Tag Archives: Germany

1st July 2012: Referenda On The Agenda – A Democratic Revolution In Europe?

… are the Germans getting used to defeat in Europe?

Quote of the Day:

What is needed is a tenable, medium-term solution to the euro-area crisis, which is affecting financial markets and real economic output beyond its borders.

Paton Odom, Dallas Fed report global economic growth, June 27th 2012.

Macro Overview

Europe Is Everybody’s Problem

  • Great little program by The BBC’s Newsnight – worth a watch for everyone whether European, Asian, American… and it sets the tone for today’s comment. I’d watch it as soon as you can as, no doubt, it’ll soon get pulled from YouTube.
  • Europe is everybody’s problem. For those who think that Europe is a place too far away to affect them, I highlight a couple of excerpts today from the Dallas Fed report on growth momentum in the World economy:

Global gross domestic product (GDP) growth forecasts have moderated in the second quarter, with industrial production and purchasing manager indexes reflecting restrained activity in advanced and emerging economies. Uncertainty regarding near-term stability of the euro area, which appears to be in recession, remains the most important determinant of expansion. While large emerging economies such as Brazil, Russia, India and China have led growth following the global financial crisis, their expansion has cooled to reflect slowing trade activity with advanced-economy partners as well as internal adjustments. Inflationary pressures and commodity prices have moderated.

Reflecting On Merkel’s “Defeat”

  • That said, with Merkel’s current line going down exceptionally well with the German electorate, I’m skeptical as to how this U-turn can be engineered without:

a)      incurring more dept on sovereign balance sheets with highly stringent conditions to the effective creditors (i.e.Germany) causing wider political and social split within the Eurozone

b)      significantly subordinating existing debt holders in Europe–causing wider financial and economic split in the market place. It would be a dangerous game to turn the entire European bond market into a retrospective CDO market. The ECB tried it in Greece, remember – the bond market got very squeamish.

  • Then, suddenly, out of the blue come Europe’s “begging men” (Monti, Hollande and Rajoy) announcing that they have indeed found a perfect “solution” which involves directly bailing out the Spanish banks without the Spanish government incurring more debt while simultaneously protecting the seniority of existing investors in the Eurozone bond markets! I could go into detail here but there is little point, that was essentially the crux of it – or at least the most important part. For those of us following Euro-politics closely, it was indeed a WOW moment…
  • It appeared Merkel had buckled under the pressure from her Southern Counterparts and was seen as the big loser in the Eurozone showdown. Global indices were off to the races on Friday. A rapid transformation for The Iron Lady of Europe, who had been dubbed as “Frau Nein” in the Eurozone media, was now suddenly crowned “Countess Capitulate” (by me)!!
  • This is politics in Europe at its most exciting (believe it or not). But there were mutterings that Merkel, like her national soccer team, had been simply blindsided, or blackmailed (“erpressen” as popular German Magazine, Der Spiegel, put it – Google, rather more kindly translates the verb erpressen as “to extort”) by the shrewd and powerful men from Southern Europe. It almost seems that Monti and Rajoy simultaneously threw their teddies out of the pram in a kind of pre-empted, orchestrated tantrum. They threatened to simply “block everything” if she persisted on her political tact. Merkel had to yield; no German leader wants the dubious honor as the protagonist of a political and diplomatic collapse in the Eurozone – that’s a burden the German public understand all too well. I remember Michael Lewis’ great article, It’s The Economy Dummkopt, (another MUST read) where he says:

The streets of Berlin can feel like an elaborate shrine to German guilt. It’s as if the Germans have been required to accept that they will always play the villain. Hardly anyone still alive is responsible for what happened: now everyone is. But when everyone is guilty, no one is.

Reactions back home were devastating, and there were even calls for pushing back key parliamentary votes on the permanent euro bail-out fund, known as the European Stability Mechanism (ESM), as well as Merkel’s fiscal pact scheduled for Friday evening. In fact, the vehemence of the attacks seems to have taken even Merkel’s advisers by surprise.

  • Ultimately, Merkel is merely a foil for German public opinion. So what happened? Did she truly get blindsided/blackmailed/out-maneuvered, was she astutely calculative of Germany’s inherent guilt over past failures in Europe and its desire to cement harmony with its neighbours… or is something else in play?

Potential Political Revolution in Europe

  • I have my doubts that Merkel has simply crumbled without a plan, for one, she has a pretty good record at reading the political landscape and at horse-trading and bartering for political power amid the chaos in Europe. With back-door meetings between the begging-men of Europe, she must have anticipated this kind of mutiny. So let’s examine exactly what may be happening in Euroland politics here.
  • Firstly, let’s be clear, the Eurozone crisis has not been “solved”, what has happened is that there is potentially a solution for the Spanish banking problem (and a bit of concurrent relief for Ireland too). Let’s also be clear that nothing is set in stone … yet. So far though it looks as though the European politicians have indeed bought more time. This does not surprise me in the least, remember in only my last comment, Eurocidal Tendencies, I wrote:
  • I predict that the politicians will do just enough to prevent an all-out collapse on Monday morning, perhaps even a little bounce, but not enough to reassure investors over the medium term. Then we’ll look forward to the next “summit to save the World”. With all this can-kicking I’m surprised the European politicians do not have sore feet?!
  • So buying more time is all that has happened… or is it? I have to admit, this is a breakthrough in terms of a change of tactic and change of direction and a change of attitude among all Europeans of all political persuasion towards the European experiment. This is squeaky bum-time at its squeakiest. There has been a distinct change of mood here in Europe over the last week.
  • I feel a bit of a political and even cultural revolution taking place on this, most diverse, most intriguing, most complicated continent of ours. For the first time ever, I feel Europeans all over are simultaneously beginning to objectively consider the true nature of their ambitions and desires towards a European political union. Do we really want to be The United States of Europe, as Axel Merk brands it, and (more importantly) are we willing to make the sacrifices required to achieve that objective?
  • The answer to this question is not necessarily: “no”.
  • Here in Britain, only this week, the most pro-Euro politicians were pointing to the inevitability of a Euro-referendum (something that would have been unheard of a year ago). Incidentally, good to see Britain has learnt its lesson in Europe and has opted not to run headlong into the Euro-debate guns blazing and, rather, wait and see how the political crisis inEurope resolves itself first.
  • Now, even in Germany, the prospects of a Euro referendum are clearly being openly debated after German Finance Minister, Wolfgang Schauble kicked the proverbial hornets nest on the matter, last week. Zerohedge even speculate that the Merkel “defeat” was merely part of a strategic maneuver towards a German referendum.
  • It’s tempting to be a little anxious about all this unrest, all this upheaval and political revolution. But, for once, it seems the politicians are having to turn to the people and resort to (heaven forbid) a democratic process to base their Euro-policies. Ultimately, even in bureaucratic Brussels, the people do seem to have the power – which would mean that, no matter what the results of the process are, it will likely have more credibility and therefore more stability both politically, economically and within the financial markets.
  • Despite my skepticism about the actual substance of the latest “can-kick” by the European elite, I too am changing my attitude towards the specter of Europe and therefore my approach to the political challenge and… in this respect, for some unknown reason, I feel a twinge of optimism this rainy Sunday afternoon… not a big one… but a twinge never-the-less…

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15th April 2012: The Spanish Imposition And The Old Economic Growth vs Austerity Tradeoff


Mariano Rajoy - deer in the headlights?

Quote of the Day:

While ECB intervention could buy some more time for Spain in the short-term, it is extremely unlikely to fundamentally change Spain’s fiscal or economic trajectories. In the absence of economic growth,Spain will eventually be forced to request official financing, potentially as early as next year.

Meagan Greene – Roubini Global Economics

Macro Overview

Spain: The Vital Statistics

  • So what do we know about Spain– other than the fact that they play the best football (soccer) in the world?
  • Well, both economically and geographically Spain is regarded as being on the periphery of Europe– the Southwestern corner of the continent and the “S” in PIIGS. Europe cannot afford Spain to go the same way as Greece, it is one of two PIIGS (Italy being the other) regarded as being “too big to bail”. But that is where the similarities with Italy ends. Numerically, Italy’s main problem is the sheer mountain of accumulated debt, but Italy’s financing issues (like Japan’s) are highly dependent on internalized, domestic funding channels and are therefore not as immediate as Spain’s (for now), despite its high debt to GDP ratio.
  • Spain, on the other hand, has the rather dubious honour of being the largest lender to Portugal (another PIIGS economy in the headlights) and, while it’s total debt accumulation is not all that high – a “meager” (ahem!) 80% of GDP this year – there are massive immediate problems with the rate at which new debt is being added to the economy (i.e. deficits), the rate of unemployment (especially among the younger generation), lack of growth and devastation in the property markets.
  • The Spanish influence in Europe should not be taken lightly, however, with a population approaching 50 million and a land mass of over 500,000 square kilometers (larger than the state of California, for example) this is a big cog in the Eurozone wheel.
  • Both Portugal and Spain sit in the “entrance” to the Mediterranean with having huge sandy coastlines on both the Atlantic of Southern Europe and the Western Mediterranean Sea making them Europe’s most popular tourist destination (second largest tourist industry in the World).
  • Despite their recent malaise, the economies of Italy and Spain rank 3rd and 4th in the Eurozone respectively, behind Germany and France and 8th and 12th in the World (India, Canada and Russia coming between them) … so these economic regions should not be viewed in the same light as, say, Greece – which ranks somewhere around 30 (and falling rapidly) below both Iran and Colombia.

The Pain In Spain

  • Fast forward to 2012; if you remember Spain has a newly elected (pro-austerity) leadership in the form of the centre-right Popular Party and its leader Mariano Rajoy. At least the Spanish population have the comfort that this is a leadership they actually elected (unlike Greece). However, as we’ve seen in Italy and Greece (and, indeed, integral to the construction of the European Commission), democracy in the Eurozone occasionally seems like an after-thought.
  • Rajoy (pictured above) is the new face of austerity in Spain, a country in the throes of great change. That, said, Rajoy’s task is far from easy and, just recently, Rajoy announced that Spain would miss its deficit target (again!), and not by a slim margin either… by a country mile. Instead of a “mere” 4.4.% deficit, he pulled a 5.8% clanger out of the bag – that comes after last year’s target was missed by an equally astounding margin (8.5% vs 6.0% target).
  • This did not please council of leaders at the European core, who outwardly hissed disapproval towards Spain and it’s smaller sister, Portugal, while inwardly praying it would not be them in the austerity hot-seat next. Some would say it was rather embarrassing for Spain– others (like my cynical self) would say it was politically predictable. A new administration often takes an economic bath up front so it can be blamed on the previous administration (although two baths in 6 months is perhaps pushing it a little).
  • Again, predictably, support for the People’s Party recently fell quite dramatically in the polls as the reality of austerity hits home to many voters with Spain unveiling the deepest budget cuts in 30 years. According to Bloomberg’s Business Week, Rajoy was recently quoted as saying:

Spain is facing an economic situation of extreme difficulty, I repeat, of extreme difficulty, and anyone who doesn’t understand that is fooling themselves

  • So far Rajoy and the People’s Party are trading their economic deficit for a deficit in popularity internally – or at lease, they’re trying to. They are towing the EU line of growth-crunching austerity to bring Spain’s economic criteria in line with the Eurozone core (and its convergence criteria) but this comes at a heavy price.
  • Just like in Greece, the administration is being torn between the demands of the political elite in the EU and the wants of their people. There are signs of trouble brewing internally with skirmishes between protestors and police becoming quite commonplace. Mind you, with massive austerity and youth unemployment at 50%, this is not surprising. What we must instead monitor is the momentum of the movement and the rate of increase in social unrest (if that is even possible to calibrate).
  • But social unrest is a symptom; the issue at the core is growth and with it the prospects for unemployment – which defines the cultural ambition of an economy and the confidence of the business community. So, what is a little more intriguing is the market action recently, it would appear that the Spanish leaders have a clear and unified focus and objective – to slash the budget and get Spain’s deficits in order. Unity and focus are not things often associated with European politics, so this is certainly a good thing… only it’s still not really working is it? As far as austerity goes it’s looking a little ominous for Spain– it’s as if she’s damned if she does and damned if she doesn’t.
  • I can’t explain it any better than Meagan Greene and, seeing as she’s been my flavour-of-the-week, I’ll leave it to her to succinctly summarize the situation in her latest article (Why Spain Won’t Regain Market Confidence)…

Bad News Up Ahead for Spain
As Spanish government bond yields began to soar in early April, the government announced on April 9th an additional €10bn in spending cuts. This came just days after prime minister Mariano Rajoy announced €27bn in austerity measures and tax hikes in the 2012 budget. Markets weren’t at all impressed by the additional cuts and bond yields rose further, proving that the Spanish government is truly in a no-win austerity/recession spiral.

If the Spanish government does not announce further austerity measures, the markets think it is not serious about hitting its fiscal targets and shun Spanish sovereign debt. If the Spanish government does announce additional austerity measures, however, the markets fret that the wingeing cuts will pushSpainfurther into recession and shun Spanish government debt. No matter what the Spanish government does, investors are spooked, and this is unlikely to change over the next year unless Spain shows signs of being on a path towards sustainable growth.


How likely is it Spain will show signs of a return to sustainable growth any time soon? Not very.Spain’s unemployment rate hit nearly 23% in the final quarter of 2011 (youth unemployment exceeded 50% for the first time in January). The latest purchasing manager’s index (PMI) for Spain for March showed the worst result in 11 months at 44.5 (a reading lower than 50 indicates a contraction compared with the previous month). Worryingly, there was a substantial reduction in new orders, an indication that Spain’s PMI score will continue to deteriorate in the future. The Spanish property market has not found a floor yet, and will continue to undermine the quality of household and bank balance sheets. The government is implementing aggressive austerity measures and structural reforms, both of which significantly undermine growth in the short-term.


  • I feel sorry for the young people in Spain. They’ve still got their football, but that is small consolation. It was not their generation who racked up crippling debt and ruined the property market, but they, the young, will have to pay for it somehow. They have austerity imposed on them directly by their own government and indirectly by the Euro elite (and the ECB via cost-of-living inflation). The scars and pain will last long after the Eurozone crisis is over – it’s not exactly fair on them. But this is the nature of The Spanish Imposition.

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12th April 2012: “Squeaky Bum Time” Looms Over Europe

Quote of the Day:

They [Arsenal] have a replay against Chelsea and if they win it they would face a semi-final three days before playing us in the league. But then they did say they were going to win the Treble, didn’t they? It’s squeaky bum time and we’ve got the experience now to cope.

Sir Alex Ferguson – Manchester United Manager

Macro Overview

Did Meagan Hit The Bulls-eye (of the storm)? 

  • You gotta give credit where it is due. Meagan Greene looked a little crazy when she wrote about the Eurozone crisis back in March (I had an excerpt in my Tonsillitis Economy piece) a time when all seemed to be rosy. Stocks were hitting new highs, credit spreads and borrowing costs of European nations were closing in on new lows. Was that really the right time to be saying: “hey don’t be fooled – this is just the eye of the storm”?
  • Well, for a while Meagan looked like a rather lonely kill-joy but these days she’s looking pretty smart, huh? The reality is, as Meagan correctly alludes to, nothing has really been “solved” at all in Europe.
  • As I wrote about way back in 2011, an all encompassing solution would involve three types of action:
    • Short Term Relief – Extreme action at the ECB
    • Medium Term Security – a direct and heavy participation of tax-payers at the core of Europe (EFSF and ESM)
    • Long Term Structure – Treaty Change at the heart of Eurozone political structure.
  • While, under Super Mario, the ECB is has literally exploded onto the scene with Euro-note-firing big monetary bazookas and Treaty Change happened as I anticipated about way back in September 2011, the medium term leg of the stool (a direct and heavy participation from the taxpayers at the core) has largely gone missing.
  • Here is Meagan’s excerpt again:

The third way the troika has tried to buy time is with a so-called firewall consisting of EU bailout funds and bilateral loans to the IMF. This is designed to take Italy and Spain out of the markets for a few years should they face unsustainably high borrowing costs. The hope is that these countries would be able to implement structural reforms and see those reforms boost growth by the time a return to the markets is required.

But for the firewall to work both its EU and IMF elements must be large enough. This is far from guaranteed, and failure on this point could trigger a massive escalation of the crisis. On the EU side of the firewall, there are currently two funds in place, the European Financial Stability Facility (EFSF), which has around 250 billion euros in available funding, and the 500 billion euro European Stability Mechanism (ESM). The former is due to replace the ESM in June 2012, but the only way to amass enough funds to cover Italy and Spain’s financing needs for a few years is to run the EFSF and ESM concurrently. However, German Chancellor Angela Merkel remains — for now, at least — vehemently opposed to this idea. Similarly on the IMF side, many countries have indicated their reluctance to contribute to a firewall until the Eurozone devotes more of its own collective resources to solving its crisis.

Figure 2: Composition of the Firewall vs. Financing Costs for the PIIGS (€, billions)

* Note; the trajectory of the bottom row (Total Cumulative PIIGS Financing Needs) on Meagan’s table.

The Third Leg Of The Eurozone Solution Stool Is Largely Missing

  • The medium term leg of this three-legged stool is essential because it connects the superficial short term remedies (money-printing) to their long term objectives (full political unity). The absence of this essentially adhesive part leave the project with a soft underbelly, prone to attack. Until investors have a comfort level that this Eurozone experiment is succeeding, they will always err towards putting pressure on the peripheral Eurozone economies via the markets.
  • Simplistically speaking, German taxpayers, and others at the core, need to put their hands in their pocket if they truly want the Euro-dream to succeed, but, so far, investors feel that this essential part of the plan is falling well short of what is needed.
  • The Eurozone politicians (bless them) have tried every trick in the book to polish this turd including: creating new shells under the impression that they are well-capitalized funds, turning the bailout fund into a Giant CDO and begging the Chinese. But we kinda know… you can’t really polish a turd.
  • In hoping that massive ECB stimulus (in my opinion, a short term solution) is continually repeated ad nauseum for a period long enough to bridge over the medium term to give time to the long term adjustments of real, integrated fiscal consolidation (Confederative Treaty Change) to gain traction is a real long shot, and, in my opinion a very risky strategy.
  • Aside from the political nightmare of Eurozone fiscal and political collaboration (right now this is a goal post moving further away from Europe with time, not getting closer) there are real risks to inflation here and (more poignantly) to the credibility of the ECB as it reaches further and further beyond its rather purist, single mandate.
  • Much has happened in the last few months. Let’s not underestimate the progress that has been made to-date. The Treaties have been worked out with alarming efficiency, the ECB is ready to inflate with Mario’s gleefully hovering over the “PRINT” button. Also, despite the fact that the ECB turned the entire Eurozone debt market into a retroactively risky, pseudo CDO-like minefield, Greece has finally defaulted and the process is in the latter stages of workout.
  • But rest assured, the future of the Eurozone is still in the balance – this ain’t over yet. In fact, as Meagan Greene implies and as Manchester United manager, Sir Alex Ferguson would say: the “squeaky bum time” in Europe may be ahead of us, not behind us.

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15th February 2012: An Ancient Greek Problem

Quote of the Day:

Insanity: doing the same thing over and over again and expecting different results.

Albert Einstein – German Theoretical Physicist

Macro Overview

A Duty To Write

  • Great quote from Einstein – if it indeed was his quote. But it’s a shame German finance ministers do not follow the same logic as their famous scientists.
  • Today I’m getting nostalgic. It’s good to look back in time every now and again and contemplate the positions and opinions you held one or two or even five years ago. It helps us to learn from our mistakes and our achievements. Some psychological analysis suggests that we tend to remember only a fraction of the truth or only the bits we want to remember. The truth is, it’s much more complicated than this, but we do not really know the whole truth about even our own, most intimate, past because we do not know what we forget, we only know what we remember. This is why I write a blog. I don’t need to, it’s not my vocation nor is it required of me, but I see it as a matter of discipline and convenience, which, by chance, has also become a rather rewarding hobby.
  • Firstly, as an investor I think it’s essential that one commits to definitive view points on many things – especially micro economics, macro economics, and increasingly, sociology and politics. I can’t help feeling that many people still have an apprehensive attitude towards airing opinion. It does not matter if one is proved wrong or has to admit defeat, that’s how we all learn. But as we get older we get lazy, as our knowledge increases out intelligence (as defined by our “learning curve”) decreases.
  • Secondly, as a professional or amateur working within a team it’s important one maintains an open communication on opinions and views both macro and micro. For a professional, it is equally important that one documents or stores those opinions in a manner which is easy to refer to and archive. That’s the primary reason I write a blog – the rest is just all just a bonus to me (don’t get me wrong it’s a great bonus, which I cherish).
  • I should be more humble, I get things wrong a lot of the time… only recently I had to admit that, after praising Germany’s clear stance on Greece I may have underestimated the political motivations at play within the dark corridors of Brussels. Indeed only this week I wrote:

It is becoming clear now where Germany’s path is diverging from idyllic (naïve?) suggestions I have made in the past – I forgot that there was politics involved, which means unfortunately there is constant opportunity for politicians on all sides to power grab.

A Snapshot in Time

  • So, what was I blogging this time 2 years ago: 15th February 2010? Well if the truth be told I was on holiday in Australia with my wife and kids on that exact date. But my friend Omar Sayed and I had spent a lot of early 2010 writing about one specific topic, which was insignificant to some people, but not us. It was a small economy in the south of Europe: Greece. Here is an excerpt from that piece, exactly a year ago today.


Today examples of debt profligacy surround us each day and no more so than the crisis surrounding Greece.  Greece will not be able to repay its debts on its own.  I am not talking about the short term and whether the EU will extend bilateral loans and other arrangements.  This “fix” is merely a stop-gap measure.  Rather in the years ahead Greece will not be able to take the steps it needs to bring downs its debts to a manageable position on its own.  There needs to be a debt write-down or a bail-out.

The EU is expecting Greece to shrink fiscal spending by 5%-10% of GDP per year for three years.  There is no clear incentive or penalty if the goal is not achieved.  Tax officials, doctors, teachers and civil servants have all held strikes over the past month against austerity measures that are not nearly austere. Sweden called Greece’s fiscal deficit data “fraudulent” after it was three times what official numbers stated. Greece hid E40 billion of debt from the public and the EU.  The Transparency International Corruption Perceptions Index ranks Greece dead last in the euro-zone with the “shadow” economy being worth 28% of GDP (the U.S. is 8%).  Where do you get tax revenue if 28% of GDP is in the “shadows”? Greece’s debt load is €254 billion.  It needs to refinance €64 billion of debt this year and €30 billion over the next few months.

  • Today’s headlines, 2 years and hundreds of billions of dollars later, read:
    • Greece Talks Hit A Snag – Bloomberg
    • Greece Spiralling Into Catastophic Depression – The Independent
    • Greece Battles To Salvage Bailout Package – Reuters
  • It’s all getting very messy again. Hey, it’s Deja vu every day in Europe – they got some serious “glitches in The Matrix” going on.
  • Poor Venizelos, he was supposed to be the placid “technocrat” mediating between the Greek public and the EU elite. Now both sides are hating and slating him so, like a cornered boxer, he hit back at the EU core elite accusing them of forcing Greece out. Yet still the blessed politicians forge forward to batter another austerity bill into the Greek economy. Hmmm… what was that Albert Einstein quote again?
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Posted by on February 15, 2012 in Debt, EU, Europe, Fiscal Policy, Germany, Greece, PIGs, Politics


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14th February 2012: Moody’s Gets Moody Over Europe’s Austerity Overdose

Quote of the Day:

We can and want to help only if there is a quid pro quo on the Greek side

Philipp Roesler – Germany Economy Minister

Macro Overview

Moody Moody’s

  • Too much of anything is bad for you, that’s what my Mom said… even austerity. Today Moody’s mood finally swung on Europe. They downgraded a bunch of Southern European sovereigns and put France and the UK on negative outlook. This seemed to dominate the morning chatter, apparently rating agency deductions are important news. I beg to differ, its importance is questionable… but it certainly isn’t news. Even if S&P and Moody’s downgraded France and the UK this year, they’d be about 2 years too late, in my opinion.
  • See comment on S&P downgrade “massacre” last month. I quoted an old piece of mine.

You know my opinion; one must earn an AAA rating – it is not bestowed on any profligate nation with the biggest printing press. In any case, AA is not the end of the World – it hasn’t affected Japan much. It just means your house is not as perfect as it could be – I don’t know any American that would not admit that. But, alas, the US should have been downgraded much earlier. S&P’s main crime was not that they screwed up the maths, it was that they were too late in finally downgrading nations with explosive debt trajectories, which could potentially be financially gridlocked in political disharmony. Farcically, Moody’s and Fitch, on the other hand, have little to gain, politically, by doing anything other than keeping mum and towing the party (i.e. whichever party is in the White House!) line. And, yes, France and the UK should probably lose their AAA status too – or at least be on negative watch. In the case of the UK, it should probably have been downgraded years ago.

London, 13 February 2012 — As anticipated in November 2011, Moody’s Investors Service has today adjusted the sovereign debt ratings of selected EU countries in order to reflect their susceptibility to the growing financial and macroeconomic risks emanating from the euro area crisis and how these risks exacerbate the affected countries’ own specific challenges.

Moody’s actions can be summarised as follows:

-Austria: outlook on Aaa rating changed to negative

-France: outlook on Aaa rating changed to negative

-Italy: downgraded to A3 from A2, negative outlook

-Malta: downgraded to A3 from A2, negative outlook

-Portugal: downgraded to Ba3 from Ba2, negative outlook

-Slovakia: downgraded to A2 from A1, negative outlook

-Slovenia: downgraded to A2 from A1, negative outlook

-Spain: downgraded to A3 from A1, negative outlook

-United Kingdom: outlook on Aaa rating changed to negative

Please see the individual country specific statements below for more detailed information relating to the rating rationale and the sensitivity analysis for each affected sovereign issuer.

The implications of these actions for directly and indirectly related ratings will be reported through separate press releases.

The main drivers of today’s actions are:

– The uncertainty over (i) the euro area’s prospects for institutional reform of its fiscal and economic framework and (ii) the resources that will be made available to deal with the crisis.

-Europe’s increasingly weak macroeconomic prospects, which threaten the implementation of domestic austerity programmes and the structural reforms that are needed to promote competitiveness.

– The impact that Moody’s believes these factors will continue to have on market confidence, which is likely to remain fragile, with a high potential for further shocks to funding conditions for stressed sovereigns and banks.

To a varying degree, these factors are constraining the creditworthiness of all European sovereigns and exacerbating the susceptibility of a number of sovereigns to particular financial and macroeconomic exposures.

Moody’s has reflected these constraints and exposures in its decision to downgrade the government bond ratings of Italy, Malta, Portugal, Slovakia, Slovenia and Spain as listed above. The outlook on the ratings of these countries remains negative given the continuing uncertainty over financing conditions over the next few quarters and its corresponding impact on creditworthiness.

In addition, these constraints have also prompted Moody’s to change to negative the outlooks on the Aaa ratings of Austria, France and the United Kingdom. The negative outlooks reflect the presence of a number of specific credit pressures that would exacerbate the susceptibility of these sovereigns’ balance sheets, and of their ongoing austerity programmes, to any further deterioration in European economic conditions and financial landscape.

Santorum Rising?

  • What’s this I see, Santorum takes the lead in the GOP race, CBS reports. It’s a strange race, isn’t it? Romney is clearly the leading candidate but he’s like what a Brit might call a “Marmite Candidate”… you either love him, or you hate him and it seems half the Republicans cannot stand him. That’s why the challengers seem to be continually revolving.
  • It was also interesting to see Ron Paul ranking ahead of Gingrich at 12 percent (I was honestly expecting him to be in the single-digits). He’ll never get to be a challenger of course, but he may get to the point where he has significant influence. For what it’s worth (and it isn’t worth much, I admit), I still think Romney wins and I also think he’s the Republican most likely to beat Obama, given that he holds a greater pull in the middle-ground among swing-voters and independents.

Big Day For Macro Data Tomorrow

  • Big day for macro data tomorrow – see the macro alerts in my Market Nightshift commentary – see for more regular updates.
  • The largest European economies all set to report GDP growth. The numbers are all expected to be below zero … the question, just how far below zero will they be? It could all go swimmingly, but I’d be surprised if the equity markets do not break out of the range they’ve been in for this week and last.
  • It’ll set the tone for the rest of the month and don’t forget the discussions taking place between EU finance ministers on the next Greek bailout package. All this ahead of Germany’s finance minister, Schauble saying that he feels the Europe is “better prepared” for a Greek default – is he trying to manage expectations? A Bloomberg article today quotes someone succinctly describing Greece’s predicament as an “overdose of austerity”, will EU finance ministers agree on this? Watch the news and data out of Europe tomorrow.

Greek GDP Growth (Source: Bloomberg)


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2nd February 2012: What Exactly Does Germany Want From The Greek Situation?

Greek Protesters Vent At Germany

Quote of the Day:

Given the disappointing compliance so far,Greece has to accept shifting budgetary sovereignty to the European level for a certain period of time…

Excerpt from new German EU Budgetary Plan

Macro Overview

The Default Semantics

  • More and more people are jumping on the Greek default band wagon. A Bloomberg post reports that Krugman says the writing is on the wall. Even Merkel has softened her tone on the possibility of a Greek default trigger.
  • You know my view, dear reader; whether ISDA defines the trigger “on” or “off” it’s all semantics (that’s the polite word) to me. The moment a politician utters the words: “private investors will be asked to take a voluntary haircut” on something or other, you know that “special relationships” are at play… and here’s the thing about special relationships … someone is always getting screwed (that’s the polite word).
  • But Merkel made some interesting noises this week. The Germans have been playing tough love with the PIIGS throughout this crisis, especially the Greeks, but it appears they’re now cornering the Greeks in an almost untenable position. As it stands, the choice given to the Greeks is: either a generation of poverty via humiliating and oppressive EU-enforced austerity, or, default and painful exit from the Eurozone (and possibly a similar societal fate, as they lose access to market funding).

What Do The Germans Want Of The Greeks?

  • I’m just going to insert the headline in the Washington Post, you can decide whether you need to read it, but I think the headline says it all: German proposal seeks EU commissioner with sweeping powers to directly control Greece’s budget. I just want you to think about something for a minute: can you imagine if this was being imposed on your country, your culture, your family’s way of life? I have nothing against the Germans at all, in fact I have frequently voiced sympathy, but I wonder why Merkel is insistent on flogging this dead horse, what does exactly does she want from this? What is she hoping to gain?
  • Of course, Eurozone nations with less political clout should have seen this coming miles off – the Eurozone binds nations together, that means more “special relationships” – small nations making big sacrifices, even if it appears big nations make only small sacrifices. Insolvent peripherals had a responsibility to respect and honour the spirit of the Union, they did not. But Germany’s “suggestion” to station an EU political security guard (for want of a better phrase) at the heart offending country’s government is an invasion of sovereignty and a corruption of democracy. I’m not saying that this is not the right thing type of policy if you believe in the dream that is a cohesive, harmonized and centralized Europe. Indeed, it may come as a surprise to some that I actually proposed these types of fiscal checks and balances and punitive measures in my treaty suggestions a months ago. But my suggestion was forward-looking, not like this.
  • How far does one need to go to “make an example out of Greece” – there were collective failures throughout the development of Eurozone structure – at times when Germany and France themselves were the culprits. Today, though, the goalposts were not moved for Greece, instead Greek national pride has been crushed, in a manner which makes political claw-backs seem a little retro-actively aggressive in nature. These Germanic impositions could easily be interpreted as vindictive or vengeful in a country where nearly half of all under-25s are unemployed.
  • That said, this type of political confrontation (between the German elite and the Greek public) was always coming, and if it was in plain view of a lonely blogger in the English countryside, everyone in Europe should have seen it miles out.
  • A great piece by STRATFOR on Germany’s role in Europe puts it more succinctly than I could, here is an excerpt:

The German move into questions of sovereignty has raised the stakes in the debt crisis dramatically. Even if the Germans simply back off this demand, the Greek public has been reminded that Greek democracy is effectively at stake. While Greece may have borrowed irresponsibly, if the price of that behavior is yielding sovereignty to an unelected commissioner, that price not only would challenge Greek principles, it would bring Europe to a new crisis.

That crisis would be political, as the ongoing crisis always has been. In the new crisis, sovereign debt issues turn into threats to national independence and sovereignty. If you owe too much money and your creditors distrust you, you lose the right to national self-determination on the most important matters. Given that Germany was the historical nightmare for most of Europe, and it is Germany that is pushing this doctrine, the outcome could well be explosive. It could also be the opposite of what Germany needs.

  • There is a worrying tone to the political differences being exposed here. I’m not thinking in terms of economics anymore, I mean political, cultural and societal confrontation in its purest and most volatile and unpredictable form. What exactly does Germany want from Greece? Get down and beg for forgiveness? Design flaws of the EU structure were a collective responsibility. No doubt, Merkel has played her cards impeccably in European political arena, maneuvering herself, not only into a position of strength, but as the apex political authority in the Eurozone. But I think that’s enough maneuvering… what exactly does Germanywant? After all, as I said a few days ago, nobody benefits from a disharmonious, disenchanted, disgruntled Europe… not even Germany.

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Posted by on February 2, 2012 in Angela Merkel, EU, Germany, Greece, PIGs


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16th December 2011: Is Germany Maneuvering For A European Depression?

Red Pill / Blue Pill Conundrum For Policy-makers

Quote of the Day:

This is your last chance, after this there is no turning back.

  • You take the blue pill, the story ends, you wake up in your bed and believe whatever you want to believe.
  • You take the red pill, you stay in Wonderland and I show you how deep the rabbit hole goes.

Remember… all I’m offering is the truth… nothing more.

Morpheus – visionary leader in the film The Matrix

Macro Overview

Presenting A Backdrop To The Motion 

  • I like this devil’s advocate game, let’s put forward a motion we are ambivalent about and then try and argue its case:
    • Is Germany positioning itself for a European deflationary depression?
  • Firstly, let’s make one thing clear, I have no definitive opinion on this, it is not a statement – it is just a question. But let’s take a step back and examine the backdrop to this. For years and years I had been writing about the then impending Western debt bubble, indeed, I started writing about it long before the bubble actually burst. Of course, we know what happened and, since then, much of this bad consumer debt has settled on the balance sheets of the financial sector and much of this debt as been subsequently transferred to sovereign balances. Debt is not magicked away – it can only be shuffled around until it is either paid or defaulted upon.
  • More recently, in January 2008 (before the crisis hit) I wrote that the only real option for Bernanke and that was what I called “Hair of The Dog Monetary Policy” – to force feed us more of the very same poison which had made us sick in the first place. Inflation was the “lesser of two every evil, evils”, I wrote. He’d have to cut rates and ease monetary policy so drastically to keep the credit lines open and then to try to inflate his way out of the problem. Using a variety of ingenious methods (aka Quantitative Easing), that’s basically what he did.
  • In any normal environment this would be extremely risky, if not foolhardy, monetary strategy – never mind social consequences of letting the inflationary predator off the leash, what about the moral hazard? So why was I so convinced that Bernanke would fly his helicopter  right in the face of moral hazard and print like a mad man? There are many reasons to be honest: the relative politicization of the Fed and its lack of “Monetary Dominance”, the unknown quantity of the Zero bound of interest rates (the Fed has the tools to fight inflation but not deflation). But the most fundamental reason is not always the easiest to explain – it arises from the cultural consequences of restructuring (defaulting on) this mountain of debt which was crippling the economy.
  • Debt doesn’t go away, the debtor must either pay or default – it’s that simple. To cut a long story short, just like Japan in the 1980’s, Western societies had racked up too much debt. Unlike Japan, where much of the initial debt leverage emanated from the corporate sector (and then the banking and public debt), The West, after the Enron disaster, had raised corporate balance sheets to much higher standards under the Sarbanes-Oxley act of 2002. So corporations were actually in good shape (thank goodness for Enron), heading into the crisis. Instead a debt bubble in The West originated on consumer balance sheets. With direct encouragement from central bankers (the original sinners – see my comment: Greenspan prostituted economic HIV), consumer debt in Anglo-American economies was exploding to a size that would dwarf even the Japanese debt bubble of the 1980’s.

Racing Cars and Fiscal Policy

  • I remember a track day with in a two-seater Formula Jaguar (see photo above – a truly terrifying car!) where I would repeatedly spin off-track on the chicane. The instructor (in the other seat) told me I had two options: either brake harder and slow right down or (his way) put your foot on the gas and get enough speed so that the down-force from the aerodynamics stick you harder to the tarmac. On the next lap, he took the controls and showed me his way … I don’t remember much but I remember I closed my eyes and screamed like a little girl. But, to my amazement, not only did we stay on the track we cut a massive chunk out of my personal best lap time.
  • When debt rises in an uncontrolled manner, there is an political inflexion point, an economic chicane, if you like, which it must be dealt with. Status quo is simply not an option – otherwise we’d continue to spin off track. But there is a “choice” for policy makers, and my opinion is that this choice is determined more by cultural aspects of a society than by the apparent logic of economic mathematics. Indeed this cultural divergence is part of the reason why a, fiscally harmonized, EU is such an ambitious project. Let’s look at the two options at the economic chicane (excuse my over-simplification):
  1. Option 1 is to simply stop spending when we approach the economic chicane, cut the debts, slash the deficits and take the pain up front. In motor racing terms, this is the “braking option” – in terms of economic “acceleration” it’s a U-turn in policy velocity – towards deceleration. Philosophically it’s bluntly Darwinian, constructive destruction, some would argue: the strong will survive, the weak will die, then we move on. This solution tends to be favored by a school of economists who think the best way for debt to be “worked out” is primarily through clean, hard default – not by relying on the flawed models of monetarists. This tends to induce, initially, a deflationary outcome as capital is sucked from the system violently. This school of economics is actually a Germanic cultural trait – in fact the school originated from the old Austrian Empire – the “Austrian School of Economics”.
  2. Option 2 is to spend more to increase growth and let growth and inflation work its magic on the economy by implicitly reducing the relative value of the debt by increasing the value of everything else (aka “soft default”). This, like my instructor, is the “foot on the gas” option to attacking the chicane and this solution tends to be favoured by Modern Monetary Theorists and Keynesians. This tends to induce, initially, an inflationary outcome as capital is typically forcefully infected into the system and, as Keynes himself said; “inflation is always and everywhere a monetary phenomenon”.  While the Austrian school emanated from “core Europe” (popularized by French, German and Austrian economists), John Maynard Keynes was very much an Anglo Saxon and his political approach to economic management is the framework for much of the Anglo-American (whether Democrat or Republican) economic model and thus monetary response to the crisis.
  • Am I reading too much into the origins of these two schools of thought? Perhaps … but I really do think that history and cultural issues play a strong part in understanding why different societies are more comfortable enduring one option over the other when they hit the economic chicane of debt-led insolvency.
  • How does all this play into Europe’s debt crisis? Is Germany really positioning itself for a European deflationary depression?
  • This is an absurd, if not alien concept to many – who on Earth would want deflation in this environment? Well that’s an interesting question which we’ll try to answer. It’s not an easy question as I think the answers lie in the cultural and historical aspects of each society – as “The Union” that is the new, incredibly culturally diverse, 26-member cast of Europe, is finding this out the hard way.
  • Well… lets continue…

Cultural Attitudes To Debt Play A Huge Role In Differentiating Between Remedial Policies 

  • Right, so when debt levels reach a certain point there is a pretty horrific economic inflexion point – it’s a bit of a “red pill / blue bill moment” that the lead character, Neo, faced in the movie “the Matrix”.
  • In terms of fiscal options, I likened it to a chicane on a race track where the driver either has the option of braking and slowing right down or accelerating and hoping the aerodynamics of the car keep him on the road. Kyle Bass puts it slightly differently, he uses the “fork in the road” concept – hey, pick your favourite analogy. But listen carefully to what Bass says in this video after about 5min 30 seconds [emphasis mine].

So this is a belief commonly held by most central bankers and academians who, as you know, unfortunately run many of these countries. They believe that when you get to this proverbial “fork in the road” (and this fork in the road means that there are two options that you believe that you have: one is default and one of them is inflation… and you believe that these options are mutually exclusive of one another).

When you sail into the zone of insolvency, when your debts get to become many multiples of your revenue. This is something we spend a lot of our time thinking about. When you attempt to inflate yourself out of this problem and your debts are already more than 5, 6, 7 times your revenue, you put yourself into this position where inflation causes the default.

So, in many of these nations, inflation is not an option (and I know your show isn’t long enough) but when you talk about the ECB monetizing all of these debts I think that doesn’t change any of the spending, number one. And what you’ve seen coming out of the Bundesbank and many places in Germany is: that doesn’t change the behaviour of the participants whatsoever – in fact it might encourage their continuing behaviour of the profligacy that’s riddled throughout Southern Europe.

I believe the ECB knows one thing: they have to print money. Whether it’s the ECB or the 17 various central banks at the periphery… they don’t have the money to recap their banks.

So your question should be: do they print before they default or after they default (or both) … and in my opinion they have to just print afterwards, because the number they are going to have to print is so large and that they know this going in…

  • I know I’ve commented on this video before, you have to watch it – I have watched the second part many times and Kyle Bass’s comments are just intellectual gold dust, in my opinion. It was this interview and a couple of others (which I will show you below) which initially sparked my train of thought on the subject of Germany and the inflation vs deflation pill-choice.
  • Let’s look at a couple of other poignant comments which were made in the last few days. The first comes from legendary hedge fund manager, Michael Platt – it speaks to the simple arithmetic of the European sovereign debt crisis. In his view, an inflexion point is coming and, as Kyle Bass inferred, there is actually very little authorities can do to prevent it, they can only prepare for the for the type of carnage they wish to endure first. Listen up…
  • Platt manages one of the biggest hedge funds in the World ($30 billion) and he doesn’t hold any punches. Diving in with both feet he says:

We sort of distill it down to one essential fact that we continue to focus on at BlueCrest Capital Management. That is that, if you look at the debt of, say, Italy, with a debt of 120% of GDP which is increasing at a real rate of 5% (where they have to fund these days) and you look at the GDP, which is now is forecast declining at 0.5% of GDP… arithmetically their debt is going to blow up.

Absolutely it’s about the cultural and political divide. The reality is, there is no willingness within the Eurozone to share wealth. In the United States, money flows between different areas: if California is having a very difficult time the rest of the States will transfer money to California. This is not the case in Europe; there is no willingness to transfer money across the boundaries in a long term and sustainable way.

  • Lastly I’d like to introduce you to one more interview which continued along the same thought trail this week, it’s a Bloomberg interview with Niall Ferguson, here. And this is the quote I was particularly intrigues by:

The problem here is in Berlin, it’s not a European problem it’s a German problem and the fact of the matter is, the Germans remain more worried about 1923 (i.e. inflation) than about 1931 (i.e. depression) – which is remarkable when you consider what the consequences were for Germany.

  • You see where I’m going with this don’t you, dear reader? There is a subtle, common theme in all these comments which, I feel, is worth expanding on. Bass, Platt and Ferguson all agree that there is a huge economic inflexion point coming (or, indeed is happening as we speak) and that there is very little policy-makers can do, but make the preparations in ways they feel are most protective to their (highly divergent) societies. The choices they make are largely dependent on cultural issues – Platt remarked directly on this – but Ferguson and Kyle also implied this by drawing attention to the “choice” between invoking inflation (first) or deflation (first).

Red Pill Deflation Or Blue Pill Inflation? That Is Question

  • To those (e.g. Americans) brought up in a society built almost exclusively upon Modern Monetary Theory, where ubiquitous and extremely “efficient” credit extension is responsible for much higher levels of consumer debt, it is obvious what needs to be done at this inflexion point: INFLATE FIRST, ASK QUESTIONS LATER! Indeed, perhaps Bernanke’s most famous speech was: Deflation Making Sure “It” Doesn’t Happen Here.
  • Indeed, while Japan has tried to inflate its way out of deflation, it’s quite telling that they were not nearly as pre-emptive or aggressive at the beginning of the deflationary slump. Many (Western Economists) believe this to be a blatant mistake, a “school-boy error” of Monetary Policy. Perhaps it was… or perhaps, collectively Japanese society actually objectively “chose” deflation first and then later tried to inflate their way out of the deflationary debt spiral. Some would say this was a complete disaster, but I’d offer a little more respect for what I believe was actually a cultural choice. It is worth noting that while the economic numbers look horrific to an Anglo-American, Japanese society did not disintegrate into chaos, Japanese unemployment barely rose above 5%, Japanese standards of living and life expectancies continued to rise during this “lost decade”. Deflation did not wreck Japanese society, it only certified it. Could you imagine such a response from American society, faced with a generation of recession and deflation? I think not. This is very much a cultural issue.
  • There are many reasons why Anglo-Americans were always going to chose to inflate their way out of this crisis.
    • First, there is a financial argument for this. Due to the massive levels of debt from a (so-called) efficient and extremely loose financial policy, deflation would almost certainly plunge Anglo-American economies straight into deep recession and probably depression. Remember the gargantuan levels of consumer debt in Modern Monetary Theorist economies – the principal value of these debts grow in real terms if inflation is negative. So deflation only exacerbates high levels of this massive mountain of consumer debt – that’s a disaster.
    • Secondly, a political argument. Because debt is largely held at the consumer level, politicians will always do what is in the interests of the consumer (i.e. their electorate) if they wish to remain in power. Moral hazard plays second fiddle to ensuring that voter debt-burden is softened and votes are protected.
    • Thirdly, a cultural argument. Democratically diverse and heterogeneous societies with extremely open and liberal media and civil rights culture, like American and the UK are, by design, less stable. In fact, some would say the instability in a political sense, ensures greater long term stability, as societal flaws are exposed very quickly ensuring a faster politically-led evolution. This notion sounds a little flimsy because it is, it’s a psychological equilibrium based heavily on confidence. In a deflationary downturn, confidence evaporates and, the inherent exposed instabilities, which are normally encouraged and embraced by these societies,  turn on the economy and obliterate business sentiment, crippling the country into a depression.
  • But Germany is not an Anglo-American society with a Anglo-American values and an Anglo-American economic model. As I’ve written about before (see my comment: Why The Germans Understandably Hate Inflation) and as Ferguson alluded to in his quote above, the Germans appear to be more petrified of inflation than they are of deflation. Yet for Americans and Brits (who dominate the financial media, let’s face it) to opposite is true.
  • In many respects Germany is very much more like Japan than it is like America. In fact the cultural similarities between two very different countries are quite striking: socialist democracies, with a general consumer propensity to save rather than borrow, changes the political dynamic considerably and sets the tone for their societal traits. Also relatively cohesive, homogeneous societies with wealth uniformity (a huge middle class) and a ultimate respect and pride for, what I will call, “personal honour, structure and discipline” plays a significant part in their cultural identity. It is no surprise that they both possess the two best education systems in the G7 for Science and Maths and consequently home to the two most sophisticated manufacturing, engineering and export industries.
  • In this cultural dynamic, deflation is not the monster it is portrayed as in the Anglo-American media. To start with, it is politically less destabilizing in a society which embraces a culture of consumer saving over consumer credit. Indeed the personal wealth of a, saving-rich, populous increases with deflation and, in a more culturally cohesive society with more uniform wealth distribution (both have by far the lowest GINI coefficient of the G7), the prospect of societal disintegration is more applicable to inflation than deflation. Also note that, there is a structural industrial cushion for nations whose economy is absolutely dominated by sophisticated manufacturing exports as wage deflation provides a significant boost to domestic industry via reduction of labour cost on a relative basis.

What Choice Does This Leave Germany With Today?

  • The bottom line is, if you ask an American or a Brit what the single worst economic period was for their country in the last 100 years, almost unilaterally, the response would be: The (Deflationary) Great Depression of the 1930’s. If you ask a German I’m not sure you get the same answer. I think a German would say: The Hyperinflation of the 1920’s. That’s the psychological difference between Britain and Germany, between David Cameron and “Merkozy”, between the BoE and the ECB, between the US and Japan. Of course, I’m simplifying everything greatly (and I apologize for this) and the economic idiosyncrasies are very different, but their economic positioning and their collective divergent abilities to endure different economic hardships are almost entirely cultural.
  • Where does this leave us today? Well, it’s not entirely obvious that Germany wants to do everything its power to avoid a Deflationary Depression (that’s an understatement) – this has come to the distress of many highly vocal American and British pundits who think that Germany and the ECB are, quite simply, idiotic not to print the heck out of the Euro. That’s a culturally and politically naïve simplification, I think.
  • So let’s look at the historic facts: the last time Germany tried to aggressively inflate its way out of a debt trap, disastrous Hyper-inflation ensued, soon followed by a huge Deflationary Depression anyway (oh yeah… and don’t forget the most far-reaching World War in the history of mankind). That’s not a great benchmark. The current facts are that Germany has made it clear that:
    • The ECB will have a German design – its mandate will be to control inflation and inflation only.
    • There will be absolutely no participation on the part of the ECB to print money or directly monetize.
    • It is no secret that the Germans have long been making significant preparations for Euro-wide defaults.
  • Kyle Bass may be right. The choice is less a case of simply, “do you want inflation or deflation” but rather:
      1. do you want inflation first (and then run the risk of trying to deal with a potential deflationary reaction to default later), or,
      2. do want deflation and default up front (and then try to inflate and grow out of this, potentially chronic, depression later)?
  • The answer in the UK and the US is, without hesitation: “#1 please” – it’s just how we deal wit this, it’s part of our culture. I know this is a controversial thing to say, but, given both the actions and rhetoric I am observing from Germany, given the cultural and historic backdrop of Central Europe… I’m not sure they would give the same answer.. and, to be honest, in their cultural and historical context, I’m not sure they are wrong to do so. After all, from a cultural perspective, who are we to tell the Germans what is best for their country?

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