in any of the peripheral countries. <u>What is required to
satisfy
Germany brings riots in southern capitals</u>. <u>What is
required in Southern
capitals breaks the social contract in Germany</u>. 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 <u></u><u></u></p>
<p class="MsoNormal"><u></u> <u></u></p>
<p></p>
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