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A question for the Germans

So the European Union and other Tranzi* institutions have decided to prop up the euro by another, monstrous bailout package, involving the purchase, by the European Central Bank, of billions of euros of bonds. In other words, the ECB, which for a while tried to act as “Son of the Bundesbank”, has given up on all that rigorous, Teutonic stuff and taken a leaf out of the Anatole Kaletsky let’s-print-till-we-drop playbook. Excellent. Holidays in Europe will be cheap as chips at least until inflation takes off.

What do readers think is the chance that Germany, say, will be back using the Deutschemark by the middle of this decade? I’d say it is low, but you have to wonder. Germany had for many years an enviable reputation for having a strong currency. They’ve thrown it away. I see that some of the natives are getting restless, although a news report here cites “dithering” over the bailout package as a cause of anger. I’d say it was hostility to the bailout per se.

Ironically, the strength of gold at the moment highlights the benefit of that Hayekian idea of “parallel”, competing currencies in the same jurisdiction. The way things are going, a lot of firms and individuals, given the freedom to do so, would rather be invoiced in gold or some other, relatively solid store of value (eg, Swiss francs, Australian dollars, and so on).

*A short term for Transnational Progressivism, a sort of political philosophy that puts stress on the need for big, cross-border institutions to run our lives at the expense of national, and usually more democratic ones. Examples: the UN, IMF, European Union, IPCC, etc.

23 comments to A question for the Germans

  • Gorgasal

    The Guardian gets is completely bass-ackwards. Voters in the regional election have punished the central government (a coalition of the “conservative” and the more-or-less classical-liberal parties, just as in North Rhine-Westphalia) for dithering over a load of reforms that were promised and have completely stalled since the German election in 2009. Add to that that the finance minister Mr. Schäuble stubbornly repeats that there is no money for lowering taxes as the classical-liberal FDP demands – but suddenly, he seems to have found some 20 bn EUR lying around to make the Greeks happy with.

    Says this German, who is fuming about the conservatives he voted for in 2009.

  • Smiley

    Have the Europeans figured how to blame all this on the Americans and the Jews yet?
    How about blaming it on George Bush?

  • I can’t personally see them going back to the Deutschmark; abandoning the Euro would be effectively the end of the EU project, and they’ll never do that voluntarily. Can anyone imagine them voluntarily shutting down the vast institutional network they’ve built over the past 60 years? Won’t happen, IMV.

    The whole banking system’s under the same pressure; the Euro, Sterling, the Dollar, the Cowrie Shell. It doesn’t really matter what’s printed on the notes. Effectively, if we’re talking about collapse, we’re talking a genuine global banking collapse, and if we think that’s going to happen that’s the kind of seismic event that traditionally brings civilisations down; in which case it’s back to bartering turnips and oxen, and bits of paper with colourful printing on them for currency will be a distant memory. If that doesn’t happen, they can keep whatever colourful bills are currently used going.

    I don’t actually think there’s going to be a catastrophe (one of the reasons I don’t subscribe to the “bring it on” strategy; i.e. let the system collapse and the phoenix of liberty rises from the ashes). I think the Enemy have spent the past century learning how to run the world in their image and that system is now bedding in. They’ll save the Euro and continue building the global society thing they want to build, and it’ll go through occasional crises and they’ll learn from each one and get better at it.

    So, wandered off a bit there. No, can’t see the Euro splitting back into component currencies, though I can see the non-Euro nations provinces getting drawn into it; inevitably, all the European nations provinces are fated to join as the last of our sovereignty dissipates.

    We’re all going to be much poorer as time goes on, of course, and our choices steadily edited down and down, as we are farmed to keep the system running. But the system will keep running for the foreseeable future, IMV.

  • bradley13

    When I saw the headline about the 700 million Euro package in support of the currency, my immedate thought was: that’s 700 million Euros given to speculators, who will keep pressure on the currency markets until they have collected their little bonus.

    Key quote from the article: “It is still unclear where the money for the funds is going to come from,”

    Either they print the money, or the entire Euro-zone goes even deeper into debt. Either way, a disaster. It would have been far, far better to have let Greece go into a controlled backrupty.

  • far better to have let Greece go into a controlled backrupty.

    Hmm, problem is, if they do that, the whole Ponzi scheme might go under, so it’s not really an option. Tax farming the masses to pay to keep it running is the only option for them really.

  • Der Spiegel has an informative hand-wringer here. Apologies if it’s already been posted.

  • guy herbert

    “a lot of firms and individuals, given the freedom to do so, would rather be invoiced in gold or some other…”

    Er, could you introduce me to some of them? I and my companies (and no doubt a few of my clients) would like the option to invoice, and be paid, thus.

  • The question of invoicing in gold begs the tangent question, how would one foment a grassroots alternative currency, given that every western democracy seems to have chosen economic suicide by drowning in printed money?

  • bryan

    The Germans gave up a strong currency in 1990. Not entirely the Bundesbank’s fault, but repatriating the East Germans at the rate of 1:1 (or 2:1 in larger transactions) was the end of that.

  • Michael Giles

    As an American, I’m a little perplexed as to what’s going on. Why is Europe bailing out Greeks, who are rioting over having to face cuts.

    Wouldn’t it be simpler to just let Greece fail. If they save them, no government in Europe will be willing to make any changes.They’ll just wait for the rest of Europe to bail them out.

  • Why is Europe bailing out Greeks, who are rioting over having to face cuts.

    Because Greece isn’t a country any more, it’s a province of the new country The EU. So it becomes a collective problem, equivalent to a US State collapsing, and taking the dollar down with it.

  • Sunfish

    As an American, I’m a little perplexed as to what’s going on. Why is Europe bailing out Greeks, who are rioting over having to face cuts.

    Because Greece isn’t exactly an independent sovereign nation anymore. None of the EU nations are. They now have a little (not much) more independence than the states pre-1861.

    The EU’s reasoning is that, if Greece goes Tango Uniform, then a few others will also come apart[1] financially, which would be the end of this most-recent experiment in European unity. Given that the EU represents Germany’s third serious effort to unify Europe in the last century, I don’t think they want it to fail.

    So the entire conversation that you and I are having probably sounds to Europeans like “Why does the USA insist on bailing out California? Why not just let them go under?” (I personally think we should, but my opinion is rarely if ever asked.)

    [1] I keep hearing Spain, Portugal, Italy, and Ireland, but I thought Ireland was supposed to be on firmer financial ground than the rest of the EU.

  • kev

    So the entire conversation that you and I are having probably sounds to Europeans like “Why does the USA insist on bailing out California? Why not just let them go under?” (I personally think we should, but my opinion is rarely if ever asked.)

    Well, the federal government has not yet bailed out California, and it isn’t obvious that they will. Obama would love to, of course, as California’s meltdown is a huge embarrassment for the left’s Omnipotent State program. But Cali is a lock for the Dems (and always will be) and that would be hugely unpopular elsewhere. A similar incident of a non-bailout of an important state was Gerald Ford’s refusal to bailout New York City and New York State back in the 1970s.

  • someone needs to do it

    is there a coordinating organization for firms that wish to go full on gold bug and trade with gold rather than the fiat non-sense?

    is it even legal to do that?

  • Sunfish, you are partially right about Ireland, but only to the extent that you can believe their official statistics more than you can believe Greece’s from a year ago. Here’s some neat data. Ireland’s unemployment seems to be lower, and their debt refinancing needs are less front-loaded than those of the other PIGS, but their deficit is quite frightening.

    I ran a simple scenario on these data, assuming the PIIGS all commit to reduce deficits to 3% in 2013 (Greece’s commitment), and can refinance at a cost of 5%, and fund all interest payments in between from more borrowing – this is a wildly optimistic scenario, by the way (Spain doing budget cuts with 20% unemployment?!). Here’s what I get for their debt/GDP in 2013 (apologies for ugly formatting – the interface is not very friendly for tabular data):

    Greece 164.0%
    Portugal 112.8%
    Spain 93.9%
    Ireland 118.1%
    Italy 147.0%

    At the risk of boring non-geeks, here’s what I get for funds needed to backstop the PIIGS’ borrowing needs through the year needed, cumulatively, in billions of Euros:

    Thru Yr Total ex Italy Total
    2010 118.8 370.3
    2011 254.6 698.3
    2012 362.1 974.0
    2013 452.7 1,165.0
    2014 554.7 1,356.1
    2015 610.6 1,497.4
    2016 656.0 1,593.9
    2017 714.1 1,716.4
    2018 755.1 1,803.6
    2019 830.9 1,965.9
    2020 866.2 2,053.9

    Bottomline – Italy is the big Kahuna. The bailout, as currently described, postpones the reckoning by just over two years, if Italy begins to reel. This does not mean there will not be political turmoil in between, but at least no default.

    To paraphrase the Bard: “A default by any other name will stink as bad…”

  • Does the International Court of Justice have bankruptcy court?

    Do we want it to?

    Do those jokers have any sense of the concept of bankruptcy?

  • michael

    Let me get this straight. The UK is going to bail out the Greeks, the Greeks will bail out the Portugese, the Portugese will bail out the Spanish, the Spanish will bail out the French, who will bail out the Italians who will bail out the UK, who will bail out the Greeks………

    Who is providing all this money? Or is there, in fact, only one lot of £15 billion moving around?

  • Paul Marks

    In spite of being perhaps the oldest Welfare State in the world (Bismark’s schemes did not cost much money but they set the example – and certainly the Weimar Republic of the 1920’s was a Welfare State) Germany had a chance to survive the comming world economic crises (or yes it is not over – it has barely started yet).

    Government finances were relatively sound and family owned manufacturing enterprises still stood – in spite of everything.

    Now this chance has been thrown away.

    Not just by the Greek bailout (standing behind pledged of 750 billion Euros, or whateve it is). But also by the Lander election which means the government no longer has a majority in the upper house of the German parliament to push through reforms to the Welfare State (to scale it back).

    Yes the SPD would have done the same (tax on banks and all) – but the CDU/FDP were in power so they get the blame (note to British “Conservatives” saying “Labour would have done the same if they were still in office” does not save you STAY IN OPPOSITION, IF YOU DO NOT – YOU ARE FOOLS).

    I am not anti German (in spite of some of my family being turned into soap in the 1940s). Indeed I am a great ADMIRER of German culture and the German mindset (even when it is wrong – for example I do not agree that Jews were a “problem” that needed to be “solved”, but if one did regard Jewish people as a mortal threat to the very survival of civilization [some sort of savage space monsters] then ruthless action is logical, and stitting around complaining – which is what British people would do – is not logical).

    However, the German spirit has betrayed them (and not for the first time) – they have seen a “problem” and they have worked tireless to “solve” it. Not understanding that in the use of force (which is what government action is) such an attitude is not as worthy as it is in regards to work in private life.

    Doing nothing would have indeed led to a terrible slump as Greece and so on defaulted on their debts – but the alternative (what has been done) will lead to far worse consequences.

    As I say I see no way out for Germany now – and I hold that to be tragic. For Germany and for the world.

    Let us hope I am mistaken.

  • llamas

    It may be time for a moment of levity, which may be obtained by revisiting the overview of the founding priciples of the EU so thoughtfully provided by Sir Humphrey Appleby.

    The Greeks now show us that the EU has devolved into the ultimate Ponzi scheme – when the pyramid collapses, instead of going to jail, you can actually get fools to rush in with their own money and bail out every last “investor”. Bernard Madoff must be kicking himself for a mug – if he’d just organized his scheme under the auspices of a European government, he’d never have done so much as a day in jail, and others would have paid off his losses.

    llater,

    llamas

  • veryretired

    I remember taking a world history course in high school which included a chapter about the sudden, inexplicable collapse of an Egyptian dynasty which had survived for many generations over several centuries.

    The authors, being careful, professional historians, speculated that some crisis had caused the ruling classes to lose control, but an abscence of documented evidence precluded any conclusions as to what had happened.

    Being an arrogant young buck who didn’t worry so much about the niceties, I postulated that the collapse came about because the theocracy could no longer claim its prayers were being heard and answered by the required floods and other natural, and supernatural, events that maintained life in the Nile delta.

    If a living god named Pharaoh claims to be the direct conduit of the power of the heavenly entities that control all the processes of nature, and those processes fail to function properly, i.e., drought, famine, disease, and starvation instead of regular floods, good crops, and prosperity, the reaction of the peasantry can get rather intense, and a new set of living gods and head priests are often waiting in the wings.

    Western civilization has seen such scenarios many times in many variations over the many centuries that we have recorded our ups and downs, and the last century was a very pointed lesson in what happens when the ruling paradigms implode, and entire cultures go searching for new gods, new Caesers, and new priesthoods.

    I have mentioned before an old newsreel I saw from the funeral of Queen Victoria, the multitude of plumed and bejewelled grandees tottering about in their fanciful uniforms, their wives and daughters bedecked in gowns and precious stones.

    All the powers of the earth gathered together, none dreaming that in a few years they and all they stood for would be swept away in a storm of fire and the sword.

    Recall now the descriptions you heard of all the pomp and power, wealth and luxury that were on display in Copenhagen recently, as the ruling class met to decide how we would all live for the next few decades.

    Recall also how the great gathering fell apart in confusion and indecision when it became very clear the old incantations no longer worked, that the pharoahs had lost contact with the gods.

    We are approaching a great and terrible moment.

    When a house of cards falls, it happens suddenly, and all at once.

    Do you feel a breeze on your cheek?

  • Paul Marks

    Very good veryretired – sadly my own comment is more low grade.

    AIG is back!

    Yes the wonderful enterprise that cost the American taxpayers (because the creatures of power declared it “too big to fail”) zillions of Dollars is active again.

    Now government owned it is selling credit default swaps (basically insurance against default) again – the housing ones being such a wonderful deal in the past.

    And these credit default swaps?

    Yes, you guessed it, they are based on Greek government debt.

    Just as the orginial baillout mostly went to European banks (plus Goldman Sachs of course) so the new taxpayer backed AIG is bailing out the international political class and their “business” followers.

    And, yes, Fannie Mae and Freddie Mac are still losing billions of Dollars every month – due to regulation changes they get taxpayer money AUTOMATICALLY now (Congress does not have to go on the record voting on it).

    Constitution? What is that?

    This is the “recovery” – a debt bubble.

    Although when it collapses the elite (including the academics) will no doubt blame the collapse on nonexistent “Cameron cuts” or whatever.

  • veryretired

    I do not recall you ever writing anything low grade, Paul, and I appreciate any compliment from you above most others.