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Germany’s Eurobailout Template: A Stealth Takeover?

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Der Spiegel (hat tip reader Richard Smith) presents a detailed sketch of German thinking, specifically that of chancellor Angela Merkel and finance minister Wolfgang Schäuble, regarding how countries who fail an initial round of restructuring within the eurozone would be treated.

This piece is very much worth reading, but the German proposal has all the hallmarks of being a trial balloon for domestic consumption. The idea that Germany or the creditor nations within the ECB can impose a regime that interferes with national sovereignty of EU member nations and violates current eurozone treaty arrangements is more than a bit of a stretch. And the restrictions on sovereignity would be considerable; democratically elected governments, even if they had nothing to do with the policies that led to fiscal deficits, would be stripped of their control over their own taxing and spending:

A newly established Berlin Club would serve as the “international guarantor.” The German government experts see this organization as an “apolitical and legally independent entity.”

The plans build on existing institutions involved in international debt settlement. While the Paris Club regulates debt restructuring among nations, the London Club specializes in liabilities between banks and countries.

The German government hopes to bridge a gap with its proposal. The Berlin Club would concentrate on government bonds and the associated derivative securities. The members of the club could be recruited from within the G-20 group of industrial and emerging nations. Another possibility would be to establish the club within the framework of the euro zone.

The International Monetary Fund (IMF) would be involved in the debt refinancing from the outset. The German experts see the IMF playing a key role. If representatives of the Washington-based organization determine that debt forgiveness and restructuring have failed, then the second phase of the procedure kicks in.

It amounts to a complete refinancing. According to the concept, “this will require restrictions on sovereign discretionary powers.” In other words, the government of the affected country would no longer be able to fully dispose of its own treasury.

It would be replaced with “an individual or group of individuals familiar with the regional characteristics of the debtor nation,” which would safeguard the financial interests of the bankrupt country. The Berlin Club would have the authority to appoint these individuals.

The concept toughens the stance, particularly toward creditors, but also toward the debt-ridden country. If it is implemented, it will amount to an institutionalized disempowerment of a debtor nation’s government by the IMF and the new Berlin Club, at least in its final stage.

Yves here. Um, we had a revolution over taxation without representation in the US. What happens if the locals don’t like this takeover and start, say general strikes or sabotaging infrastructure? Will NATO tanks roll next? Or that pre the takeover, the member state calls this action out as what it is, a violation of EU governing arrangements, and threatens to exit the EU (which is also not permitted under the current treaty)?

In all seriousness, while this round of German saber-rattling might be treated with more dignity than it deserves, the ECB is acting as a stealth Treasury, and if it continues, such draconian measures will not be necessary. As Marshall Auerback pointed out via e-mail:

….. if the ECB continues to step into the secondary market and cap yields, then it does take away the solvency risk short term. Did you notice that the ECB bought 8 billion euros of Irish bonds over the last several weeks? It addresses the insolvency issue and facilitates the euro countries’ ability to secure funding from the bond markets again. So you get a once-off rally in euro risk assets as the perceived insolvency risk is mitigated, and then we get Japan all over the world, as they do just enough (probably) to ensure that this whole thing doesn’t go over the cliff.

He also points out that the comparison to a controlled corporate bankruptcy is highly questionable. If this remedy were imposed on Greece, it compromises the debt of all other eurozone nations that are under scrutiny. Marshall notes:

These governments at the very least would face lower credit ratings and much higher borrowing costs, making their defaults that much more likely. Since investors know this, there might also be bank runs

Yves here. And again, this problem is ultimately circular, since the party that is nominally at risk is the sovereign state, but the party holding the debt is the one at holding the bag, which in the case of Club Med borrowers, is French and German banks (and note the German plan requires creditors to take a hit, yet has no mechanism for bailing out impaired banks).

In other words, in classic Blazing Saddles fashion, even if this proposal were anything more than posturing to appease German voters, it looks like a nuclear option that is ultimately directed at the party making the threat.

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63 comments

  1. john haskell

    The United States did this multiple times with Caribbean countries that defaulted.

    E.g., from 1915-1934 Haiti was occupied by the US Marines who initially landed with the stated purpose of cleaning up the Customs Service and curing the country’s bond defaults, but stayed a bit longer than they initially announced.

    Would Greeks have any issues with being treated by Germans the same way we treated the Haitians a century ago?

    1. alex

      If I recall my history correctly, the Greeks have had more recent experience with an unpleasant German occupation.

      1. Olle

        And an even more recent experience of a US backed fascist dictatorship. Couldn’t the behavior of the Greek political elite be understood better if the fact that, for a long period of time they didn’t have to worry about balancing the books, they were OK as long as the communists didn’t get any influence.

  2. A.O.

    Yves, you mention that this plan has “all the hallmarks of being a trial balloon for domestic consumption.” To see if anything got lost in translation I looked for the original German version on the Spiegel website – to no avail. Maybe the trial was towards the blogosphere first… and the reaction has no doubt be wholly predictable.

    It seems though that some people seem to think Germany wasn’t that stupid after all in how they structured their economy: http://news.bbc.co.uk/1/hi/business/10557724.stm

    1. Gary Anderson

      This has probably been in the works for a long time. Probably was a plan when the Eurozone was first formed. This is just like ponzi loans and bank bailouts, a continuing assault on sovereignty of nations by the New World Order. Don’t think there isn’t one.

  3. S Brennan

    History repeats,

    I’ve never [in my life] been more disgusted with Germany

    “World War One ended at 11am on 11th November 1918. In 1919, Lloyd George of England, Orlando of Italy, Clemenceau of France and Woodrow Wilson from the US met to discuss how Germany was to be made to pay for the damage world war one had caused.”

    http://www.historyonthenet.com/WW1/versailles.htm

    Here’s a better plan:

    “Marshall Plan (officially the European Recovery Program, ERP)”

    1. V.M.

      Does Mr. Brennan (or indeed Ms Brennan) prefer the Club Med members be bail out gratis? Why should Club Berlin not protect the prudent from Club Med & their ilk??

      I believe the difference between WW1 & here is that in WW1 there was reparations demands without any thing in return – here the profligates get bailed out in return get sober….sort of quid pro quo I believe.

      Go Angela

      1. S Brennan

        Ms/Mr VM,

        This piece of overt racism you display in saying “Club Med & their ilk” is good place start.

        Had the US shown the same hatred [justified] of the Nazi supporting population of Germany that your comment displays, Germany would be debtor nation for all time. That was the point of posting the Versailles treaty link.

        The type racist stupidity you call for has been tried before and it led to WWII. The US has a dog in this fight…AND ON THIS MATTER OF DEBT, GERMANY WILL ALWAYS OWE THE US. The fact that they could turn around and not recognize the grace that they themselves live under is in the Ayn Rand level of stupidity/arrogance.

        The deep historical ignorance your comment required is only outstripped personal hatred of people who have darker skin than yourself.

        1. IceMan

          You might want to recognize that the hundreds of billions the german tax payer invested to bail out the US fraudulent Housing Market (Hypo Real Estate ect..) is several times larger than any virtual debt number you could come up with that germany owns. And dont think that the still comming fall out of the state owned Landesbanken which put most there money in US real estate isnt going to lead to pragmatic mutual agreements between the US and Germany. You might want to start thinking about why German State owned Banks have put all there money into the US for decades while the private ones have not, before you come to the conclusion there has been no reparation between Germany and the US. Versaille simply showed that you dont these things public to keep the peace between the populations. Also dont shout racism every time you have no argument, its pathetic and your falling for the oldest banking strategy -divide and conquer.

        2. Massachusetts

          The historical ignorance is of those who don’t understand that WW2 was necessary to fight against allied imperialism and the Marxist-Stalinist-Maoist-Pol-Potist menace. Remind me who helped the murderous Marxist-Stalinist-Maoist-Pol-Potists, and the imperialists, and who’s thus also responsible?

        3. a

          “AND ON THIS MATTER OF DEBT, GERMANY WILL ALWAYS OWE THE US.”

          Balls. The statue of limitations ran out forty years ago. If there’s no statute of limitations in such things, then the US owes far more to descendants of slaves and Native Americans.

        4. V.M.

          Dear Sir/Madam,

          You are jumping to a conclusion regarding my being racist. My skin is of a nice & tosty brown south asian hue so I suggest you are displying a knee jerk response in jumping to the conclusion “personal hatred of people who have darker skin than yourself.”
          Any costs that the Club Med (or if you prefer PIIGS) pay by way of belt tightening and the anti dote to their not over indulging next time around.

          To equate this to Versailles treaty situation is in my opinion is specious – you can of course have a different point of view (no racism intended!!)

          Furthermore you if you wish to drag history into things why not go back to Aleander and make an arguement the Greeks owe every one else…. Let bygones be bygones.

          You can tax all the wealthy Greek you want -why should say hardworking engineer taxpayer from Germany be the only one footing the bill – for a party in greece at that?? Will that not be also taxation without representation…??

      2. Gary Anderson

        Go Angela? I suggest you recognize that while it is couched in “good will” and peace, the European Union is really a way from banks to make more money giving crap loans to people who cannot afford them. This European model came to the shores of the US in the form of crap loans, off balance sheet banking which is still going on today, and the repeal of Glass-Steagall. International banks can lend to anyone if they write swaps.

        This is a giant ponzi scam. Read about it. http://dontpaycreditcards.com

      3. Gary Anderson

        Go Angela? I suggest you recognize that while it is couched in “good will” and peace, the European Union is really a way from banks to make more money giving crap loans to people who cannot afford them. This European model came to the shores of the US in the form of crap loans, off balance sheet banking which is still going on today, and the repeal of Glass-Steagall. International banks can lend to anyone if they write swaps.

        This is a giant ponzi scam.

        1. V.M.

          And pray which gun was held to the head of the nations that was jumping to take the loan? Also what did they do with the loans??
          Once they Euro came about they enjoyed it purchasing power & the cheaper loans it implied – they went on bender once money was available on tap … and some how in your eyes it is the fault of the prudent debt averse folks???

    2. DieKiste

      The consequence of Versailles was WW2.

      WRT to the Marshall Plan, you should be aware that Germany had repaid all Marshall Plan funds with interest by the early 1950s.

      If you are implying that Germany should run a Marshall Plan scheme with regard to southern Europe PIGS, then think again. These countries have been receiving billions in investment funding for decades – financed by the EU’s net payers. There’s a Marshall Plan for you. Yet, somehow it’s still Germany’s fault when these countries made nothing of it.

      1. Diego Méndez

        DieKiste, stats don’t confirm what you are saying.

        Italy, Spain, Germany and France have very similar wealth levels, ranging from 102% EU average to 116% EU average.

        You are speaking as if Southern Europe and Germany were ages apart. This is unsupported by data.

        The recession caused by Merkel’s austerity policies imposed throughout Europe will be felt in Germany as much as in Spain.

        Just a bit later and harder in Germany.

  4. Jim Haygood

    The punch line: ‘It is quite possible that Greece will not fulfill the conditions and thus will receive no aid from the European fund. This could lead to a consequence that European leaders have been trying to prevent at all costs: a total national bankruptcy. And, if the reform package has not been implemented by then, it could end up being anything but an orderly process.’

    Default and restructuring are usually unilateral processes. Germany, it seems, is trying to provide a multilateral process, probably in anticipation of the inevitable — that Greece is going to end up restructuring despite the rescue package.

    The Germans are to be commended for thinking ahead. But with EC treaty amendments needed, it’s questionable whether such a plan could be adopted in time, before push comes to shove and Club Med takes its own fate its hands.

  5. Bernard

    so it’s alright for the Germans to tell the Greeks and others how to run their state since the Germans will bail them out of their “mess.” no where do i hear taxes being raised on the rich, nor do i hear anything about the state/Greeks telling the Banks where to stuff it. knowing when to cut your losses seems preferable to ceding authority to the European Bankers, who own “you.”

    with the authority the Bankers/Berlin Club wants, who needs elections any more. who needs representation? getting scammed by your “own” is bad enough. You will do as i say!!! lol and this “directive” is coming from the Germans!!

    sell me on how this is good for anyone but the rich bankers, German banks in this particular case.
    shades of Goldman Sachs setting up loans whereby the “state” defaults and becomes part of Goldman Sachs “property”. in this case, Germany’s puppets. this with the history of the Nazis and WW2 .

    who needs that. write off the debts and start over. geez. screwing the little people/lesser folks sure seems the way to go today.

    1. reskeptical

      Bernard,

      I totally agree. I really do. It is incredible, what we are seeing across the board in politics at the moment. Sometimes, when I’m pessimistic, I think it’s as if the experiments done wrt. wedge politics in the 90s were the prelude to where we’re at now. Politics has simply absented itself from economic discussion.

      What we have is an incredible discussion, or discussions, all running parallel to each other. Broadly, there seem to be two groups: How things should be (normative); and what has to be done to, well …, maybe save “the system”, or save the European Union, or save a group of nations, or maximize the position of your own nation, or maximize the position of particular private companies (DB., UBS, …), save social security, etc. I mean the unfortunate thing is that the actors involved in making the decisions (the ones not sitting on the sidelines giving commentary) are all from members of national parliaments down. I mean, the way BP have “run” the GoM catastrophe is really a cameo performance of how to simply paralyze and stun public institutions– the financial crisis on a smaller stage.

      Anyway, I think you can forget the ECB doing anything like the US Fed, (I mean in terms of the scale)– that would be unprecedented and a serious threat to national sovereignty. So left with this mess, it’s time to stop looking for a perfect solution, agree to abide by the current bad framework, and “Don’t panic!*”

      *Quick, withdraw all your money and by canned beans!

  6. Ishmael

    Yeah, like sure this is going to happen with Greece.

    My SO is Greek (first generation American) and am around Greeks all the time. Greece was ruled by the Ottomans for several hundred years. They still blame the US for selling them out after WW2 to Britian and reinstating the monarchy. One of the reasons Greece has such large deficits is because it keeps a large military to keep from being oppressed again. Greece will tell the French and German bankers to go screw themselves before they will allow themselves to be taken over by the Germans again (my grandmother was east Prussian so I have nothing but good feeling towards Germans). Do not forget it was Greek uprisings that the Italians could not control which caused the Germans to invade Greece and delayed the invasion of Russia during WW2.

    I would generally say the same is true about Italy and Spain. Whoever wrote that article must be snorting coke through der Furher’s straw. What if they take over the country and everyone just stops working. Then you have to feed and take care of them or instead will they just inslave them

    No freaking way! If you think you have violence in Greece now have the EU attempt to take over and run the country. Greeks fight all the time among themselves, but that would give them an excellent common enemy.

    Das ist n Märchenland!

    1. reskeptical

      Don’t be caught out projecting US militarism onto the EU. Probability of anything with guns happening is 0.

      1. Gary Anderson

        The PIIGS could opt out. That would be a peaceful slap on the Euro. It would be interesting to see if this would be tolerated if they all left at once.

        1. Diego Méndez

          You cannot opt out of the euro. You need some planning and democratic debate to do that: however, as soon as opting out becomes plausible, people would send all their money out of the country to evade the forced currency conversion and devaluation, thus causing a banking crisis.

          Moreover, it would spell doom for markets, both inside and outside that country.

          A recent research by ING Direct pointed to GDP falls over 10% throughout Europe. The last 3 years of financial crisis would be peanuts compared to a euro breakup.

          1. /L

            It probably depends on what the constitution of the individual country says. A devaluation and alike measures is in general the governments privilege. It’s not at matter that can be democratically discussed, it have to come as lightning from a clear sky.

            If a country is going to opt out of the Euro it of course have to prepare carefully, consider legal ramification get a consensus among a qualified majority among the leading partys in the parliament. And it have to be done in absolute secrecy and in a very short time span. Then it will come as a lighting from a clear sky on the weekend when everything is closed, proclaiming a state of emergency, all bank accounts is frozen and so on. Appropriate measures are taken to convert to the new currency.

          2. Diego Méndez

            /L,

            even if done in secrecy, it spells doom. You have no monetary anchorage, your currency devalues massively (as in the 50% – 80%, according to ING analysts), financial flows stop suddently, you get out of the European Union (euro membership is compulsory for all eurozone countries), and financial markets go crazy.

            What do you do with your debt? It’s nominated in euros. If you convert them into the local currency, you are defaulting with a 50% to 80% haircut. You basically become Argentina.

            All your middle class has disappeared overnight, since their savings have been devalued by 50% to 80%, and inflation is Third-Wordly rampant.

            Are you sure that’s a good strategy for anyone? You get nothing good out of that.

            If you think devaluation is the only way, slash all nominal salaries (and compensate for that with highes taxes on the rich, financials, etc.). If you think debt must be restructured, do it. But never, ever get out of the euro: you’d become Zimbabwe overnight.

          3. /L

            How it will spell out is of course in great uncertainty, but sooner or later it will come to a point where the faulty ill constructed Euro is not viable any more for an individual country. Intellectual vanity got Europe in to this mess, it should never have happened in the first place. The warning signs was all over the thing but was completely ignored by conceitedness politicians and bureaucrats.

          4. carol

            Diego said: “You cannot opt out of the euro. You need some planning and democratic debate to do that…”

            You mean, like there was some planning (we’re seeing the results of that planning) and democratic debate before starting the euro?? Why was there so little debate during the nineties, let alone democratic debate, in many of the currently EU-countries?

            Diego said: “A recent research by ING Direct pointed to GDP falls over 10% throughout Europe.”

            As an earlier commenter wrote: the euro is nice for banksters, multinational corporations and Bruxelles eurocrats.
            This ING study is a prime example of ‘talking their own book’. Please do not fall for it!

            The previous EMU system with almost fixed currency exchange was much better than this euro mess.

  7. Matt Franko

    Germany needs to loadthis thing on a ship, take it out to the deepest ocean trench on the planet, abandon the ship and sink it.
    Resp,

  8. Jim Haygood

    From page 1 of the Spiegel article:

    ‘In a situation in which a euro-zone country can no longer service its debts, the government experts propose a “tailored combination of maturity extension and a suitable reduction of the face value or interest rate” of the bonds in question. In other words, creditors receive less money than they are entitled to, and they have to wait longer for it, a process experts refer to as a “haircut.” ‘

    Any sovereign can unilaterally do this on its own. The multilateral process proposed by Germany is obliged to be reasonable; otherwise, sovereign debtors can choose the walk-out option and ‘roll their own’ restructuring.

    Whether or not this long-shot proposal comes to fruition, the significant point is the backhanded admission by Germany that partial default and restructuring by EU members is foreseeable in the future.

    Providing an EU-approved mechanism for debt restructuring is intended to preserve the euro currency area. Whereas a unilateral default is more likely to include devaluation too, via withdrawal from the euro currency area.

    It’s debatable whether debt restructuring alone, without devaluation, will be sufficient for Greece. The current path being pursued by the Greek government — brutal austerity which will drive its debt-to-GDP ratio ever higher — is merely postponing the inevitable. Germany is hinting that they recognize this fact. Is the Greek government prepared to confess the truth?

  9. Vinny

    I don’t know… let me take the contrarian posture here:

    Frankly, after all these years of sheer incompetence, and blatant corruption running wild across southern and eastern Europe, maybe it’s not such a bad idea to have Germany run the show for a while.

    At least, it would be nice to get the trains running on time, for a change…

    Vinny

    1. Valissa

      LOL… and furthermore, why should Germany shoulder financial responsiblity without getting something for it… are they supposed to do this for altrustic reasons? Is that a realistic expectation of any nation? And if they are going to be paying more of the bills shouldn’t they get more of a say about how their money is spent? After all they are being asked to help because they are seen as strong and successful. In many ways countries are like people… in general smart people are reluctant to take responsibility without the commensurate power. It is not unreasonable for Germany to attempt to use this situation to their advantage. Would the US do any less, in a similar position? I think not!

      1. reskeptical

        I remember how convincing the countries are like people argument was pre-Gulf-War II. I myself used it trying to convince my dad and the lesson was: never reduce complex problems to the behavior of (deviant) individuals. This reeks of neo-cons.

    2. Diego Méndez

      The problem is Germans will take the opportunity to rule the periphery from Germany and for Germany’s sake.

      It won’t matter to them whether trains run on time, as long as they were made in Germany…

      1. reskeptical

        Diego, I believe that the possibility that what we have here is an attempt to create an atmosphere of animus between Euro-countries ala wedge-politics deserves more than just cursory consideration.

        “Trains running on time” is a reference to Nazi-era politics. This is an example of the cheapest type of political point scoring and only has relevance to the current debate in as far as people raise it as soon as Germany’s involved. Ultimately it leads to people talking about the Spanish inquisition or genocide in South America.

        1. Diego Méndez

          Vinny likes being that way. Don’t take it too seriously.

          While it’s true that the “trains running on time” phrase can be related to Mussolini, etc. German trains traditionally had been considered to run on time more frequently than in Southern Europe.

          (My experience in European travel does not back this: German and Italian trains usually have small delays, while Spanish trains get always on time. Like in many other instances, the Spanish ones are brand new).

    3. Frank Powers

      German trains no longer run on time. They used to, but since the currently ongoing transformation of the Deutsche Bundesbahn (German Federal Railway) towards a privatised, stock exchange-listed corporation started in the 1990ies, nothing is the same any more: cost-cuts, lay-offs and, as a result, a collapsing quality of service everyewhere. Trust me: You wouldn’t want the Germans to run any country at this point of their history (or, in that regard, ever). It is bad enough they run their own country the way they do. Unfortunately, very few people are doing better at the time being. It’s neo-feudalism all over.

      1. SidFinster

        The Germans seem to run things well enough as it is to pull in a healthy trade surplus year after year.

        The old Deutsche Bahn was only a model of service because it was massively subsidized.

        1. /L

          I fail to see what’s so healthy in being in a constant trade war with the rest of the world. In at time when it generated a pile of gold one could somewhat understand it. But now when it’s all about hording fiat currencies and debt claims on the trade deficit countries it is less understandable, especially when you do it by depriving your own citizens of possible welfare and prosperity.

          It’s much more understandable when it’s about oil rich countries like Norway and so on, they can’t really help them self but making big trade surplus they have to hide in financial trust funds (of future insecure value) to not wreck their domestic economy and destroy competiveness in other export industry. One could speculate if it might be a better deal to keep the oil in the ground and not pump up more than necessary.

          Suffocating Europe
          By: Joerg Bibow
          … The real irony in this German tragedy is that German beggar-thy-neighbor policies have effectively forced a fiscal union upon Europe. Or, rather, if not a fiscal union, a general default it will be. The point is that Germany’s notorious trade surpluses vis-à-vis its European partners must by necessity have a financial counterpart. In one way or another, German banks financed the country’s export successes by lending to today’s crisis countries. They did so as willing borrowers were hard to come by at home when the country – duped by its own political leadership and powerful export lobby – prescribed itself a decade of belt-tightening, flat real wages, and flat consumption growth, that is. Public celebration of repeated wins of the world export championship title made the duped Germans even feel good about it. …

          Germany is unfit for the euro
          By: Joerg Bibow
          … After many years of belt-tightening, stagnant wages and fiscal austerity, it seems unfair that the spendthrift should be “bailed-out”. Germans have done everything right, they are being told by their political leaders and the media, boosting competitiveness and balancing the budget. Don’t make the Musterknabe pay for others’ sins. …

  10. Hugh

    Yves is right. This is another power grab. We have already seen it many times. Wall Street bankers who drove the financial system into the ground beat their breasts and pontificate about the sanctity of contracts when it comes to bonuses based on blown up earnings. But when it comes to union contracts, they have no problem with tearing them up and starting over. Bernanke and Geithner said they didn’t have the leagal authority to resolve holding companies but when it came to Citigroup and AIG, they did anyway. Now the “we played by the rules” Germans want to tear up the rules that are at the base of the euro and the EU. You have to love the sheer in your face sanctimony of it all.

    I find the whole appeal to virtue more than a little nauseating. Somehow Club Med was terribly unvirtuous to run up debt or be caught by bubbles but if this is so, then aren’t the French, Dutch, and German banks that lent to them equally unvirtuous, making loans they should have known were going to go kerblooey? From where I’m sitting you had two parties exploiting an upside of various bubbles. Now on the downside, you have one side trying to go all virtuous on the other.

    It’s nice propaganda, a distraction, but I don’t see how a Berlin Club is anything other than another iteration of extend and pretend. It ignores the most basic of economic principles, such as exporting nations needing export markets to export to. Beggaring your export markets is a great way to destroy your export industries. At the moment, the Germans seem firmly in denial, too wedded to the illusion of their virtue.

    1. tawal

      I think this tough talk is just to appease the German taxpayers. Bernanke will just provide one of his credit lines to the Greek treasury; no one will ever know.

    2. Hubert

      Hugh,
      all true. Except that the rules already were changed by the ECB. Remember “No bail-out” and Maastricht ? This was a gigantic bait-and-switch for Germany. Now Merkel wants to sell some consolation to her voters. But as one can barely govern Greece via Athens or Sicily via Rome – it will be impossible to do it via Brussels or Berlin. And they know it. This is politics for looking-better-at-home.
      What they miss is a mechanism to throw somebody (Greece) out of the Euro. As long as Greece can carry its bonds to the ECB there is no real pressure for them.

      Anyway, this whole thing is such an incurable mess; Merkels chancellorship has so far been 100% tactical and German Gov has been shown to be totally on the wrong foot with this European finance crisis. But maybe they even think that something like this could be implemented – they have been horribly wrong before. But probabilities are that this is just another tactical maneuver for the home front…..

    3. Hubert

      Thinking about it – it really looks tactical: For historical reasons one cannot name this the “Berlin-Club” and believe it has any chance of flying. If they would mean it, they would name it “The Maastricht-Club” or something….

      Also look on the picture: Sarkozy next to Merkel implies that France is on board with this. But there is no mention of that in the article.

      This is German state propaganda at work. Relax and ignore…..

  11. K Ackermann

    Did Karl Marx, like his brothers :-), have a sense of humor?

    I’m going to think that he didn’t, because it makes the image of him laughing his ass off today that much funnier.

    I think we are teetering, and yes, I mean ‘we’.

  12. miche

    Why is this any different from when New York went bust, and had to agree to measures to get back on its feet? Why is this any different from when the IMF comes in? Why is it any different from what is coming towards California and Illinois, and does anyone think they should secede to avoid a takeover by the Federal Government?

    Wake up guys, nothing much is going on except some idiots ran their economies into the ground, and are now paying the price.

  13. Diego Méndez

    We’ve got a real problem in Europe. Merkel’s policies over the last 6 months have undermined confidence in the European project, have forced austerity on the whole of Europe and are producing a new recession.

    The outlook for the next 2 years is absolutely depressing, though Merkel will probably be ousted as soon as Germans get a feel of the consequences (a big recession in Europe means a huge recession in Germany, sooner or later).

    On the other hand, I feel optimistic in the longer term. The fundamentals for the last 50+ years of fast growth in Spain are still there. If Germans don’t want any central Treasury, that may only be good for Spain in the longer term.

  14. /L

    Again the fundamental problem with Europe is ignored, it’s not even on the road map. Maybe they will stitch it together somehow but as long as they don’t acknowledge the fundamental problems in this political construction they will only reschedule for the nest crisis.

    Germany can’t both have an external surplus and not having euro-neighbors without external deficit and still have its euro-neighbors as its largest external markets for its surplus. It’s logical, practical and theoretical impossible. But still the Germans insist this should be possible. Its said to see how this double standard is taken seriously and not laugh of as entirely ridiculous.

    To have the Euroland “viable” the neighbors of Germany shall always be in an constant position fending off the huns imposing its surplus on them, that is they shall put their people on permanent austerity so they in no way can afford to buy German goods and fending off the German loan-sharks who want them to buy on credit.

    1. V.M.

      /L the lenders don’t make anyone buy on credit… the borrowers are willing consentual participants.
      Now the quality of german worksmanship is what makes their stuff so good – it has to do I believe with their family owned manufacturers as much as with the larger companies…

  15. HalR

    This story broke today.

    http://www.zerohedge.com/article/us-stripped-aaa-credit-ratingby-china

    “Dubbed as the world’s first “non-Western” sovereign credit rating agency, in its debut international report, Dagone (means Big Justice in Chinese) downshifted the US to AA with a negative outlook”

    Me> I have 10.00$ that says China will love the German template. It would take no time at all for China to pull a few legal strings to bring the US house of cards tumbling down.

    Just think about it we could have a few Chinese Business men running the USA and the IMF.

    Ah for the love of Globalisum you stupid narrow minded Morons. Got to get that money for retirement. Invest with the Communist oh yes.

    This is one thing among many that I hope won’t come true but I think it’s a false hope.

  16. /L

    The EUROpean recovery model for the deficit sinners who import more than they export:

    Squeeze consumption by austerity and wage reduction on public sector employees (that don’t export an iota of what they produce) than pray and hope the private sector wages will follow suite, and yes in many countries they have “improved” their negative foreign balance as we can read in the papers. Albeit exports have fallen significantly imports have fallen much more, an improvement.

    And while they are on it why not also squeeze consumption in the surplus countries, it would be a shame to miss out on such a splendid opportunity to impose a ascetic hair shirt on the sinning populace.

    1. /L

      And of course pray and hope that someone else (read USA) outside the wonders of the EUroland will pull off some expansionary economy so the EUroland can again export itself out of the mess it created.

        1. /L

          It’s always the plan, smallest child in Europe know that. ;-)

          I’m not an fan of Berlusconi but when Italy was Presidency of the Council of the European Union 2003 he proposed that there should be undertaken large scale European intercontinental infrastructure projects to get some steam in to the European economy, projects that was of the nature that only could be implemented on an public level, financed by some new kind of Eurobonds. He was of coursed snubbed off by the economically “responsible” eurocrats.

          There is probably much that could be done to get things going in Europe. Integrate the people of Europe not just big business and the money. Create intercontinental institutions the serve the people. But of course the eurocrats are framed in a neo-liberal context that make such things that was possible in the past impossible to day. A public postal service that operate overnight in the whole of Europe with low standard fees. A public railway system operating independently cross border all over Europe at subsidized low fees. The same approach should be taken on telecommunications and internet, as it is today it’s a mess. Its already expensive on an national level considering the efficiency computerization have brought to telecommunications and fee plans is a impenetrable forest, but as fast you cross the border in to another EU country it gets absolutely ridiculous expensive and complicated using a mobile phone.

          But all this is completely impossible because EU have tied them self entirely to neo-liberal doctrine of the superiority of the market.

          1. Diego Méndez

            I agree.

            There are many good infrastructure projects Europe could invest in: a pan-European energy grid (i.e. powerful international grid connections, both for electricity and gas); a venture-capital fund to scale up the best European start-ups; expanding Erasmus programs; a fund for research grants, etc.

            Nobody can oppose taking a loan to link European markets tighter and make them more competitive through research and start-up funding.

          2. V.M.

            Very nice…. but how did Berlusconi propose to repay the said “new bonds”. I believe this is essentially the problem – everyone talks of financing some thing via bonds, debt etc and no one of how that thing will be retired. In fact in US project financing there is “Aquisition loans/Construction” loan to build a project and “Permanent loan”there after. It seems it is always assumed that the project or asset will be refinanced. I suggest nothing that cannot self amortize fully get financed so that all these periodic debt fueled binges stop.

  17. NOTaREALmerican

    Ok, so basically to sum-up all the comments:

    1) The smart amoral scumbags are going to win in Europe too.
    2) The politician in Europe are sociopaths.
    3) The Democratic “process” is incapable of addressing problems when the #2′s are successfully owned by the #1′s.

  18. HalR

    I t was the Bush Administration that brought that possibility to us by way of Deregulation of multiple KEY STONES Laws of a Democratic Capitalist Society.

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