CRASH 2: WHY MERKEL’S EFSF TRIUMPH IS NOTHING MORE THAN HER MUNICH AGREEMENT

000,000,0000,000,000,000,000,ooo

The Germans have called time on the fiscal union. Now it’s over to America.

The mindless elation with which the media, stock market investors and various europhile politicians yesterday greeted the Bundestag’s passage of the EFSF’s expansion to 440bn euros has been depressing me profoundly during the last 24 hours. One can’t even call the general relief ‘premature’, because that would be to suggest some tumescence  might be in store further down the line. The only thing waiting down the road for those with joy uncontained at present is flaccid reality. (There is but one thing wrong with the can-kicking parallel: the further one goes down the road, it ceases to be an empty can, and morphs into a family-size wastebin  full of deeply unpleasant worms. Have you ever tried to kick a wastebin? Trust me, it’s a lot more painful than kicking a can.

But my spirits were lifted around 11 am by Ambrose Evans-Pritchard’s masterly analysis, calling upon the Kingdom of the Deaf to note that the German lips read ‘Nein, nein, nein’. During  his ten years at the Torygraph, I very much doubt if AEP has written a more important piece. I was briefly in danger of calling it a wake-up call just then, but actually I needn’t, because it says more than just ‘get real’. It says ‘For the foreseeable future, European fiscal union is finished: it is doomed, ready for cryogenic trials, and wailing quietly, “Please kill me before the Greeks sell any more airports”. Brilliant, and also – I suspect – an attempt by the use of 999 to perhaps move ‘wake-up’ on to ‘emergency’ – becasue it’s what this global economy with which we’re saddled now is.

It’s not an emergency for the eurozone, of course: the eurozone as anything other than a new Viking Fiscal Region is dead. It was born with a congenital brain defect, and this has now caused a fatal haemorrhage. The slowcoach is dead, long live the longboat.

No: the emergency we face is very close, and concerns not big ideas or grand designs, but rather simple, functional realities. I care not if some detractors think the warning sounds emanating from The Slog sound like morbid hysteria. They represent reality, sound sources, common sense and an ability to tell a ten-ton truck from a bluebottle.

Here, for example, is a serious heavyweight quoted on the Bloomberg site this morning:

“I’m not convinced that this bailout package is going to be remotely enough for the euro zone itself,” Wilbur Ross, the billionaire chairman of private-equity firm WL Ross & Co., said yesterday in an interview on Bloomberg Television’s “In the Loop” with Betty Liu. “I think it should start with a ‘T,’ not a ‘B,’” he said, referring to trillions instead of billions.’

I wonder how many of us any longer realise what a trillion dollars is. This is it in numbers – a thousand billion bucks:

$1,ooo,ooo,ooo,ooo

You’d have to be pretty smart to hide a trillion bucks. But as MEP Dan Hannan told the Politics Show yesterday, if there were any trillions knocking about and up for grabs, they’d have been grabbed long ago. The Geithner plan is piss and wind devised in a desperate attempt to get the EU to borrow even more. Why? Because Timmy knows, as most American financiers know, that any moment now either the Troika will have had enough of the Athenian tap-dance, or at least one French bank is going to go bang. Or both. And if there aren’t money-stuff defences in place – even borrowed money – then the whole kit and caboodle is going to whoooosh, where’d it go guys?

It’s the changing events in Germany (to which I had already been alerted by the Bankfurt source) that AEP has correctly divined. Earlier in the week I posted that, ‘At the moment, Greek Prime Minister Papandreou could stick two fingers up to the Troika, but it would make little or no difference: the men in Athens will get their October slice of bailout aid, because somebody – probably Tim Geithner in Wroclaw – finally managed to get it through the heads of the EU Finance Ministers that the global banking system isn’t keen on collapsing just to salve European pride.’

What has moved on in Germany since then has nothing to do with a symbolic vote about being ‘good Europeans’ solidly behind Frau Merkel on the immediate EFSF issue. It is on the contrary entirely to do with those same Germans saying to their Chancellor, “If you want to go further now Geli, you’re on your own”. As predicted here last Wednesday, a concerted ‘national front’ of eclectic opposition to further endangerment of Germany’s image for sane, controlled fiscal management has been formed. This Front embraces much of the CDU, the Christian Socialists, the Free Democrats, the central bank and most of its dependents, the German electorate, but above all the supreme Court. Germany feels, this Friday evening, that it has done more than its fair share of the spadework in trying to create a peaceful and prosperous EU. As they say in that country, ‘Das Maß ist voll!’ – enough is enough. Sometimes, I think, Fritz in dem Strasse forgets just how well he has done from exporting via a euro rather than a Mark. But on the whole, I tend to sympathise with the Germans. As I posted last month, the war has been over for 66 years. Well, clickety-click – the Germans paid their reparations many times over. Now the French are, effectively, on their own.

And it is this that ensures the EU meltdown must now zip across the Atlantic with the inevitable determination of a clinically programmed  intercontinental ballistic missile – because the French are defenceless. They are defenceless because (a) they’re four times more exposed to ClubMed than the Germans (b) they didn’t create a BadBank firewall like the Germans, (c) none other than Christine Lagarde allowed fiscal incontinence to continue unchecked, and (d) Angela Merkel now has, finally, no escape route from her domestic stakeholders. 440 billion euros is it for the EFSF; and frankly, Sarkozy might just as well spit at what’s coming for all the good that will do.

Frau Merkel’s trusty Finance Minister Wolfgang Schauble is a wily fox, but the hounds have now smelt out his lair. The German Chancellor is not so wily. She is by discipline and temperament a physicist, not an Alchemist. Certainly, joking apart, she is no Valkyrie-inspired Fuhrerine. German democracy has her under lock and key, and I suspect – for all that is yet to come – this is a very good thing.

I wonder tonight who history will blame for all this. The eurocrats for being so hubris-pumped and tediously slow? The banks for preferring global economic meltdown to a sensible haircut? The ClubMeds for being both greedy recipients of credit – and then mendacious reporters of its malign effects? The French for their ‘Je m’en fou’ attitude to infrastructural expenditure? The British for standing by as Rome burned? The Chinese for raising hopes, but in the end merely gloating at our fate? Or the Americans, for their obsessive belief in leveraged growth, globalist mercantilism, and debt as the answer to everything? (I might even be a tad gratuitous, and fire a small arrow of guilt at the Aussies, for being so dumb as to base their export construct on one thing – mining – and one customer – Beijing.)

Well, I rather fancy veteran Sloggers will know what’s coming. “It’s the species, stupid”. And, one can’t deny, a spreading global culture in which the ‘higher order’ of ethical and socio-moral good has become the subject of at best ridicule, and at worst contempt. Perhaps it is no accident that the worship of all things material is slowly facing the need to square up to fundamentalist religious fanatics. And maybe, in turn, it is no accident that those fanatics too must face a far less equivocal enemy in the shape of a Beijing that worships power before either God or Mammon.

“May you live in interesting times” was, in the original Chinese context, a curse. I’m beginning to understand why.

56 thoughts on “CRASH 2: WHY MERKEL’S EFSF TRIUMPH IS NOTHING MORE THAN HER MUNICH AGREEMENT

  1. It is interesting JW. I have been reading and accepting as being common sense everything you have writen about the impending new dark age, but aside from doing a few bits and pieces to try to limit the effects, life hasgone on.

    For instance, for the past 2 weeks I have focussed on getting the windows, shutters and doors all varnished ready for the winter ravages. Repaired the various defects in the too large barn roof and tried to get the grass down really short ready for its last cut.

    Quite what this says about me I don’t know. But more worringly, I don’t want to know. Thank goodness I am old, it is the not so old I tremble for.

    • You are right to tremble, and it saddens me that such stupidities could lead this far. As JW has often commented, a sensible slice of forgiveness (debt or otherwise) would go a long way to prevent this from occurring.

      Yes, life will continue. But how happy will people be in their new lives? Few can do without electronic aids or comforts; few know what would sustain them across a winter should they have to grow it for themselves.

      A surfeit of money will not make a person happier, but a lack of money can make a person very unhappy. For person you can substitute people or nation as you choose.

      • “…it saddens me that such stupidities could lead this far”

        A few weeks past Gemma, I was foolish enough to say that a new dark age was unlikely, rather, those in power would make some phone calls and ‘gentlemens’ agreements would be made to reach an equitable way forward. I think now I have to concede that if ‘they’ leave it any longer to make those calls then they will be made instead by military types on ‘field telephones’.

        Frankly, I still can’t bring myself to wholly accept that those in power can be so collectively stupid that they are content to see the whole house of cards fall, rather than bang some heads together. So that probably makes me at least as stupid as they are.

      • Bit late to your post (sorry) but i think you’ve hit on something rather profound here-don’t imagine for a moment most people will take the blindest-but yes, I agree (see my post about the (much under-rated) Milliband speech)-still ain’t enough people who agree to make it work.

      • One man’s sensible slice of forgiveness is another man’s rip-off. It was ever thus, and remember we are dealing with bankers whose personal bonus leverage is quite astonishing: they have a lot to lose. About 20 years average UK wage in one bonus is quite an incentive to minimise forgiveness. So why can’t our government step in and stop this situation? Hint: perhaps they have close connections with bonus recipients.

  2. Yes, a good piece with very sound conclusions I think.

    On a vaguely connected line, Peter Oborne’s piece in the Torygraph today makes the point that Red Ed’s speech wasn’t as specious (sorry) as it sounded. People ARE sick of winner takes all materialism. The result of the meltdown probably will be some change in mindset-let’s hope its not Red Ed’s merry mens form of society that wins.

  3. Here is a micro example of the eu macro .
    The Bundestag votes to continue the farce – because the farce is themselves. On the other hand the German people know that this will end their great hopes , salvation and history as a nation – and……they are very very angry.
    Watch that space.

  4. John, regarding your “new Viking Fiscal Region” – what countries do you think that might encompass at the Southerly end?

    Would it stop at Denmark, or maybe Holland? Would Belgium be split into its Flemish and Walloons parts, with one in and one out?

    Or if the UK joined, would it go further still? Would the French lands ruled by the medieval English Plantagenet Kings (courtesy of Rollo the Viking c900AD) think themselves better off in the “Viking” area than in a bankrupt France?

    Also, would someone like yourself be happy staying where you are? I do get the impression that you have more facilities in your region than most to be self sufficient – but any wealth you do have would not have any certainty of staying yours if you ended up in a bankrupt Socialist rump.

    • Rollo was my about 35 times Gt Grandfather (bit earlier than 900 AD I think) via Eudes and several generations of Lords at Gourany en Bray

    • Any wealth that JW may or may not have will shortly be destroyed by inflation and a stock exchange ‘adjustment’. Gold transactions will be registered and gold will be bought by the state at its price (well we could do with topping up the reserves!). That’s the non controversial way to seize the assets of the saving / investing class. No violence, not even any general awareness, just get on with stimulating inflation and in less than a decade, we will all be paupers. Unfortunately those who made this decision will all be retired and living somewhere else for their safety.

  5. That is certainly a cool piece by AEP. If/when the e-zone collapses or is remoulded and downsized it will impose serious changes on the roles & responsibilities of the EU politburo itself. I hope Barroso is watching all this very closely!
    Amusingly all that will be achieved without Britain pulling any plugs and getting blamed. Now, if we can just prepare ourselves for the crashing of thunder when it all hits the deck, it might be a win win for Britain (except the Lefty pols who worship the EU and everything it stands for).

      • He-he. “…Clegg went on to argue that ‘no one’ had envisaged that the eurozone might be in the plight it is today.”

        That is a worryingly naive comment from a Deputy PM.
        We PAY our leaders to exercise wisdom and foresight.

        Presumably, if his lovely house near the Thames in Putney got flooded, he’d say “when I bought it, no one thought the Thames would flood like this”, never having considered the possibility.

    • That’s the trick… making all the right “We Support The Euro” noises without actually providing any actual support at all.

      It is the only thing we can do really… the Euro is a trainwreck and must run its course fully before the lessons will be learned.

      Do not underestimate the harm this will do to the Europhiles, Sarkozy and Merkel are screwed and they know it not too mention Van Rompey and Barrosso.

      Why do you think they are defending the Euro so desperately, for god sake even Paddy Ashdown has had a mea culpa moment not to mention Otmar Issing a founding father of the Euro.

      The Euro itself is a busted flush the question then becomes what about the EU… the treaties will be pretty much worthless as the rules have been broken up once side and down the other.

      The last time a sovereign country was told to carry out certain actions or else the Berlin Wall was still standing, have you all seen the details of the letter the ECB sent to Italy…

      This whole mess is going to put the Federal Europe idea back more than a generation… Europe was simply not ready in any way shape or form, hopefully it will force Europe to return to how it was before the EU and Brussels started to tell sovereign nations what to do.

      It will then end with the blame game and the most basic freedom of all…

      The Freedom to take the Consequences.

      More than a few political careers are going to be trashed by this shitfest…

      • Yes, thanks I saw that. “shitfest” is the right term …maybe the Germans can run it alongside their Oktober Beer Fest! and hope that none of them suffer mysterious heart attacks in the lavatory!

  6. Sarkozy was waxing lyrical tonight on French TV, saying that the “EU is a family, & that families stay together & look after each other. Greece will stay in the Eurozone, & we as a family will stand with her & support her efforts.”
    (Cue: serious expression, cheesy smile, vigorous handshake with Papandreou). So that’s alright then!
    I’ve just been down the Credit Agricole this afternoon to reduce my bank balance.

  7. JWOO
    I could not respond above, I hope you catch this.

    Whilst you make a parallel of yourself to the stupidities of the politcians in charge, you have one outstanding quality that they do not have. You have humility.

    It would go a long way to sorting this mess out.

  8. A Trillion.
    From the Chris Martenson Crash Course Cpt 11
    Suppose I gave you a thousand dollar bill and said you and a friend had to spend it all in a single evening out on the town. You’d have a pretty good time.

    Now suppose you had a stack of thousand dollar bills that was four inches in height. If you did, you know what? Congratulations, you’d be a millionaire.

    Now suppose you wanted to enter the super-elite of the wealthy and have a billion dollars. How tall of a stack of thousand dollar bills would that be?

    The answer is a stack only 358 feet high, seen here barely reaching 1/3rd of the way up the Petronas towers.

    Now how about a stack of thousand dollar bills to equal a trillion dollars? How tall would that stack be? Think of an answer.

    Well, that stack would be 67.9 miles high.

    And I meant stack, not laid end to end or anything cheesy like that. A solid stack of thousand dollar bills, 67.9 miles high. Now that’s a trillion dollars.

    Brought it home to me.

  9. There is much talk of money in this piece. Well, being a financially orientated blog (this column anyway) that should raise no eyebrows.

    There was however mention of a large sum, namely a trillion. Those of us who have studied maths understand exponentials, but the scale of the number is belittled by the number even if in its numerical form. Have a look at this charming website: http://www.mathsisfun.com/activity/count-billion.html it will answer a few questions as to the magnitude of the sums involved.

    However, these are Fiat currencies we speak of. They have no value per se. Whilst there was much debate about Obama’s 2Tn dollar problem, it was suggested that whilst he could not print the money, he could strike two trillion dollar coins. In this respect he would be emulating one of the masters of trillion dollar thinking: Robert Mugabe. Father of a nation of trillionaires, though sadly, all of them destitute.

  10. I believe that the analysis of the DT on Germany’ future behaviour is
    far too short-sighted. Though obviously many parliamentarians in the Bundestag may vehemently oppose any further increase in the rescue fund right now, in reality they would have little option left if the crisis were to worsen dramatically. They face the same choice as that of a desperate gambler: if they refuse to continue playing along, their entire share in the current rescue package (211 billion, amounting to 8pc GDP) would most likely be flushed as the weaker Euro members go bust. This loss would certainly be to severe to be absorbed. Hence, the lawmakers would probably be forced in the face of dramatic events to go along and increase their contribution in any new, more powerful rescue package, hoping that it will finally work and save themselves. The nation is already taken hostage by its current commitments, and like any desperate gambler, would not want to get out when it risks losing an enormous amount of money. Whether it would continue its gambling under the same Merkel coalition is of course an open issue, but it should be worthy to point out that the major opposition parties,the Social Democrats and the Greens, are even more committed to rescuing Euro than the current more conservative government.

    • This chimes with my post yesterday, “desperate people do desperate things.”

      Never underestimate the sheer determination and insane stubbornness of these megalomaniacal eurocratic psychopaths.

    • Germany should have listened to: “Belinda Carlisle – In Too Deep” before coughing up so much.

      “…it should be worthy to point out that the major opposition parties,the Social Democrats and the Greens, are even more committed to rescuing Euro than the current more conservative government.”

      Therein lies a major problem for Germany. The EU and its e-zone is above all a socialist construct and both of those parties are heads of the socialist snake with only trivial differences between them. They would drag Germany into ever deeper fiscal commitments until it’s destroyed.

  11. Mmmm, indeed interesting times….I can’t personally see Germany allowing the whole house of cards to fall either…I have to lean towards Mrx’s take on affairs, but there again I’m not sure….glad I’m not a gambler! What’s the timeline (max) do you think JW for this all to take place, are we going to see markets crashing next week?

    • “What’s the timeline (max) do you think JW for this all to take place,…”

      As John says, probably not predictable. More probable that it will be set off by some unforeseen event?

      More interestingly, what will world ‘authorities’ actually do at the crack of the thunder? Have contingency plans been made? Can they not have been?

      To speculate: world leaders DO have an emergency contingency plan called “The Global Banking Administration Act” that will be passed by legislatures sitting in emergency sessions. The “GBAC” will be somewhat similar to the US’s Chapter 11 Bankrupcy provisions in that it allows state administrators to direct the global banks (and ALL banks are swept into the administration, good or bad, solvent or not) to continue their ordinary day-to-day activities, primarily processing payments. People can then still buy the groceries, put fuel in their cars etc and businesses continue to service supply chains and get paid for doing so. Ordinary, day-to-day transactions that oil the wheels of commerce and trade will become, for the time being, the primary and sole immediate function of the banking system.

      That is not to say that ALL trading/commerce activity is saved to carry on as normal, but maybe just enough to ensure that folks can still eat and switch on a light. But pretty much everything else is wiped out, starting with shareholders, followed by bondholders and all forms of all derivitives, large numbers of investment funds etc….

      There will be massive pain all round—glad now I’ve got no money left after blowing it all on an internet venture punt (well OK, some went on a Porsche 911, now also sold, but…)—and my pension fund, such as it is, is probably f****d too, but at least we’ll still be able to buy a loaf of bread. Or that would be the plan, anyway.

      The paper financial losses would be huge, of course, but then they went with the lightning flash that preceded the boom (woops!) anyway: they were already gone before “GBAC” was enacted.

      What’s the alternative to somehow ensuring that, above all, food gets distributed?

      OK Sloggers, over to you for more suggestions. Is it a case of “they can’t do that” or a case of “they can’t not do that”?

  12. Think I saw this on a Zerohedge article can’t remember which one though.

    Opium is used to ease pain in many countries but the Europeans use something else to convice themselves everything is all right…

    Hopium

  13. What is the purpose of the ESFS, I know what is said in the Treaty, but really. The total amount is 440 billion euri, it is collected from the members using the euro. Of 17 members there are 7 endangered species; their shares totall 252 billion, for them it is impossible to get money at the capitalmarket, so where does their money come from: they pay and get it back; no one has the right to see what the ESFS board is doing with the money, so actually there is only 190 billion left.
    France has a share of 90 billion, that should be enough to bail-out their banks. Greece is going in default 50% and the only thing we do is to re-finance their Central Bank and that’s it. The other thing we have to do is re-finance the European Central Bank, every country can do what they like with the banks in their country because the ESM, the follow-up of the ESFS has a total share value of 700 billions to provide 500 billions and the 7 endangered members have to pay 401 billion so that leaves us with only 99 billion to work with.
    For example France has to pay for EFSF+ESM: 233 billion. If they can pay that much they better use it to stabilize banks and household. Are we talking about these numbers by states who are deeply in the problems: Let them keep their money. But there is no money and just because we Create ESFS+ESM we can tell the whole world: Look what we’ve done and nothing has changed only a few garantors have transferred money to be paid by their taxpayers and it is just enough to bail-out Greece and nothing more.

    • Hein
      Three things:
      1. You’re assuming the banks told the truth in the stress test. Dangerous assumption.
      2. The debts per se are the tip of the iceberg. Anyone in financial forensics will tell you that every deal has side-deals and hedges and derivatives and secondary payees and Uncle Tom Cobbleigh.
      3. Your scenario assumes nothing else happens. A French Bank will probably collapse before Greece does – trust me, Lagarde wouldn’t have been shrieking her had off for the last month if everything was OK. And Sarkozy wouldn’t have cancelled two meetings with Merkel. And then there’s Italy, Spain, Portugal…..

      • John, thanks

        However I was a financial controller in my workingdays I hesitate to talk about derivatives and hedgen but something like that was in my mind but talking about is difficult because I am missing knowledge to have a funded opinion about it.

        Hein

  14. Four arrested over money laundering and large-scale fraud at HBOS
    Officers from the force’s economic crime unit swooped on addresses in Berkshire, Warwickshire and Cheshire before 8am last Wednesday, September 29th, arresting three individuals on suspicion of corruption, conspiracy to defraud and money laundering. The individuals — ex-Bank of Scotland Corporate director of mid-market high-risk Lynden Scourfield, his wife Jacquie Scourfield, and ex-director of Remnant Media Tony Cartwright — have been bailed pending further inquiries. (Sunday Herald news article on the arrests).

    A fourth suspect, 53-year-old ex-NatWest banker David Mills, founder of the now defunct Quayside Corporate Services, was arrested at Luton airport yesterday afternoon (Friday, October 1st). He has been bailed until February, pending further inquiries.

    The four were arrested as part of “Operation Hornet”, a Thames Valley police investigation involving approximately 28 officers including some from the UK’s Serious Organised Crime Agency. The police probe commenced in earnest in June 2010 following a routine meeting with the Financial Services Authority.

    Blog post revised and retitled October 3rd, 2010
    http://www.ianfraser.org/re-examining-hbos/

  15. This looks to me like a battle between the european and american elites for control of future european tax revenues, just another chapter in the neocon globalisation plan. Whilst most of the rest of europe are hamstrung by previous mistakes/waste/stupidity the germans still have room to manoeuvre, and although they can’t really bet on all the ‘failed’ banks collapsing [who would take the bet] they could begin to accumulate gold and silver on such a scale that they distort the market. Buying up productive farmland also be a good bet. There must be other things they could do which would serve there own interests, which include a stable europe, and I expect something like the move porche pulled on vw shortsellers. What i envy most about the germans is the apparent commonality of interest between their elite and people, we’d be much better off in the uk if we shared that ethos.

  16. Pingback: SATURDAY ESSAY: How the Money is consolidating its grip on people and politics. | The Slog

  17. It should be “Fritz in DER Strasse” – not “in DEM Strasse”. Feminine dative case. You really ought to brush up on your German grammar, old chap.

  18. I feel I must point out that the ECB and EU did not rip up the rule book to save the iPigs.
    The Rules were thrown out of the window to Germany years before, and it was this rescue of Germany that tore apart the iPigs.

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