Sink the Deutschmark!
Arnold Kling drew up a list of four things he’d like to know about Europe’s financial crisis. The second item stuck out:
What does the option for inflating away European debt look like? How would the cost of that inflation be distributed? Can the inflation take place within the context of the euro, or does it require that some countries leave the euro?
Yeah, I’d like to know the answer to that one, too, especially as it might provide some kind of guidance for what might happen in this country. Remember, debtors love inflation — and there’s no bigger debtor, anywhere, ever, than the government of the United States of America.
But back to Europe. More specifically, back to Frankfurt, home of the European Central Bank. As the price for giving up the Deutschmark, Berlin insisted that “the primary objective of the ECB is to maintain price stability within the Eurozone, or in other words to keep inflation low.” Germany has nothing but bad memories of inflation, and wasn’t about to let French or Italian profligacy bring back Weimar.
Then the PIIGS shuffled up to the trough, and made France’s and Italy’s appetites seem Teutonically modest in comparison.
All of which is a long way of saying, sure, there probably is some chance that the ECB might monetize away the eurozone’s debts — but not so long as it’s still headquartered in Frankfurt. Germany would — indeed, must — leave the euro before letting more than a half-century of work and thrift be destroyed by spendthrift foreigners.
And without its German core, runaway inflation in the eurozone might become all but inevitable.
UPDATE: When ten trillion dollars pays off half the national debt, or buys a pair of shoes, who gives a good got-dam about the interest on the re-fi?
The fact that anyone could be thinking about the monetary strategy that paved the rise to Adolf Hitler is proof positive about that person’s total lack of morality.
Uh, Mr. Bernacke,……that could mean you.
That is a fallacy. Early 1929 the Nazi party fitted in phone booth and dwindling. It was the Great Depression not the 1923 inflation (entirely manufactured by the German government in order to avoid paying reparations) who propelled Hitler to power.
Hmmmm.
Without the Germans the Euro becomes a laughingstock.
Economic policy as a Johnny Horton song?
So, the Germans are angry, scared and frustrated. They’re beginning to feel as though all their hard work and thrift is being squandered by France and the PIIGS. Angry, scared and frustrated Germans. Good thing this European monetary union is working out so well……
Germany, welcome to the Tea Party!
OK, on your side of the pond you’re only told that Germany is virtuous, but, ya don’t know that more than 6,5 million of the Germans benefit of HartzIV social help, means that jobs are state subsidied, and poorly paid, that these persons are not EU contries consumerisers, that Schröder transferred taxes from enterprises on to the working class (10%), in order that the german enterprises could become concurrential to the other EU contries, in the meanwhile the working class had not enough means to buy EUropean for the next coming years, that Germany has a short memory, in 2003-2004, she overcome the prices stability pack and that she forced Brussels to not fin her !
from Joerg Bibow:
“Sadly enough, Germany has been central to all of this. Germany is the biggest factor in Euroland’s export dependence, growing on exports only while domestic demand, especially private consumption, is notoriously stagnant. Among the first countries to break the Maastricht deficit limit dreamed up by its own lawyers, Germany contributed most to the ECB’s misses of its headline inflation mark by hiking indirect taxes. Worst of all, Germany reneged on the euro’s cornerstone to abstain from beggar-thy-neighbor policies…
Germany likes to see its international competitiveness as the fruit of hard work and productivity. Yet, German productivity growth since 1999 does not stand out. What stands out is wage stagnation. Germany’s improved competitiveness was derived from reducing German wages relative to its European partners; the equivalent of a beggar-thy-neighbor devaluation in pre-euro times. The consequences of this strategy have proved disastrous: domestic demand stagnation in Germany, housing bubbles in partner countries with higher inflation, given that the ECB sets one rate that has to fit all. One way or another, the country that runs up trade surpluses must either lend or grant transfers to the deficit countries that make its own surpluses possible. Today, German policymakers refuse to do either. Fooled into believing that beggar-thy-neighbor was the right thing to do, popular demands appear to be just that. One cannot fail to see that insane austerity in the periphery serves to keep the euro low enough so that Germany can now grow on external exports…
That is neither what Europe needs nor what the world may reasonably expect from Europe. Sooner or later Europe may have to conclude that Germany is unfit for the euro. Let the Germans have their mark back if they are so keen. Let the new euro-mark rise to US dollars 2 or 2.50, so that the joys of stability are real. …”
http://www.eurointelligence.com/index.php?id=581&tx_ttnewstt_news=2765&tx_ttnewsbackPid=901&cHash=7383fd50dc
They could move the ECB to Brussels along with the other machinery of the EU, and lay a medieval siege to it, and sow the plowed ground with salt so nothing could ever grow there again.
I’m enjoying the irony of Soros profiting from continental European profligacy. As the great American philosopher Nelson Mundt says, “HA-ha!”
Much to my surprise, I’m wishing I had gotten some portfolio exposure to Germany. They’re in a very tough spot, but if anybody on this planet will resist the paper-lunacy it will be Germany.
try that if you want to become a loser for the next decade
You do realize that Italy is one of the “I”s in PIIGS?
So, do the Portugese now work for the Germans, or do the Germans now work for the Portugese? And how long will that go on?
“Germany has nothing but bad memories of inflation, and wasn’t about to let French or Italian profligacy bring back Weimar.”
Funny, you’d think the French & Italians would have bad memories of German inflation too. Along with Benelux, Britian, Eastern Europe, Russia, and just about ever-freaking-body else. Except maybe the Spanish. But they were preoccupied with their own problems.
Pause a moment and recall that the lesser Europeans have debt denominated in euros.
Even if they leave the monetary union today, and return to franc, lira, punt, escudo, peseta and drachma going forward, they must still repay existing debt in expensive euros.
But if Germany leaves and the rest stay, inflation becomes an option for those that remain. A lot of financial writers are now suggesting that a German exit is the more likely occurance.
Interesting thought, Buck, but I suspect Germany will not be the one leaving.
* The euro is the new Deutschmark.
* The lesser Europeans owe too much to the Germans IN euros. so Germany is not about to tolerate their escape into inflation. (Can it collect 100%? Certainly not, but that’s no reason to allow inflation.)
* Likewise, Germany does not wish to sully its own credit, harm its own lenders from whom it likewise borrowed in euros.
No, the non-Germans have, as Tom Stoppard one said, “unmade their bed, and must now lie about it.”
Robert, if Ireland defaults it doesn’t matter what currency the “debt” was in. And money that was loaned did not exist anyway. It was a promise of a promise between banks and bankers. The Irish people had nothing to do with the exchanges and agreements. No one gave Brian Cowen permission to guarantee the loans to his bankster pals. The Irish want to be rid of the current government, and want the ECB and IMF to go home with their “bail out” that wasn’t asked for. They are fine with the euro, but not the EU/Lisbon Treaty that was crammed down their throats.
Mary, I could not agree more about the dreadful Lisbon treaty, nor do we differ at all that the elites signed on for many things contrary to the interests of the people. Alas, having arrogated the authority, neither the Irish, nor the Greeks, nor any one else laboring under socialistic misguidance, can deny their lawful contracts.
Bankruptcy’s the way to go.
Remember, bankers have only short-term memories. In less than a decade, a new crop will have forgotten the past, and be ready to make new and more subtle errors going forward.
Just look at the recidivists in Third-World lending…
Printing 0% coupon 1-yr bearer bonds, and paying off salaries with bonds, not cash. That’s what the PIIGS should all do, to goose inflation in their own countries.
Wrong question. Wrong perspective. The contagion can not be contained as the linkages are too great:
http://lovefreedomtruth.com/2010/11/sovereign-default/
You can only inflate your way out of debt denominated in your own currency. Their banks may have liabilities in other currencies. Nationalizing them involved nationalizing these debts.
The Euro will disintegrate rather than inflate its way out of trouble. The ties that bind in Europe are not what they are in America or Australia.
Read the post in full, the US will be caught up in the collapse.