Tradition is the illusion of permanence.
– Woody Allen
Headlines & Of Interest
Pontificating from our “armchair economist” perch today; with a two-handed analysis: On the one hand, Germany’s grand strategy of forced austerity in order to create low cost manufacturing zones for German industrialists across the Eurozone (or “Greater Germany” as realists are implicitly viewing it) and its continuous captive market export demand form said Eurozone are in jeopardy. There are at least three reasons, 1) the serfs have caught on to the end game, 2) the serfs are fresh out of money to buy more German stuff, and 3) French President Hollande must save face.
On the other hand, Germany has plenty of incentive to keep hope alive; most of that incentive presently flows from the country’s existing financial exposure to the zone. German banks are bloated with sovereign debt, and the much vaunted hard money Bundesbank has about €700 billion exposure (though the ECB payments system.) So, each day we ask: WWGD (what will Germany do)? Even with perfect present knowledge of exposure and events (which none of us have) it is a tough call, even for Chancellor Merkel. For her, and Germany, it is a complicated mixture global power politics and Germany’s place in the world, versus the costs to achieve its Grand plans. Time is what she needs in order gain better perspective, but time is the exact ingredient she may be missing.
But who knows? What if forcing a euro crisis, again, is part of the plan? In one sense, in a world of falling background global demand, a cheaper currency just might buy some much needed time till the outlines of the next business cycle comes into focus. Either way, we think it makes sense to expect the euro goes lower from here; whether it eventually disappears or not.