Merkel heads to Beijing in search of options

Mario Draghi sits anxiously in Frankfurt watching for any signs of crumbling bank foundations in Spain. Reggie Middleton over at Zero Hedge (superb analysis this) agrees with me that the biggest euro-danger at the moment is a bank-run, not a sovereign default…he thinks France might beat Spain to it. But in Berlin, all is calm. For unsere geliebte Känzlerin is leaving on a jet plane bound for Beijing.

The small gentlemen of the Chinese politburo see Angela Merkel as more likely to make sense of the eurozone mess than anyone else (it is a long way from Athens to Beijing) but all things are relative. The word is that they still retain a 0% interest in coughing up hard-earned currency to help an ESM that Merkel’s own Constitutional Court may soon declare illegal under German Law.

In truth, this is a meeting about trade, not debt. And to understand its significance, we need to remind ourselves of Geli’s principal interest in life: power.

Soviet power, EU power, American power, Chinese power: it makes little difference to the German Chancellor: as the horses become more or less powerful, so – like any self-respecting flea – she leaps onto the next winner. Angela Merkel doesn’t care what she’s Queen of, just so long as it’s big and powerful.

To the Chinese, she is a hugely important trading partner in both the import and export senses. Germany is China’s top trade partner in the EU – almost 50% of EU exports to China come from Germany. Meanwhile, Germany buys nearly 25% of China’s imports to Europe. It’s a case of BMWs for the Chinese aspirants, and beads for the eurozone’s blue-collars.

Merkel doesn’t really need the EU. She could team up with Russia and China tomorrow and probably get bigger volumes with little loss of margin…except for the fact that Berlin is severally responsible for the Clubmed debts. For the moment, this – and German banking exposure to Spain – is what keeps her in the euro – not any love for This Great European Project of Ours.

But she’s confident that Mario Draghi has his big guns ready, and so is unworried about the Iberian issue for the moment. “Germany’s technology has a dominant position, but it needs a market – and China is a big market,” said Germany expert Gu Junli, citing energy, environmental protection and manufacturing as possible areas of cooperation.

It’s all part of the German leader’s alles klar strategy: the blank banknotes, emergency Deutschmarks, Dollar swap deals, and ex-EU trading partners are all lined up. Should she stay or should she go? It matters not either way, for the full horizon is as yet out of sight.

If the EU strengthens around Wolfpack und Geli, she’ll stay to run that. If it collapses, she’ll head East. And if recession plus social unrest tear China apart, she’ll be on the next plane to lick Barack all over. But come what may, Angela must have her world role.