Wednesday, September 24, 2014

More threats to the Euro

Regular readers know I have zero love for the Euro.  I thought it was a bad idea in 1992 and nothing since then has improved my opinion on this badly-designed effort at monetary giantism.  Of course, the Euro might have worked better if it hadn't been introduced just when the madness of neoliberalism was becoming the standard response to all economic dilemmas.

When the southern European economies crashed following the economic meltdown of 2008, it became quite clear that those with the ability to do so were going to shift the responsibility for paying the unpayable debts of the south to places like Germany, Holland and Finland.  Not surprisingly, there were citizens in these countries who objected to these new arrangements and because these countries are parliamentary democracies, new parties arose to make a stink.  And because these were still comparatively rich countries, the protest parties tended to be economically reactionary.

This phenomenon struck last in Germany—probably because when it came to the Euro experiment, the big establishment players are German.  There is a whole infrastructure of academic economists, editorial writers, and party functionaries whose survival is determined by their loyalty to the Euro experiment and especially its neoliberal manifestations.  So when a serious challenge to the the establishment finally got its act together, it is even MORE reactionary than the banksters running the show (yes, it is possible).

One of the more interesting factoids about the Alternative für Deutschland (AfD) movement is that while it is taking members from some very conservative groupings like the Free Democrats (FDP), it is also gaining votes from die Linke Party whose members who are mostly left-overs from the DDR Marxist ruling classes.  People sometimes forget just how reactionary the Marxists were (are) when the subject was monetary policy—so this is a necessary fresh reminder.

Evans-Pritchard tries to write about the similarities between the Euroskeptic British Ukip Party and the German AfD Party.  As you can see, this is something of a stretch—mostly because Germany uses the Euro and UK does not.  Even so, both movements are undoubtably supported by the petty bankster classes who are appalled by the internationalist tendencies of the EU experiment.

Germany's Ukip threatens to paralyse eurozone rescue efforts

Alternative für Deutschland has swept through Germany like a tornado, winning 12.6pc of the vote in Brandenburg and 10.6pc in Thuringia

By Ambrose Evans-Pritchard  23 Sep 2014

The stunning rise of Germany’s anti-euro party threatens to paralyse efforts to hold the eurozone together and may undermine any quantitative easing by the European Central Bank, Standard & Poor’s has warned.

Alternative für Deutschland (AfD) has swept through Germany like a tornado, winning 12.6pc of the vote in Brandenburg and 10.6pc in Thuringia a week ago. The party has broken into three regional assemblies, after gaining its first platform in Strasbourg with seven euro-MPs.

The rating agency said AfD’s sudden surge has become a credit headache for the whole eurozone, forcing Chancellor Angela Merkel to take a tougher line in European politics and risking an entirely new phase of the crisis. “Until recently, no openly Eurosceptic party in Germany has been able to galvanise opponents of European 'bail-outs’. But this comfortable position now appears to have come to an end,” it said.

The report warned that AfD has upset the chemistry of German politics, implying even greater resistance to any loosening of EMU fiscal rules. It raises the political bar yet further for serious QE, and therefore makes the tool less usable.

There has long been anger in Germany over the direction of EMU politics, with a near universal feeling that German taxpayers are being milked to prop up southern Europe, but dissidents were until now scattered. “AfD appears to enjoy a disciplined leadership, and is a well-funded party appealing to conservatives more broadly, beyond its europhobe core,” it said. “This shift in the partisan landscape could have implications for euro area policies by diminishing the German government’s room for manoeuvre. We will monitor any signs of Germany hardening its stance.”

Mrs Merkel has a threat akin to Ukip on her right flank, and can no longer pivot in the centre ground of German politics. AfD has almost destroyed the centre-Right Free Democrats (FDP), and is also eating into the far-Left of the Linke party.

The new movement calls for an “orderly break-up” of monetary union, either by dividing the euro into smaller blocs or by returning to national currencies. “Germany doesn’t need the euro, and the euro is hurting other countries. A return to the D-mark should not be a taboo,” it says. Club Med states should recover viability through debt restructuring, rather than rely on taxpayer bail-outs that draw out the agony. Unlike Ukip, the movement wants Germany to stay in a “strong EU”.

Party leader Bernd Lucke is a professor of economics at Hamburg University. His right-hand man is Hans-Olaf Henkel, former head of Germany’s industry federation. Attempts to discredit the party as a Right-wing fringe group have failed.

Prof Lucke had a taste of his new power in the European Parliament this week, questioning the ECB’s Mario Draghi directly on monetary policy. He attacked ECB asset purchases, insisting that there is already enough liquidity in the financial system to head off deflation. Such stimulus merely stokes asset bubbles and does little for the real economy, he argued, adding that the ECB is “saddling up the wrong horse” because it doesn’t have another one in the stable.

S&P said the rise of AfD would not matter for EMU affairs if the eurozone crisis were safely behind us. “This is unlikely to be the case. Eurozone output is still below 2007 levels and in 2014 the weak recovery has come to a near halt in much of the euro area. Public debt burdens continue to rise in all large euro area countries bar Germany,” it said.

The report warned that any sign of hardening attitudes in German politics could “diminish the confidence of financial investors in the robustness of multilateral support” for EMU crisis states, leading to a rise in bond spreads. This in turn would shift the focus back on to Club Med debt dynamics, arguably worse than ever.

S&P said a forthcoming judgment by the European Court on the ECB’s backstop plan for Italy and Spain (OMT) might further constrain the EU rescue machinery. Germany’s top court has already ruled that the OMT “manifestly violates” EU treaties and is probably ultra vires, meaning that Bundesbank may not legally take part.

The political climate in the eurozone’s two core states is now extraordinary. A D-Mark party is running at 10pc in the latest polls in Germany, while the Front National’s Marine Le Pen is in the lead in France on 26pc with calls for a return to the franc. One more shock would test EMU cohesion to its limits. more

No comments:

Post a Comment