Tuesday, November 5, 2013

THE FIRST SALVOS

Actually, more like a signal flare.  Germany doesn't exactly stand alone but the issue is going to be how many will stand with her on a common problem affecting all of the Euro states.  It is the Euro itself of course, or rather the valuation thereof which common wisdom deems the problems.

Ordinarily, logic tells us that the strength of the Euro, or the weakness of the dollar--we'll get to that in a minute--would affect all of Euroland in depressing markets for all members.  But what happens when your biggest market is Euroland itself which is precisely the case with Germany?  What happens is German exports to its Euro partners and buys little in return causing a hellacious result in comparative balance of payments.  Now the fact that there is no country in Euroland as competitively efficient as Germany, nor has there been in recent memory, causes our Germany friends to say, "Hang on, why blame us?"  Then again, it has been the Bundesbank that has held this thing together for the last five years which the good Volk understand only too well and are getting quite tired of that situation.

Then again, the price for what stability has been achieved has, in many economies, been catastrophically high.  Germany's demand for austerity, while dear to the heart of Germany public opinion has created massive unemployment, a total lack of growth and political upheavals, even more greatly magnified because it is now pretty well understood hat the lack of political leadership was a primary cause of the economic downturn in the first place.

Greece remains a mess despite a vast inflow of foreign capital of a vulture fund nature, Cyprus...well it's Cyprus and who cares.  Italy is in another political crisis; Spain hangs on but the Catalan separatist movement will not go away; Portugal..again, who cares, but France...now there is a real problem.  Frankie has so badly screwed the pooch that it may become ungovernable come the turn of the year and without France, no coalition could possibly stand up to Germany assuming the political guts and will existed in any of the others in the southern tier.  And so the talks begin under the clouds of severe political turmoil with few goal expressed (or even understood) except that things are bad and everything must be changed. The entire mob gets together in a few short weeks to try to sort this out and while I don't wish to make more of this than it is, the Brits are sitting on the outside  looking in and not minding much of what they see inasmuch as certain portions of their economy (e.g. service sector, even WITHOUT finance) are doing better than anyplace on the continent and with a pretty good understanding after all the hooting and hollering that the average Brit would be perfectly delighted to be out of Europe, a situation that makes it unlike that the Cameron government will be pulling on the traces to act as peacemaker in all this.  The exact opposite may in fact be the case.

And as for Over Here?  There remains speculation that tapering is just around the corner.  With the multiple cock-ups of this administration, an election in 12 months time, and the now-complete politicization of the Federal reserve, there will be no tapering in the near future and therefore, no help on the currency side for our Euro friends.  Of perhaps greater importance is the minuscule amount of cred ability this administration has with Euroland.  We are out of the picture.  More's the shame...and the crime.


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