Germany-US Rift Gets Deeper, As Merkel Openly Mocks Obama's Keynesian Guidelines

Tyler Durden's picture

The transatlantic smackdown is getting vicious, as Angela Merkel makes a point to demonstrate her refusal to follow Obama's policies before a business audience in Berlin. As Bloomberg reports, "Chancellor Angela Merkel championed German export strength as “the right thing” for her country, spurning President Barack Obama’s call to boost private spending as both leaders  prepare for Group of 20 talks. Merkel, addressing a business audience in Berlin today, said she told Obama in a phone call that  cutting government debt is “absolutely important for us,” exposing a second point of contention ahead of the June 26-27 G-20 summit in Canada." It appears Germany's chancellor is actually prudently thinking ahead after realizing that the recent bailout of Europe has massively angered potential voters, cost her parliamentary majority, and absent damage control, her career would come to a premature end. If that means openly mocking the pinnacle of Keynesian insanity these days, Washington D.C., so be it. It is strange that our own president has yet not realized his own political career will be very short unless he follows in Merkel's footsteps. Instead, he and the Fed will melt the market up to unprecedented highs in the months leading to the mid-term elections in hopes that this will presumably indicte just how strong the US economy is, even as fresh new millions in the GoM find themselves unemployed courtesy of some salt water content in the oily gulf. Perhaps Orszag is much smarter than people give him credit for: surely his pitchfork avoidance skills will come in very handy when the tide finally turns.

More from Bloomberg:

Reducing the budget deficit by 10 billion euros ($12 billion) per year “won’t put a brake on the world’s economic growth,” Merkel said, relating what she told Obama yesterday. Germans are more likely to spend money if they feel the government “is taking precautions” to ensure solid finances, she said.

Four days before world leaders meet in Toronto, Germany is heading for conflict with the rest of the G-20 over tighter financial regulation, a banking levy and U.S. calls to boost growth rather than cut debt.

The G-20 must “safeguard and strengthen” the economic recovery and promote “global demand growth that avoids the imbalances of the past,” Obama said in a June 16 letter to fellow G-20 leaders. He expressed concern about “heavy reliance on exports by some countries,” which he didn’t name. Treasury Secretary Timothy F. Geithner called on June 5 for “stronger domestic demand growth” in European countries like Germany that have trade surpluses.

The upcoming G-20 meeting will likely be very contentious:

Merkel said on June 11 that she expects to have a “hard time” from fellow leaders at the G-20 meeting, where Germany and France are leading Europe’s push for a global commitment to impose bank levies and a tax on financial transactions.

The G-20 faces a test of unity on the banking levy, a German government official said earlier today, warning that leaders can either pull together or split into two camps over the tax. The official spoke to reporters on condition of anonymity.

And the punchline:

Obama’s appeal “isn’t anything that goes against what we are doing,” Merkel told reporters yesterday. “If we don’t get onto a path of sustainable economic growth but have rather a growth bubble, then if the next crisis comes we won’t be able to pay for it.”

How long before our own "elected" leaders realize they should follow the will of the people, not the recommendations of economic advisers who have a 2 year shelf life?

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SilverIsKing's picture

It will be interesting to see how she is portrayed by the U.S. mainstream media.


Tarheel's picture

How dare she mock our Kenyan president...

Merkel has garnered worldwide respect, her comments are duely noted. 

Cognitive Dissonance's picture

I'm beginning to see and smell some rats leaving some sinking skips. We shall know the end is near when the rats repudiate the almighty dollar. That milestone is still some distance off, but getting closer on a daily basis. When, not if.

Assetman's picture

True dat, CD.  I had copied the sentence from Tyler's post that struck me the most, and then saw your comment.  Here's Tyler:

Perhaps Orszag is much smarter than people give him credit for: surely his pitchfork avoidance skills will come in very handy when the tide finally turns.


The rats are certainly moving... some are leaving the nest... others have left the nest and are already singing a new tune to placate the engraging masses.

Merkel and Osborne are both on the right side of the equation here.  If Obama had entered his term with a massive budget surplus (thanks Mr. Bush) perhaps there would be more stimulus to work with.  The question is whether Obama takes the next step to Keynesian Hell, or whether the light bulb turns on and the next step is the American version of austerity.

As long as Summers, Geithner, Emanuel, and Bernanke have the President's ear, I'm thinking we remain on the road to nowhere.

Shameful's picture

Barry can't change positions.  He's already fully committed to the model of dealing with a debt problem with more debt.  To step away now would invite attacks from to many angles.  He would be accused of making a mistake/flip flopping, and he would also be accused of not sticking with the doomed Keynesian model by people like Krugman.  The die has been cast and he must now move along with his decision.

Now having said that we might see a change post election as he surveys damage and then tries to pass the problems onto a new Congress.

The problem with American austerity is America is the greatest ponzi scheme.  When austerity kicks in they are in effect admitting to the public it is a ponzi scheme.  The blowout will be spectacular, and the damage done to the dollar incredible. 

Assetman's picture

All true statements, Shameful.

Whether Obama stays the course or changes to austerity, he is political kryptonite.  Once he discovers that this November, perhaps he changes course... who really knows?  The longer he delays austerity, the bigger the unwind will be... he will not be able to successfully pass the problems to a new Congress, as his "legacy" has already been set.

If the austerity measures gain traction elsewhere in Euroland and progress is made toward recovery, the dollar will crash regardless.  Our best bet (really) is to take the medicine at the same rate as everyone else.  Sure, the clothing will be revealed as the ponzi scheme that it is... but do nothing and the loss of the dollar as the world's reserve currency is pretty much guaranteed.

My fear is that we just keep on printing until that rubicon is pretty much crossed.  We get there, then the pitchforks do come out.

SilverIsKing's picture

Once he realizes that his game plan is severely flawed and the end of the road is in plain sight, he will switch gears, or at a minimum, attempt to make it appear that he is.

He ignored the Gulf spill until the political pressure forced him to act.

Staying the course, once proven to be disastrous, will force him to alter his course but it will be to no avail.

Shameful's picture

I happen to think the Rubicon was crossed long ago.  Back in Bush's reign at the latest time for a real point of no return.  The dollar cannot be saved.  Best case we suffer a massive devaluation and loss in standard of living and don't undergo to much social disorder.  Quietly slip into an underdeveloped country.  But where is the profit in that?  They gain by keeping the ball in the air and looting while they can.  Now the less brave are fleeing as we speak, they are taking their loot and running.  Others are more dedicated to their looting ways are ready to ride it out.

Also never forget that this is the biggest criminal gang on earth.  Do not think for a moment they would not see the pitchforks coming and deploy super weapons to stop them.  Worse case for them they get bottled up in Mordor and then flee to their overseas assets as the nation slides into oblivion.  In reality I think they are going to try to ride the tiger down with a police state (and stage an event if need be).  It will be one hell of a ride, but I think a lot of people are going to want to get off.

Problem Is's picture

" I think they are going to try to ride the tiger down with a police state (and stage an event if need be). "

Excellent, Highly Probable Call.

dpr10's picture

lets not kid ourselves...austerity is a big scam, just to gain more time before the is too late for austerity, maybe 5-10 years ago it would have can greece or spain save itself with austerity or germany for that matter with its insolvent banks..

Let them all fail's picture

He would get much criticism, yes, but if he feels it is the right thing then he should do it, it will get respect from myself anyone who realizes the ability to admit and fix your mistakes is crucial

Plinko's picture

As long as Summers, Geithner, Emanuel, and Bernanke have the President's ear, I'm thinking we remain on the road to nowhere.

The last exit is a dwindling dot in the rear view U-turns from where we're at...

trav7777's picture

"Thanks Busch"??  For what?

Don't get it?  Busch spent the surplus trying the SAME fking thing Bama is.  Keynesian stimulus from the supply side.  He faced the same all-out debt meltdown deflation forces as have been lurking since 1970

Highrev's picture

The decision to devalue was made long ago. (Not that I actually know that to be true or not, but I think a multi-year pattern of behavior is enough to safely say so.)

The problem is that they can’t come out and simply say so. "We are going to devalue the US$ by 50%" would be soooooo banana republic.

There is only one way the U.S. can devalue its currency, and we’re witnessing it.

trav7777's picture

They can't until the petrodollar link is broken.  This would require a major break by KSA, which is only foreseeable if there is major revolution there.

We got a taste of our mortality in 1973, and now every single thing we do geopolitically is to defend that petrodollar link.  Without it we are instantly finished and everyone knows it.

We kind of need a sunni destruction of both Iraq and Iran's shiite populations because the sunni axis is much more under our control in the Gulf

Cognitive Dissonance's picture


That's why I said it will take a while. But once there is USA blood in the water, I will only be surprised by the speed at which the USA dollar is thrown overboard, not that it is. I personally think this is why the Fed and US Gvt controlled banks and brokers attacked the Euro. To discredit it in the eyes of people who are looking for something, anything, other than the dollar.

Problem Is's picture

"I'm beginning to see and smell some rats leaving some sinking ships..."

Time to Invest, Bitchez!

Rat Zapper

King_of_simpletons's picture

US and Europe are in a different fiscal parallel universe. It is like captain picard trying to communicate with the paclids. They do not understand each other unless one is willing to give it a try.

QQQBall's picture

Yes, and if the USA keeps pumping their deficit spending will be supporting economies moving to austerity. We're d00med

SilverIsKing's picture

Good point.  With austerity, everyone else will need a bailout.  Uncle Sugar to the rescue.

Pectoralis's picture

haha. she was knocked down by sarkozy and she's gonna be knocked down by obama. merkel "kills" every political opponent within her party and in the hole country. but in order to be accepted by her foreign colleagues, she's exactly that kind of brown-noser we all used to hate back @ school.

using the words 'iron', 'lady' and 'merkel' in one sentence is just ridiculous.
greets from the south of germany

Miles Kendig's picture

Not even when she lunches with Christine...

Stevm30's picture

For A. Merkel - 

"The older I get the less I listen to what people say and the more I look at what they do." A. Carnegie.

Say what you want - mock Obama to the same crowds that applauded him without reason 20 months ago - we will not forget your spineless trillion dollar bailout.


jkruffin's picture

Who is Obama to be telling another country to cut deficits, when the US deficits have doubled in the past 2 yrs he has been in office and set to triple.  Don't you think you need to get your own house in order, before you tell other people what to do??

This government is out of control, the American people better wake up.  Bernanke and Geithner need to be removed from their posts quickly and prudently.  By force if it comes to that, along with this crooked Congress.

firstdivision's picture

Try pulling food from a pigs mouth and let me know if you get bit.

QQQBall's picture

Better wake up?

Remove Bernokio & Turbo Timmay?

Congress cannot even pass a decent financial reform bill or reintroduce Glass-Stegall.


Yes We Can. But Lets Not.'s picture

"...your own house..."?!

Obama: "Let me be perfectly clear: We can all agree that, and no one would dispute that, this is the house that Bushitler built, with help from Rezko, er, Cheney."

It will become Obama's house if and when things have finally turned the corner, but not until then.

IBelieveInMagic's picture

You misunderstood. US is encouraging other countries including Germany to increase deficit spending.

williambanzai7's picture

Obama is looking more and more like an economic rodeo clown every day.

Thanks Timmy!

Jeff Lebowski's picture

Funny, I didn't build up my personal reserves to fuel growth.  Quite the opposite.

The inmates are truly running the asylum.

June 22 (Bloomberg) -- Treasury Secretary Timothy F. Geithner said credit availability is improving and companies are building up unprecedented cash reserves, signs that the U.S. economy may be poised for increased growth.

“Credit conditions overall, which dragged our economy into a deep recession in 2007, no longer pose an obstacle to growth,” Geithner said today in testimony to the Congressional Oversight Panel. Corporations are raising money in capital markets “and have built up record cash reserves, which will eventually be reinvested and fuel growth.”

Assetman's picture

Timmy is indeed the Assman.

Credit availability is improving because no one can afford to build more credit.  Quite the opposite... we are purging debt, and for good reason.

Companies who are building up cash reserves -- and not using them -- are doing so for a reason.  Perhaps one of those reasons is to absorb expected losses on the balance sheet... or for re-investment 3 years down the road when asset values are 50% lower and interest rates are prohibitive.

Of course, we all here at ZH already know that.  So do most businesses.

Oh, and poor credit conditions didn't drag this economy into recession in 2007(8)-- rampant fraud in the credit markets did that trick.  Just something that we all know needs clarifiying. 

Double down's picture

Other people's blance sheets are some people's income statements

Assetman's picture

Good point, double down... they'll be screwed, too.

GNH's picture

Corporate cash levels are at record highs, but so are liabilities (Fed Flow-of-Funds).  Corporate net worth is down 25% since 2007.

Anarchist's picture

Germany does not have the unfair advantage of possessing a reserve currency. It's a license to steal. The Germans know they cannot mimic the PIIGS or the US. They design and produce products others want. They educate their citizens to be leaders in their field. They don't believe in stupid concepts like a consumption based economy or you can base an economy on information or services. Germany will still need to tackle it's huge other problems however or they will go down the toilet too.

Postal's picture

They design and produce products others want. They educate their citizens to be leaders in their field.

What the hell kind of nonsense is that? That's no way to run an economy/country! [/sarcasm]

Pectoralis's picture

Germany does not have the unfair advantage of possessing a reserve currency. It's a license to steal.

absolutely correct.

They design and produce products others want. They educate their citizens to be leaders in their field.

absolutely incorrect. our citizens are educated to be super-useful slaves in big government and big corporations, just as anywhere else in state schools. critical thinking different than mainstream? no need for that! no employer wants people like you!

They don't believe in stupid concepts like a consumption based economy or you can base an economy on information or services.

haha! u don't know that guys of SPD, green party and the left party. what do you think, where the official €1.7bn of debts (>70% of GDP) come from? intelligent investments?

Rider's picture

US has the only really working printing press.

No one else can follow US printing madness ad-libitum, or the bond vigilantes will get'em.

Remember, US printing press is the tool for world domination, once we finish killing the dollar, the joke is on the foreign US debt holders.

StychoKiller's picture

It's my understanding that the US Bureau of Printing and Engraving prints currencies for other countries as well.  Does anyone have a list of them?

Turd Ferguson's picture

Anyone have any idea where I can get some Deutsche Marks?

Anarchist's picture

Already printed waiting for the other shoe to drop. Germany has made a killing off the Euro. They were able to grow exports to other EU cuntries and absord East Germany. They still have more gains to eek out of the Euro before the party ends.

Hansel's picture

"...a growth bubble (what is that?), then if the next crisis comes we won’t be able to pay for it" (what??? I don't even understand the concept. Every crisis needs to be paid for? Hooray for crazy people.)

Chemba's picture

you don't understand; Germany has a real economy.  Germany makes things.  They make automobiles that people want around the world.  They make trucks and buses that people want around the world.  They make heavy presses, machine tools, printing presses, industrial mechanical and electrical infrastructure.  Germany has a real economy upon which to fall back.

The USA has mortgage brokers, real estate agents, home builders, tax preparers, real estate appraisers, building department employees, education administrators; none of these things are of any value to anyone, certainly not outside the USA


ZackAttack's picture

The US has greatly diversified its exports since GD1... it used to be that we just exported grains. Now we export grains AND bad debt.

Max Hunter's picture

+ 1000..

One day Americans will realize this. But.. it will be too late.. We will need to hit the reset button by then..

115spider's picture

Saw "Designed in the USA" on a particular product recently which just about sums up the level of US manufacturing and the mentality of the average marketing graduate.

The part that Obama doesnt get is that the majority of German companies are still family owned. No shareholders means more cash going back into the firm / community / central tax. One firm will be responsible for keeping a small town fed, clothed and housed (common for mittelstand firms to own their own housing stock and then offer cheap rents to employees) - this is what Merkel is protecting.

If it does go tits-up in the fatherland, Uncle Sam left 10 nukes behind which may well come in handy.