Sol Sanders Archive

Even Germany's economy is headed South: Is there a
sugar daddy in the house?

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French President Nicolas Sarkozy and German Chancellor Angela Merkel.     AP/Michael Probst

German taxpayers all along were wary of becoming the only teat on the EC’s udder for what Winston Churchill once called Europe’s soft underbelly. There is nostalgia, too, for the once high-flying DMark which few wanted exchanged in 2002 for Euros. Now those feelings are exploding with Germany’s vaunted economy going south — but not just for bailouts for Greece, Portugal, Ireland, and possibly Spain, and even Italy.

But more than one little piggie didn’t go to market. Chinese inflation [or should we use new Obama Administration’s gobbledygook, “core inflation”] is rising, particularly food where 80 percent of Chinese subsist. [Incidentally Chinese shortages mean huge U.S. corn purchases lifting American prices.] And there are still Chinese who remember in 1949 the Communists installed that ogre Mao Tse-tung mostly because of rip-roaring inflation on Shanghai’s counting house tables, not battlefield valor.

Russia? There, increased German dependence on Soviet gas, even encouraging Moscow government monopolies to buy into Western distribution, was all well and good during the halcyon days of unlimited credit and rising consumption. But now Moscow bleeds; an incredible $30 billion capital outflow in the first six months of 2011. [No oligarch dares leave money lying around in Petersburg or Moscow lest the new Rasputin grab it]. Some 1.2 million professionals immigrating in the last three years carried part of it out. And with diving fossil fuel prices, the Russian economy is hanging by one energy thread. That’s why a half million small and medium sized German firms in Russia, ”highly leveraged” with government export credits, are sweating.

As the Euro stumbles from crisis to crisis, “solutions” boil down to two proposals: full-steam ahead toward economic integration permitting a unified fiscal and monetary strategy, or refinancing bankrupt southern members using a Eurobond guaranteed by the 17 members of the common currency and anybody else Brussels could seduce into signing on.

German Chancellor Angela Merkel and French President Nicolas Sarkozy stumbled back from sacrosanct European summer holidays in mid-August to find a “solution”. But while their vague statement more or less endorsed the first approach, it offered not a clue how problematical negotiations could go forward as quickly as needs be — especially amidst crumbling economies gaining downward momentum.

They didn’t rule out the second solution. That’s because the last straw has been the rising cost of refinancing national bonds — more threatening even than bailouts’ size and conditions. But the Germans are more than aware any such new “credit instrument” has to be backed proportionately by Europe’s largest economy. Nor is it clear from its most enthusiastic sponsors, how rates would be set if they ignored/avoided the current race to the top for interest in a rocky market.

Of course, the 500-pound gorilla in the room is the option letting debtors drop back into their old national currencies to balance their books. But dismantling the oversold Euro [pun intended] might be the death of the European Union itself.

Keep tuned: the tragicomedy is still unfolding.