"There's something silly about Germany."
Anthony Peters, Swiss investment strategist, tells International Financial Review that Germany's Angela Merkel's balkiness at solutions to the euro-zone crisis are a bit daft given how much the German economy, Europe's largest and world's fourth-largest, benefits from the devaluation of the euro brought on by the euro-zone default panic.
The silly thing is tha the weaker the euro gets, the better Germany does. Not only has it benefitted for the past decade from being able to access the entire European single market without having the monkey of an appreciating currency on its shoulder, but the more the periphery has dragged the single currency down, the more competitive Germany has been on a global basis too.
Mutti Merkel surely knows that without the failing neighbours her country would be in a lamentable and uncompetitive economic condition.
Hmm. By Peters' unwitting logic, Merkel (shown left) has no incentive to see a recovery in the euro, so why on Earth would she be an easy mark for solutions to the euro-zone crisis, as the intelligensia on both sides of the Atlantic are urging her to be?
If Germany is cashing in on a devalued euro, I expect that phenomenon is exaggerated and certain it's a short-term boon. Merkel, more than anyone, needs a solution to the regional crisis since Germany exports extensively to its fellow euro-zone member-nations. It stands to suffer most if the five most troubled nations - Greece, Ireland, Portugal, Italy and Spain - are forced, as Greece already has been - to impose harsh internal austerity measures in return for bailouts. That will severely constrain consumer spending in Greece and the other trouble nations encouraged to embrace austerity to get the books balanced right quick. Which in turn would shrink Germany's export markets, obviously. Germany, of all nations, needs its 16 fellow eurozone members to recover or not slip into the abyss that Greece so obviously has.
I feel a bit out on a limb here, because just about everyone and his brother - especially the commitariat in Germany - characterizes Merkel is a plodding, quasi-Neanderthal in not getting with the program on throwing a lifeline to distressed eurozone nations that, in the main, have been living beyond their means for years and borrowing the difference.
Any student of Germany will tell you that its acute debt-aversion traces to the hyper-inflation of the 1920s, when it took a wheelbarrel of Deutschemarks to buy a loaf of bread. There are plenty of Germans old enough to remember those times, and its end game of horrific consequences for the world. That sentiment has translated into widespread German unpopularity with bailing out nations rightly perceived as lacking Germany's public and private embrace of finance prudence. Or why don't we use a more down-to-Earth maxim, of embracing delayed gratification and what the economists used to call "future preference" - saving today in preference to spending safely tomorrow. Without borrowing, it should go without saying.
It would be an exaggeration to say the governing coalition Merkel leads is "fragile." But you won't find any party leaders who are members of it who don't share the grassroots German view that spendthrift nations should be bailed out, or "rewarded," for their almost deliberate lack of interest in pursuing productivity gains, applying fiscal sanity to compehensive social programs that are politically more easily financed with copious government borrowing than raising taxes or tax compliance.
Falling back on the old saw about the Chinese coin with crisis on one side and opportunity on the other, my guess is that the chancellor sees this crisis as a rare opportunity - the first since the end of World War Two - to finally put Europe's comprehensive social-welfare society on a fiscally sound footing by playing hardball with would-be recipients of bailout asistance. Or are we just supposed to accept that Italy, for instance, will maintain a debt-to-GDP ratio of 120% forever. (America's ratio is 70%, and fiscal hawks in the U.S. are screaming bloody murder about that.)
Up to a point, I do agree with Peters on this:
A portfolio manager friend of mine I spoke to yesterday bemoaned that there are too many questions and not enough answers. I disagree. There are not too few answers, just too few answers people want to hear or, perhaps more worryingly, with outcomes anyone really want to contemplate and deal with.
But here again, Peters contradicts himself. The easiest route for Merkel would be accepting something other than a "tough-love" solution to decades-old fiscal bad habits among most euro-zone members, not limited by any means to the five nations cited above that are in an especially tight corner. (Belgium, Lativia and even France these days are having their fiscal probity scrutinized, and the none of them come out bearing resemblance to a well-managed household budget.) Neither does the U.S., of course.
In short, if Merkel was an easier touch, she'd stand a good chance of being the heroine of quickly saving the euro-zone, and end up on the cover of Time in January as 2011 Person of the Year. Obstinate she is, in an unduly frustrating way at times, I readily admit. But her sober assessment of history and current conditions, and her take on deceitful heads of state (Greece faked its books to gain entry to the eurozone) have elevated her in my eyes, at least, above conventional politicians.
It's natural to hope for the most rapid possible solutions to crises which, in this case, affect a European population larger than that of America. But inadequate consideration of unintended consequences, and impulsive conventional reactions to nuanced, devilishly complex problems, is what gets us into trouble. Or am I reading too much into David Cameron's recent retreat on the knee-jerk austerity scheme he quickly sprang on fellow Britons just months ago?