Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Gold Price Setting Up Just Like Before COVID-19 Breakdown – Get Ready! - 27th Sep 20
UK Coronavirus 2nd Wave SuperMarkets Panic Buying 2.0 Toilet Paper , Hand Sanitisers, Wipes... - 27th Sep 20
Gold, Dollar and Rates: A Correlated Story - 27th Sep 20
WARNING RTX 3080 AIB FLAWED Card's, Cheap Capacitor Arrays Prone to Failing Under Load! - 27th Sep 20
Boris Johnson Hits Coronavirus Panic Button Again, UK Accelerting Covid-19 Second Wave - 25th Sep 20
Precious Metals Trading Range Doing It’s Job to Confound Bulls and Bears Alike - 25th Sep 20
Gold and Silver Are Still Locked and Loaded… Don't be Out of Ammo - 25th Sep 20
Throwing the golden baby out with the covid bath water - Gold Wins - 25th Sep 20
A Look at the Perilous Psychology of Financial Market Bubbles - 25th Sep 20
Corona Strikes Back In Europe. Will It Boost Gold? - 25th Sep 20
How to Boost the Value of Your Home - 25th Sep 20
Key Time For Stock Markets: Bears Step Up or V-Shaped Bounce - 24th Sep 20
Five ways to recover the day after a good workout - 24th Sep 20
Global Stock Markets Break Hard To The Downside – Watch Support Levels - 23rd Sep 20
Beware of These Faulty “Inflation Protected” Investments - 23rd Sep 20
What’s Behind Dollar USDX Breakout? - 23rd Sep 20
Still More Room To Stock Market Downside In The Coming Weeks - 23rd Sep 20
Platinum And Palladium Set To Surge As Gold Breaks Higher - 23rd Sep 20
Key Gold Ratios to Other Markets - 23rd Sep 20
Watch Before Upgrading / Buying RTX 3000, RDNA2 - CPU vs GPU Bottlenecks - 23rd Sep 20
Online Elliott Wave Markets Trading Course Worth $129 for FREE! - 22nd Sep 20
Gold Price Overboughtness Risk - 22nd Sep 20
Central Banking Cartel Promises ZIRP Until at Least 2023 - 22nd Sep 20
Stock Market Correction Approaching Initial Objective - 22nd Sep 20
Silver Bulls Will Be Handsomely Rewarded - 21st Sep 20
Fed Will Not Hike Rates For Years. Gold Should Like It - 21st Sep 20
US Financial Market Forecasts and Elliott Wave Analysis Resources - 21st Sep 20
How to Avoid Currency Exchange Risk during COVID - 21st Sep 20
Crude Oil – A Slight Move Higher Has Not Reversed The Bearish Trend - 20th Sep 20
Do This Instead Of Trying To Find The “Next Amazon” - 20th Sep 20
5 Significant Benefits of the MT4 Trading Platform for Forex Traders - 20th Sep 20
A Warning of Economic Collapse - 20th Sep 20
The Connection Between Stocks and the Economy is not What Most Investors Think - 19th Sep 20
A Virus So Deadly, The Government Has to Test You to See If You Have It - 19th Sep 20
Will Lagarde and Mnuchin Push Gold Higher? - 19th Sep 20
RTX 3080 Mania, Ebay Scalpers Crazy Prices £62,000 Trollers Insane Bids for a £649 GPU! - 19th Sep 20
A Greater Economic Depression For The 21st Century - 19th Sep 20
The United Floor in Stocks - 19th Sep 20
Mobile Gaming Market Trends And The Expected Future Developments - 19th Sep 20
The S&P 500 appears ready to correct, and that is a good thing - 18th Sep 20
It’s Go Time for Gold Price! Next Stop $2,250 - 18th Sep 20
Forget AMD RDNA2 and Buy Nvidia RTX 3080 FE GPU's NOW Before Price - 18th Sep 20
Best Back to School / University Black Face Masks Quick and Easy from Amazon - 18th Sep 20
3 Types of Loans to Buy an Existing Business - 18th Sep 20
How to tell Budgie Gender, Male or Female Sex for Young and Mature Parakeets - 18th Sep 20
Fasten Your Seatbelts Stock Market Make Or Break – Big Trends Ahead - 17th Sep 20
Peak Financialism And Post-Capitalist Economics - 17th Sep 20
Challenges of Working from Home - 17th Sep 20
Sheffield Heading for Coronavirus Lockdown as Covid Deaths Pass 432 - 17th Sep 20
What Does this Valuable Gold Miners Indicator Say Now? - 16th Sep 20
President Trump and Crimes Against Humanity - 16th Sep 20
Slow Economic Recovery from CoronaVirus Unlikely to Impede Strong Demand for Metals - 16th Sep 20
Why the Knives Are Out for Trump’s Fed Critic Judy Shelton - 16th Sep 20
Operation Moonshot: Get Ready for Millions of New COVAIDS Positives in the UK! - 16th Sep 20
Stock Market Approaching Correction Objective - 15th Sep 20
Look at This Big Reminder of Dot.com Stock Market Mania - 15th Sep 20
Three Key Principles for Successful Disruption Investors - 15th Sep 20
Billionaire Hedge Fund Manager Warns of 10% Inflation - 15th Sep 20
Gold Price Reaches $2,000 Amid Dollar Depreciation - 15th Sep 20
GLD, IAU Big Gold ETF Buying MIA - 14th Sep 20
Why Bill Gates Is Betting Millions on Synthetic Biology - 14th Sep 20
Stock Market SPY Expectations For The Rest Of September - 14th Sep 20
Gold Price Gann Angle Update - 14th Sep 20
Stock Market Recovery from the Sharp Correction Goes On - 14th Sep 20
Is this the End of Capitalism? - 13th Sep 20
The Silver Big Prize - 13th Sep 20
U.S. Shares Plunged. Is Gold Next? - 13th Sep 20
Why Are 7,500 Oil Barrels Floating on this London Lake? - 13th Sep 20
Sheffield 432 Covid-19 Deaths, Last City Centre Shop Before Next Lockdown - 13th Sep 20
Biden or Trump Will Keep The Money Spigots Open - 13th Sep 20
Gold And Silver Up, Down, Sideways, Up - 13th Sep 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Merkel’s thoughts on ticker tape, Euro is no longer a friend to Germany

Stock-Markets / Eurozone Debt Crisis May 25, 2012 - 01:08 PM GMT

By: William_Bancroft

Stock-Markets

Best Financial Markets Analysis ArticleAs the Eurozone crisis rumbles on investors’ attention is split across a range of European issues; an apparently imminent ‘Grexit’ (possibly the ugliest wordmash we’ve ever heard), strains in the Italian bond market, Spanish property loans defaulting and busting the Spanish banking system, Portugal’s continued woes,  France’s tired state driven economy and more. These are all issues that matter and are part of the macroeconomic picture. They are all here to stay, ‘givens’ if you like, or ‘known knowns’ to use Donald Rumsfeld’s contribution to the lexicon.


However, the future of the Eurozone will ultimately be decided by who controls the policy tools and the money. It’s just like in a company, or a family for that matter, he who controls the money… you know the rest. Germany, and to a degree France, are the main setters of policy. For the sake of simplicity, and because we believe the German economy is the real motor within the greater Eurozone economy, we discuss only Germany.

To continue with Rumsfeld’s phraseology, what Germany does in response to the accelerating Eurozone crisis is the big ‘known unknown’. We cannot know it because it hasn’t happened yet. How Germany proceeds is of foremost importance to investors, and it feels like Germany soon faces a fork in the road and must choose one road or the other.

For this reason we would love to have German Chancellor Angela Merkel’s thoughts on a scrolling ticker tape. We are looking for the moment on the tape when the presence of *@!%^s becomes telling…

Germany won’t lose her ticket to export domination

Germany’s enviable economy is built on the export of high value goods and services. We also have huge respect for her prudent and well managed small and medium sized business sector; the Mittelstand. It has been argued that the currency union has actually given Germany a relative export advantage over competing international producers, and that the early stages of the euro also gave Germany the opportunity for relatively greater exports to other markets within the Eurozone. Charles Hugh Smith provides an excellent articulation of this in his financial blog.

This all suited Germany during the early years of the euro while periphery debt levels were low and universal European monetary policy had not had its soon to be distortive effect. Being able to sell even more cars to the world, whilst also selling more within Europe was worth embracing the euro for.

Fast forward to 2012 and the cost benefit analysis of the euro now becomes much more difficult for Germany. Whilst the euro, especially its current weakness, continues to help Germany export globally, her export prospects within Europe are changed for the worse and German costs for membership of the euro are rising.

With the rest of Europe able to buy fewer German goods and services, the euro no longer gives Germany an intra-European export advantage. Germany now has to balance the growing cost of maintaining the euro (bailouts, LTRO, money printing and ultimately inflation for the German taxpayer) against the continued relative export advantage the euro might give Germany on the global scale. As long as the euro is a net benefit to the German economy Mrs Merkel and other politicians have something to work with in their relationship with voters and taxpayers.

This is one of the forks in the road Germany faces; a route with a signpost ‘Euro continues to help exports’, or ‘einheitliche Währung hilft Export‘. The Germans have been lead down this road thus far.

The euro is no longer a friend to Germany

The other fork in the road is a route signposted ‘single currency is no friend of Germany’, or ‘einheitliche Währung ist kein Freund von Deutschland‘.

This road may be looking better and better for Germans to travel, as the eurozone crisis escalates and possibly accelerates. When euro membership is costing Germany more than it brings in export benefits, the prospects of launching a new Deutschemark become more and more appetising.

The ‘costs‘ are mounting for Germany. Whilst some of the collateral damage of Greek default has been negotiated away with private investors, a Greek exit still brings significant known unknowns and unknown unknowns. Portugal is still a basket case, and like Ireland is often cited as a firm candidate for exit; we tend to agree, their debt piles are too large and continuing  membership of the euro can ensure a death spiral.

Beyond Greece, Ireland and Portugal come more systemically important nations; Spain and Italy. Italy has been suffering a crippling lack of competitiveness for too long, and she has been avoiding a capitalist reckoning for even longer; her debt loads are tantamount to this as easy borrowing since the begninnings of the euro has pursued to delay a reality check.

Spain is different to Italy in that her debt burdens are relatively more privately held. Spain endured a property bubble that made Ireland’s look mildly amateur, and non-performing property loans are the scourge of the Spanish banking system. If Spanish property loans really do come home to roost the Bank of Spain’s actions so far with Bankia et al suggest these debts will be absorbed onto the public balance sheet. Spain then becomes more like Italy. Spain like so many other PIIG nations is not dynamic enough, choked with bureacracy and difficult to do business in.

Beyond Spain and Italy lurks France. Another continental nation whose desire to hide from economic reality has been going on too long, and another country where people typically consume more than they produce. The French are also not productive enough, retire too early, and generally aren’t German enough.

Germany cannot be looking around the eurozone and seeing many ‘partners‘. We sympathise.

The likelihood of Germany going joint and servely liable with the rest of Europe via issuance of eurobonds still seems anathema to German sensibilities and prudence. Why let yourself be liable for the failures of others ‘in the family‘? Hedgie Kyle Bass summed up this agency problem for Germany last year. Greece is just one example of a number of Texas Hold ‘ems that Germany could face.

This week’s news on this eurobonds issue suggests exactly such German sentiments. Osborne Hollande et al can try and talk Germany into it, but then Merkel, Schäuble and anyone related to the Bundesbank quickly put such talk to bed.

Germany forced into hard decisions

Germany is increasingly being pushed into a corner. The contemporary economic power house of Europe has served what Ambrose Evans-Pritchard calls her ‘war guilt’; Germany contributes to Europe more that what she takes home. The euro started with grand political aims that made sense for Germany to subscribe to and promote. But now things are changing by the day.

The reasons for Germany participation in the euro are withering.

In Ayn Rand’s totemic novel, Atlas Shrugged, John Galt seeks to stop the motor of the world to rescue it from ‘the looters‘. Germany is the motor of Europe and the looters‘ in their sunnier climes are looking less worthy of this currency union by the day.

Germany does not go to the polls until 2013. Now more than ever, should we not be asking will Angela Merkel be Germany’s John Galt?

We’d love to have a tickertape of the thoughts of Mrs Merkel and the other key German decision makers.

Central banks and pension funds buying gold bullion. Invest in gold like a professional in minutes…

Will Bancroft

For The Real Asset Company.

http://therealasset.co.uk

Aside from being Co-Founder and COO, Will regularly contributes to The Real Asset Company’s Research Desk. His passion for politics, philosophy and economics led him to develop a keen interest in Austrian economics, gold and silver. Will holds a BSc Econ Politics from Cardiff University.

© 2012 Copyright Will Bancroft - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules