“Cheer up, the worst is yet to come.”
- Philander Johnson
Dear <<First Name>>,
Meandering back from the gym Wednesday morning the good folks of RT TV were desperately trying to reach me for some comments as it took the German constitutional court a very short period of time to deliver its judgement on the Euro.
Initially there was shock that the whole process seemed to have given Mrs Merkel the heady scent of pure success (something her Chancellorship is subtly lacking right now - but hey she is in good company, the primary residents of 1500 Pennsylvania Avenue are similarly unpopular).
However, a quick skim through the document and it quickly becomes clear that the German Constitutional Court has delivered a poisoned chalice. Mrs Merkel is on track to become only the second most important Merkel in Germany... The opposition SPD’s Mrs Merkel chairs the Parliamentary budget committee and the constitutional court’s judgement, has handed her a lot of influence over bailout terms. Utimately, this judgement is a massive poisoned chalice for the German government and despite the various rapidly pro ‘integrationist’ remarks of recent weeks from many SPD folk, I suspect that disaffected voters may yet lead to a process whereby Germany - at the very least - seeks some sort of security in return for any further cheques.
Incidentally, am I alone in musing on how all of a sudden a socialist “transfer payment” discussion is more apparent amongst Euro apologists? The story goes that just as West Germany paid a lot to retrieve the east, so too now Germany must understand the Euro is actually a regressive wealth zone where Germany must subsidise everybody who can’t engineer a BMW. Hmmm, I had not reckoned the Germans for fools in any regard but if they fall for that line...
Most significantly, the German constitutional court has said it dislikes the notion of a pan- national sovereign bond... In other news, the good folks at S&P have apparently noted that they will rate such a “Euro-bond” at the level equivalent to the lowest grade of the sovereigns in the basket... To avoid confusion with corporate “Eurobonds” perhaps “Eurojunk” might be a better nomenclature? “Euronauticals” might be ideal as S&P want to make them all below “C” level anyway. The Eurocracy will probably christen the bonds with suitably mind-numbing terminology such as “Trans-Union Redistributive Directed Savings.”
Hmmm, the man most adept at finding solutions with junk bonds was Michael Milken, maybe we can make him the head of the ECB's issuing department to work some magic on the situation?
Elsewhere, the Greek bailout is a poisoned chalice all round: it is decimating the official economy and things have now got so bad it appears to be impacting the black economy too. Staying in the Euro will be a disaster for Greece and if they leave it they may never reform their ways - perhaps the ultimate binary example of chalice risk. Even while taking the medicine I am still not sure it is such a great deal for others like Ireland... Anyway, before we get Eurojunk issuance, look out for the ultimate game show put down applied to the Eurozone: "Greece, you are the weakest link, Goodbye!"
Meanwhile, the Swiss have decided to play the world’s highest stakes game of ‘pin the tail on the donkey” albeit with the Euro playing a perhaps low grade version of the donkey. This is high risk stuff and the Japanese will doubtless look to see what they may be able to do in response.
Within Switzerland there is talk of a national disgrace and a huge sell-out. It is not clear to me how in a true meltdown the Franc can stay pinned to a collapsing Euro anyway. However the Swiss find themselves with exports collapsing within an economy which makes the hotspots of the Cote D'Azur look like value for money by compare with the wonderful slopes and cities of the Helvetic Confederation. Whatever way the chalice thingie works out here, currency wars beckon.
In fact, whereever I look this week I just can’t seem to get poisoned chalices off my mind.
The world is on the brink of a really rather ugly denouement.
On the other hand, the Polish economy is growing at over 4%. Their poisoned chalice is to manage the economy in the face of turbulence beyond their borders - their biggest concern right now? Germany's economic stability...
As ever it has been a pleasure talking at you.
With best wishes,