THE SATURDAY ESSAY: Forget the debate...Germany will have no choice but to leave the eurozone

Merkel and Schäuble have the will to create a stronger eurozone – but not the means.

At the end of the last Slogpost about Germany, I closed with these words:

‘My source [the 'Bankfurt Maulwurf'] has always maintained that other forces in Germany will steer Merkel away from the rocks. He may well be proved right again. And the only way for her to go would be out of the euro….or a drastic reformulation of its membership. We should all watch out for the signals from Angela Merkel next week.’

As it happens, even before her return on Monday, the concerted leaking from Merkelania has begun. And it seems to me that the message this media-control campaign wishes to convey is, “Germany will walk away if necessary, so just watch it – or else”. The ‘threat’ if you will is that Germany will hold a referendum (on something or other to do with euro-integration, as yet unclear) and go with that decision. All very Pontius Pilate and politically convenient for the Fuhrerin.

We can therefore conclude with a reasonable degree of certainty that the last thing Merkel really wants to do is wash her hands and walk away while others crucify the EU/eurozone Superstate.

But even little Geli the harmless Osti can’t always have what she wants. Let’s examine in more detail why that is.

Over at Zero Hedge, Tyler Durden yesterday said the referendum idea could be Germany ‘preparing the nuclear option’; but he was also sharp enough to deduce that it’s much more likely she and Schäuble would simply use the referendum to show that “the People have spoken – sod the Karlsruhe Court, a new Europe is born!”

The main thing supporting the idea of such a ruse was contained in my last post – namely, the recent Infratest dimap poll for ARD television, which showed beyond any reasonable doubt that, while the Germans want the Greeks out of the eurozone, they want Germany to save the currency. If a referendum was called tomorrow, the Germans would vote overwhelmingly for more Europe – ie, more central control, tougher fiscal rules, and – eventually – the turning of a fiscal union into a sovereign political State.

While this is exactly what global bondholders want (they not giving a toss about liberty, democracy and other pointless obstacles to globalist money-accrual) it would effectively deliver Europe into the hands of two people, Angela Merkel and Wolfgang Schäuble, who have shown themselves to be devious, secretive, no respecters of anyone’s constitution, and Big Stateists. And if you think this anti-Germanism, I suggest you ask a cross-section of intelligent Germans (especially Bundestag MPs) what they think about that opinion.

There is a final piece of evidence about motive for getting ‘popular approval’ of their plans. Very quietly – at least as far as the MSM goes – Schäuble has, with Merkel’s even quieter shuttle-diplomacy help, had him installed as the man who will run the FiskalUnion, should it ever come to pass. Wolfie enjoys the power trip. He wants the job. Angela herself, meanwhile, has a past that screams power-megalo: “never mind which direction we’re headed, I want to be at the wheel”.

It’s important for open-minded readers to weigh these facts carefully. They’re not sensationalist scare tactics, but very serious considerations for anyone still aware enough to care about freedom: Schäuble used to run German Intelligence (as Interior Minister) and Merkel was a hardline Youth leader in East Germany. These folks are not democrats. If it waddles, flies, quacks and swims like a duck, the chances are it’s a duck.

So there you have it: a done deal, German isn’t leaving the euro, and come what may, things will push on towards a Berlin-dominated EU Superstate.

Er, no. In fact, my money is on both these German leaders running out of road sooner rather than later. They may not lose power in Germany, but the big question is, will they get their way in Europe? I think the answer is an emphatic ‘no’. Ultimately, several obstacles will prove insurmountable.

To many Ausländer, the German Constitutional Court in Karlsruhe is a bit of a joke. (To Merkel, it certainly is: she simply doesn’t care to grasp its role in protecting the BundesRepublik from people like her). But to a wide cross-section of intelligent Germans, it is anything but.

Criticism of Germany’s highest court is generally viewed as inappropriate in political circles, for example. And while one sentence attributed to the late Social Democratic Party politician Herbert Wehner – “We won’t allow the assholes in Karlsruhe to destroy our policies” – raises many a smile when menioned, German politicians must tread carefully: because, as polls have shown over and over again, the court’s judges generally enjoy a level of popularity many politicians would remove at least one limb to have.

Three sources (excluding Bankfurt Man) have expressed the view to me in recent weeks that Karlsruhe will deem the ESM to be unconstitutional. And for the Merkeschäuble, that obstacle has the potential to become an unscaleable cliff-face if President Glauck gets involved.

Another tradition of the German constitution is that the Presidency is a titular position only, but Glauck has already splattered that one by formally giving Karlsruhe the green light to hold the ESM up until at least September 12th. While Merkel’s pastor father was in bed with the Stasi in East Germany, Joachim Glauck was an actively dissident Osti. The President doesn’t trust the Chancellor: he knows she’s a power-freak, and she knows that he knows. He may yet choose to set off his own nuclear option if she decides to ignore the Court.

Whatever Glauck and Karlsruhe do or don’t do, the power-battle between Berlin and Frankfurt first examined by The Slog two years ago is still alive and well. For the Bankfurters in general (and Jens Weidmann in particular) the fiscal probity of Germany overrides everything. To them, democracy is a nice-to-have for unscrupulous politicians, but at best it is peripheral to the point…and at worst, a dangerous weapon in the wrong hands. In this, they would have a lot in common with Wolfgang Schäuble: where they differ is what to do about it. Wolfie thinks ‘let’s take over Europe and control these idiots ourselves’. Jens thinks ‘lets GTF out of there before it all goes pear-shaped’.

The odds in this one are, most of the time, stacked against Frankfurt and its fiscal angst. Ordinary citizens rarely listen to medium-term warnings when the short-term looks rosy. But this is where Harold MacMillan’s favourite factor – “Events dear boy, events” – could very easily change everything.

Although Mario Draghi’s Brussels-inspired spin about Spain and Italy not facing bailouts is keeping the markets’ most superficial knuckle-draggers happy for the time being, everyone – without exception – I speak to on a regular basis in various european financial and fiscal roles says eurozone funding simply cannot muddle through this time: there is no economic recovery coming through, and no more costs that can be cut without causing severe damage to the economic infrastructure. Printing money is now the only way ClubMed debt can be cured….except forgiveness of it, which is off every radar on the planet – even though it is the only sensible solution.

The right influential Germans at the right time finding a way to dramatise the certainty of hyperinflation might yet swing the country’s  public opinion there in an entirely different direction. Not only that, were some of the more Bild-like tabloids, at the same time, busy depicting Spain and Italy as money-pits on a scale to make Greece look like a local council budget overspend in Thuringia, the swing would be both huge and rapid. Ironically, the most powerful emotion available for the Merkel opposition to use is the one inbuilt into the German psyche: that latins generally are lazy, disorganised and spendthrift.

Connected to this – and perhaps the biggest single reason why I think the Merkeschäuble’s tank-tread will fall off – is that the real-life balance of power in the EU has now shifted once and for all.  In fact, the emergence of the Hollande-Draghi-Monti-Rajoy axis in my view makes a Cold Civil War in the EU inevitable.

I call them an axis, but in truth it’s a motley crew. Hollande is a dyed-in-the-wool product of France’s elite ENA (Ecole Nationale d’Administration) with middle of the road mid twentieth century bourgeois socialist views – and the author fifteen years ago of a tract predicting that north/south wealth discrepancies in the EU would cause it immense problems. Draghi is a brilliant Anglosaxonist economist, slippery fiscal manager, astute politician, and product of an entirely different school: Goldman Sachs. So too is Mario Monti of Italy, although probably more of a patriot – and in a position to be far more outspoken about what he sees as Merkelian obstinacy. And Mariano Rajoy is an elected politician in a hole deeper than anyone except Antonis Samaras: he desperately needs fiscal help, and he will do anything not to call it a bailout.

The one thing they all have in common is a willingness to compromise, and a recognition that Teutonic inflexibility is getting in the way of that. For reasons ranging from history (France) via local politics (Spain, Italy) to geopolitics (the ECB), they will vote down anything Berlin tries to do, within the confines of the EU Brussels and ECB Frankfurt eurozone structure, to continue imposing draconian discipline on the Clubmeds.

In short, the eurozone remains in the place it’s been inhabiting since the election of Francois Hollande: an insoluble stand-off.

When that reality eventually dawns on a broad enough consensus among Germans of all classes and professions, they will pull out of the eurozone. Once they do that, the EU project is doomed. And once the markets get wind of it, all outcomes will be equally horrific.

There simply is no other possible eventuality. I still think it likely that what I said three months ago will prove to be true: Germany will leave the eurozone before Greece does. As to that exact timing, events could still prove me wrong. But a eurozone with Germany in it cannot, and will not, survive.

In the next few days, I hope to bring even harder evidence to support this thesis: some of it from very surprising sources.

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