Germany on the Verge: “Dispel this Fog,” Begs Mario Draghi

Wolf Richter's picture

Wolf Richter

Not a day goes by when the German government isn't under heavy fire from outside interests, including Barak Obama who is facing a tough reelection campaign; and the last thing he wants is any crap flying across the Atlantic and messing up his campaign speeches. They all want Germany to agree to pick up whatever the tab might be for bailing out the Eurozone, beyond the hundreds of billions of euros it has already agreed to pick up. And Thursday it was a loud crescendo that turned into a cacophony.

Yet May has taken the sheen of what Germans have come to call their “success recipe” that has led to phenomenal growth, by German standards, from the trough of the financial crisis through the Eurozone’s current and apparently eternal debt crisis. The DAX suffered its worst May since the index was founded in 1987—it was down about 7%—after a series of economic data that have made a sharp turn for the worse.

The latest came Thursday when the Statistical Agency reported that rail cargo in the first quarter had dropped 2.7% from prior year. While cargo transported to neighboring countries rose by 1.8%, cargo shipped between locations in Germany dropped 2.3%, cargo received from other countries dropped 5%, and transit cargo, a measure of the broader economy in the region, dropped a stunning 12.2%. The trend is even worse: March was particularly nasty with an overall decline of 6.4%. In the same breath, the agency announced that retail sales had dropped 3.8% in April from prior year. Analysts were hoping for an increase of 0.2%.

And turmoil continued to spread: Euler Hermes, a subsidiary of German mega insurer Allianz, and Coface, a French credit insurer, announced that they would no longer insure exports to Greece, fearing the unpredictable consequences if Greece reverts to the drachma. A first in the history of the EU that insurers backed away from a member country. One more item in the litany of signs that the Eurozone is bogging down in its own mire.

Meanwhile, the astounding wave of central bankers’ unleashing hard truths continued: Thursday it was ECB President Mario Draghi who, in discussing the travails of the Eurozone, let slip that “The configuration we had for 10 years, which was considered sustainable, has been shown now to be unsustainable....”

Gasp! He was following in the footsteps of Thomas Jordan, President of the Swiss National Bank and long-time euro-skeptic, who’d discussed the consequence of a collapse of the euro. Read.... Bracing for a Euro Crash and Creating a Housing Bubble.

And before him, it was Jens Weidmann, President of the German Bundesbank and member of the ECB Council, who’d slammed French President François Hollande, the ECB, anything reeking of a transfer union, and even Paul Krugman. Read.... The President of the Bundesbank Lashes Out.

Draghi was pushing for dramatic action, where German taxpayers (and those of a few other countries) would be stuck with the bill. He called for the establishment of a Eurozone-wide centrally supervised (by him, presumably) banking union with a resolution fund and a deposit insurance fund to put an end to the quiet bank runs before they turn into panic. But he forgot an inconvenient fact: banks would normally be required to pay into such a fund for years to benefit from it during some distant crisis; but the fund doesn’t exist yet, and banks haven't paid into it, and so the entire amount of the deposit insurance needed for the current crisis would have to be born not by banks and their investors, but by taxpayers, and particularly taxpayers still able to do so, mostly those in Germany.

“It is better to err by too much in the very beginning rather than by too little,” he said. The former Goldman Sachs banker was talking his book. It’s bailout mania all over again. Crony capitalism at the expense of taxpayers in other countries.

“The next step is for our leaders to clarify what the vision is for a certain number of years from now,” he said. “Dispel this fog.” Again, stunning clarity. “Greater centralization of supervision is essential,” he added, on the principle that national democratic processes and institutions should be usurped for the sake of the euro, and that holders of government and bank debt shouldn’t ever lose their shirts—forgetting that defaults and bankruptcies are the cleansing processes of debt-fueled capitalism.

Of course, Germany and a handful of other countries could agree to bail out first Spanish banks, then Spain, and then Italy, if they even could, along with some other countries and a slew of banks, including their own banks, to save the euro. The sums are so vast that taxpayers couldn’t actually do this. It would require the ECB to print these bailout trillions. A treaty change would allow that in no time. Hollande, Obama, et al. would be ecstatic. It would solve the Eurozone debt crisis in one fell swoop.

The ECB would turn into the Fed or the Bank of Japan. It would eventually debase the currency and permanently free governments from the arduous and painful task of getting their budgets in order. Instead, politicians would follow the Japanese model, where debt amounts to 230% of GDP, and where utter fiscal gloom is pervading the lives of the young. The US, with its ballooning debt and out-of-control deficits, is already on that track. It may be OK for Greece or Italy. But is it wise for Germany? It seems the first decisions in that respect have already been made. Read... Germany Walks Away From Greece.

And here is a dark, thought-provoking, and awesome video by the author of Currency Wars, James Rickards—particularly powerful in light of the euro crisis: Currency Wars – The Making of the next Global Crisis (video).

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falak pema's picture

As we come into an accelerating phase of world economic meltdown that has as current vortex the Eurozone conundrum it is worth while to  keep in mind some basic facts.

The Euro currency was created by a joint decision made by France-Germany in the 1984-1986 period, as a European economic counter weight to burgeoning American-Anglo Big Bang hegemony of the USD play, with deregulation as its global mantra.

Now nearly thirty years later THAT strategy has backfired big time and Euro currency, the patchwork creation of a bureaucracy, is being burnt at the stake as FIRST victim of the global financial collapse of Reaganomic's financialised world economy paradigm.

So the Euro banks, hugely leveraged as they copied US banks to stay in the race of steroids pumped bubble-o-nomics derivatives scam during this post 1999 Glass-Steagall revocation, are now all toast, along with their US, UK and Japanese counterparts.

The Pax Americana world of Reaganomics is now collapsing on the financial front and it is legitimate for Germany, lead economy of EUrozone, to ask itself in this new reality of post-2008 era if the EUro is worth defending. After all, if Pax Americana deflates the USD hegemony will be over. AND EUROPE WILL NO LONGER NEED A COMMON CURRENCY OR A FORTRESS EUROPE MENTALITY, WHICH WAS PRECISELY HATCHED TO COUNTERBALANCE US/USD HEGEMONY conceived via the RISK asset bubble of supply sided deregulation; aka 1980-1990 years. 

Its not worth Germany's efforts to save the common money and banks of neighboring countries as Eurozone consolidation is not required if the AMerican Empire implodes. Germany can stand on its own feet now reunited, having the best mercantile industrial model, and a strategic partner in RM rich Russia and beyond in China. 

It has no reason to stand shoulder to shoulder with France in Europe's defense, like Kohl and Mitterrand did in 1986 at Verdun memorial. These markets are now atone for many years and it needs to recalibrate its export model on the global front.


There is a lot of wisdom in this approach that Merkel now seems to be sticking to. "I won't save these ponzi  banks Continent wide, just my own. Those others weigh more than my economy collectively",  is the message, as RM's excellent number crunching has amply shown all ZH readers since two years at least.  

We are in tipping times and it chimes with audacious strategy to ANTICIPATE the new status of the geopolitical chess game. Merkel may have a plan. Lets see if she can stick to the US banksta lobby is very strong!

Consider this vision as an alternative to the Euro redemption pact type logic presented in the post just below! 

supermaxedout's picture

My feeling about the future of the EU says me, that it cant stay as it is now. The decisive point is, whether the mayor parts of the present EU are going into the direction of a United States of Europe (USE) or going back to the beginings of the EU, independent nations but with a common market.

These different concepts have followers and opponents among the present EU member states. There exist the following groups:

1)  France, Germany, Italy, Austria, Spain, Portugal, Netherlands, Belgium.  The population of these countries plus the one or the other country in addition has developed already a feeling of  beeing all in the same boat. The overall friendly feeling among these different population groups is clearly visiible and to feel when you live in one of these countries.  The governments in these countries are in general not opposing the idea of an ever closer union.   They do not like of course to give away some of their souvereignity but on the other side they do not defend it beyond reality.  (greece is a special case, the population is strongly pro EU while its ruling families defend their privileges no matter the costs for the nation).

Each of these countries have its strenght and different advantages whether its the economy (Germany), the military (France as an atomic power), food production technology (Netherlands) etc, etc. So by no doubt a truly unified Europe consisting of the states described above would be a mayor player on the world stage.  There exists already a European capital (Strasbourg, France) residence of the European parliament. So things are in principle ready to go once th conditions are finally cleared.

2) There exists a second group of countries such as, Scandinavia (except maybe Finland which might also belong to group 1), Ireland, Poland (which might also more belong to group 1) , the Baltics and the other countries rather new within the EU Czechia, Slowakia, Hungay, Romania, Bulgaria, Slowenia, soon Croatia and Serbia. In my opinion, the mayority of the population of these countries are undecided. They like the economic advantages of the EU but are having problems to give up a huge part of their just newly received indpendence (fomer East bloc countries).  They are undecided and in my opinion at the end willing to go with the mayority of Europe, while hoping that this is going to be the lesser evil, having in mind the catastrophies of the past.

3) The third group, can hardly be called group except one counts Scotland, England and Wales as independent countries.  But then even the question arises if the Scots would be more in the second group and not together with England.  In short, England has till now its own European agenda in tigjht cooperation with the US. The UK economy needs Europe but the population and the ruling class is not (yet) willing to enforce the idea of the USE which includes the UK.

In my opinion Merkel and many other leading European statesmen from the group 1 countries are willing to enter the road to USE. A singled out Germany which might have for a short time some economic advantages is not on their agenda. Europe wants really to overcome its past and wants to have the nationalistic nonsense of the past to be buried for ever!

supermaxedout's picture

This is the plan of Euroland to overcome the souvereign debt crisis of which the bank crisis is just a symptom.

Read it careful and then you know why gold is resistant to the present market turmoils and is going to be lifted to new highs by Euroland financial policy. Bad for the Dollar. The US power to control thge gold price is soon completely abolished.  Gold is becoming tier one capital and once the price is there where it belongs to (in comparisation with fiat), then a huge, huge  part of the souvereign debts of Euroland is covered. (This document was released on November 9, 2011. Compare what happened since then with the gold price.)

This is the difference between Euroland and the US/UK. Euroland has an economic plan for the future, while US/UK is just trying to keep the status quo upright.



FreeNewEnergy's picture

The plan is bold, but, IMO, highly unworkable. Countries will be reluctant to pledge their gold as collateral, with forfeiture as a condition. Further, the plan calls for joint and several liability which is another stumbling block requiring various referenda and changes to constitutions. Additionally, the fiscal conditions - balanced budgets (actually, surplus) would have to be maintained for a long term - 25 years, as in the ERP. 

That's why this proposal has been shelved since November of last year. Had it been viewed as a workable agreement, the EU would no doubt have trotted it out as "the solution" to the debt crisis.

In the end, it's nothing more than accounting trickery, shuffling of balance sheets and ardent can-kicking, this time a whole 25 years down the road. It would no doubt run into problems within 2-5 years after implementation, as soon as one country runs into fiscal problems and all the others have to pick up the slack.

I don't believe for a minute it has anything to do with gold price suppression... well, maybe a little. The central banks have been net buyers of gold of late, thus, the need - for them - to keep the price under control until they have acquired the amount of gold they believe will be needed for them to retain sovereignty in case of EZ dissolution.

Gold reserves are becoming front and center in the Euro crisis because it is a currency upon which value can be relied. The plan from the "German experts" is yet another desperate attempt to avert disaster, which continues to stare all of Europe dead in the face.

The only true solution - and all economists know this, though none will admit it - is a return to some form of gold or gold/silver standard, with honest money replacing dead fiat.

supermaxedout's picture

The plan is bold indeed but that was the whole European project from the very beginning on. Its a make or break situation. Its now the decisive point in the short history of the EU.  Im  optimistic because there is not much of an alternative left. At least not something better since otherwise we would have heard of.

It can work and it can work only in Europe because of its common bloody past. The people of Europe have the feeling that it is time to unite because everything else would be a step back to nationalism. The nationalism had its time in the past of Europe and when looking back it was not a good time for most of the Europeans.

The problem is, that with the rise of a united Europe the USA would loose one of their pillars of power. The unhindered access onto Germanys and Italys resources,  as there are technology development and industrial power in case of a military confrontation.  Examples from the near past how Europe could behave in the future are:  Chancellor Schroeders No to an invasion in Iraq and Chancellor Merkels No to the war in Libia. Silvios Berlusconis Libia politics (close cooperation with Gadafi)  which undermined the empires ability to control the oil prices.  These clear signals from Germany/Italy showed the rest of Europe that it is well possible to resist the US call.

Regarding gold,  I have the feeling, that the officially denied accumulation of gold by the central banks has the reason to own sufficient tangible wealth once the expected world financial crisis materiailzes. This "mother of the financial crisis"  may come any day but can be also still some years away, but its clearly under way. The combined accumulation of gold under one roof (the European Redemption Fund) has in addition the welcome side effect that Europe may ask the US and UK to forward Europes gold to a continental European vault. If Germany would have the guts to make such a request on its own it would be a propagandistic armageddon.

However, simply put, there is to much fiat printing all over the world and extreme high levels of shaky debt (triilions, simply unimaginable and out of the world) . This is the proven recipe for disaster many times over in the past and its not going to fail this time either.  When the crisis hits the only real money left is direct tangible money and this means gold and maybe also silver is going to have a last come back.  These two PM have served mankind since ever as the only general accepted store of value. This function is it  why the central banks are accumulating gold for some time now and becausae gold is the only killer of debt. And there is a lot of debt which has to be killed nowadays. The present exchange rate,  fiat for gold is much to low. Thats why gold has to rise dramatically against fiat otherwise the whole operation is senseless. The main profiteers are the central banks and as a windfall the rich people having physical gold in their cellar. This is the way how to stay liquid in the tough times to come. To buy gold stocks is not a good idea, because once hell breaks loose the taxman is going to visit the goldmines more frequently if not confiscating the mines right away. This is the way it always has been done.


andrewp111's picture

The Eurozone needs a real panic before Mario Draghi does anything. A slow leak of deposits and the slow grind of Depression is not an emergency, and he does not have the political or moral authority to grab the bull by the horns and slay it. In normal times he has to consult and negotiate with national governments. But a real bank run of the same scale as the 2008 Money Market run ($250 billion/hr)  would give him that authority, and he would grab it. In fact, he needs it. It is the only way he can save the EuroZone.

slewie the pi-rat's picture

i appreciate this article

thank you

angela on the hot seat getting pressure:  fulcrumNewz, the simplest of all reporting tools

celticgold's picture

yaaaaawwwwwwwwwwwwwwn............this investing stuff is easy!

d edwards's picture

Yeah, don't worry-the Bilderbergers are meeting to decide how to carve up the global "turkey" when it's done cooking.

Coldfire's picture

Send this Draghi incubus packing, Mutti.

Buck Johnson's picture

Everyone wants Germany to pick up the tab and "promise" to pay them back on tuesday for a hamburger today.  Germany won't do it and Merkel won't allow her country to go into a recession/depression (like the US) in order to backstop the EU/banks in order to buy them a year. 

Seer's picture

"Merkel won't allow her country to go into a recession/depression (like the US) in order to backstop the EU/banks in order to buy them a year. "

Keep in mind that wonderful phrase- Can't push on a string.

Germany may avoid the immediate fire from a meltdown that is the EU, but when everyone else has melted away who are you going to sell to?  Further, who are you going to BUY essential resources from? (no EU country has shit for resources)  I can't remember who stated it (Pods?), but someone speculated that Germany is likely going to look east, hook up with the Russians and Chinese; I believe that this scenario is about the only one that makes sense (though this too will eventually deteriorate as Russia's energy exports decrease).

Treason Season's picture
Tue, 05/29/2012 - 03:10 | 2470908 Treason Season

It seems that is the emerging question. Is the Merk Putin's bitch or Rothschild's? Maybe they're one in the same. It's a riddle wrapped in a mystery inside an enigma.

BeetleBailey's picture


Same ol same ol....

Merkel and Germany; the only ones fiscally adroit, getting pounded for being that way.

Cenral bankers baying for the presses. Banks in deep shit, though the majority of the public still believes ads.

Barak, blaming everyone but himself...AGAIN.....

The Bernank - caught betwixt and between his buttocks.

Fuck You's to Benny, Barack, Timmah, Jammah, Blank-look, Jon Corzine the Hoboken Homo, and a special shout out of FU to John putz.



MaxThrust's picture

The international banking cartel were very active during negotiations on the Treaty of Versailles , knowing full well that this document would force pain on Germany and eventually another war. The international banking cartel and particularly the New york banks were very active in funding Germany's rearmament during the Nazi build up to the Second world war. The bankers made this war possible. Germany was destroyed, its economy in tatters But years of hard work the Germans have rebuilt their great country and are now the success story of Europe, again! Then comes along the bank inspired debt crisis in which Germany is now requested to suffer more pain to solve. Its time to burn down the international banking cartel. ITS TIME FOR PAYBACK!

John Wilmot's picture


"Germany and a handful of other countries could agree to bail out first Spanish banks, then Spain, and then Italy, if they even could, along with some other countries and a slew of banks, including their own banks, to save the euro. The sums are so vast that taxpayers couldn’t actually do this. It would require the ECB to print these bailout trillions. A treaty change would allow that in no time. Hollande, Obama, et al. would be ecstatic. It would solve the Eurozone debt crisis in one fell swoop. The ECB would turn into the Fed or the Bank of Japan. It would eventually debase the currency and permanently free governments from the arduous and painful task of getting their budgets in order. Instead, politicians would follow the Japanese model, where debt amounts to 230% of GDP, and where utter fiscal gloom is pervading the lives of the young."

...the end game for Europe is obvious: the member nations will hand over the power of the purse to the EU, the EU will issue bonds against those revenues (taking on some or all of member nations' national debts), and the ECB will print like hell. Everything else is propaganda to set the stage.


Poor Grogman's picture

This was the plan all along just like in the USA.

Those responsible for the crisis will be the ones dishing up the solutions and getting the promotions, and the pay rises.

Problem Reaction Solution.... All three the artificial creation from the same slimy snakes, that think they can rule the world.

The plan is in the open now for all to see.


Guillotine futures contract, making a comeback soon.





rsnoble's picture

Too bad the docile tax cows of the US don't have the option of saying no. Most of them don't even know what the word is.

SKY85hawk's picture

I am consistently dismayed by intelligent people who act like a Roth-IRA is something evil or dangerous.

Consider  putting $5000 into ERY (Short ENERGY) around 3/19'12 or 5/01'12.  I leave it to you to calculate the return on investment as of today.

Notice that the profit is TAX-FREE!

YOU also must decide when to sell ERY and go long (ERX-Long Energy)

Today, my wife's account in FAZ(Financial Short) is up $1,800 on 345 shares.

Think for Yourself!  Starve the beast.


Btw, use TurboTax to 'model' this year's numbers to convert 401K money into your Roth acct.  If you're not working, you can transfer impressive amounts tax free!



Seer's picture

"Today, my wife's account in FAZ(Financial Short) is up $1,800 on 345 shares."

If you haven't sold then it's only on PAPER!

Eventually one has to put the rubber to the road, apply stored wealth to something.  Storing wealth is easy (PMs), but figuring how to use that precious wealth is where men and boys (or the living and the dead) get separated.

falak pema's picture

I wonder when they will pull the plug on the UK pound; its the hound of the Baskervilles. Maybe after the Olympics; as O'bammy so aptly and ominously said Stox was his olympic games launched against Iran! I hate these Oligarchic shills who go for their gun first; it destroys the myth of Wyatt Earp and what the west in all its tinsel magic of Hollywood represented to my boyhood. TO destroy Gary Cooper, John Wayne, Burt Lancaster and Kirk DOuglas is like destroying the American dream. I don't buy it! 

disabledvet's picture

So much for the happy ending. still...
that's right Planet Earth: FOLLOW THE YELLOW BRICK ROAD!

q99x2's picture

Just say no. And if you can't then get your asses into a rehab clinic.

franzpick's picture

Just announce it: the "Nein-Nein-Nein" plan.

lewy14's picture

I'm so stealing this. Love it.

Overdrawn's picture

Are we there yet? 'Greek Drachma' on Bloomberg ticker (photo)

janus's picture

stunning!  holy shit!  i've been so focused on 'the problems' (piigs) that i forgot about 'the solution' (the new reich).


a lil mood music for 'feculent friday':

the euroarea is in the chair, ready to receive a very agressive 'devil's haircut'

git em', beck!

ps.  wolf, as always, just outstanding reporting and analysis.


got a devil's haircut on my mind/ orgies on the dropout busses,


Commander Cody's picture

Don't forget that it is the worldwide criminal financial cabal who pull all the strings.  Puppet governments will appear to be concerned about their JSPs but, in the end, will enslave them further to the order of finance.

ebworthen's picture

I wonder if German guilt over WWII won't keep them propping the Euro and periphery for too long.

disabledvet's picture

GUILT? They appear to be exacting retribution for losing again!

sampo's picture

What if Germany wants it's PHYZZ in change for co - operation? I'd guess we'd know soon..

Zero Govt's picture

Not a day goes by when the German government isn't under heavy fire from...

Barak Obama  (JP Morgan puppet)

ECB President Mario Draghi  (ex Goldman Sucks)

Italian PM, Mario Monet  (ex Goldman Sucks)

Don't do business with these charlatans Angela..."Run Forest Run"

Seer's picture

But... there's really no place to run to.  Yeah, they can shut the door on all the others (and I'd agree that it makes perfect sense), but that won't return them to the heights of which they climbed during the peak of the World's bubble era.

Countries decoupling that don't have their own physical/natural resources are going to struggle, be somewhat hostage to those that do.

Where's continued growth in export markets for Germany?  China?  India?  Brazil?  As someone else noted (Pods?), Germany is most likely going to be doing a lot more business with Russia, and while this MAY help hold a floor under Germany, it's not in any way a salvation.

Zero Govt's picture

businesses do their own trading internationally, they are not directed in any way by politicians. How much business is done between say Germany and Brazil is determined by hundreds of enterprises, not know-nothings behind Govt desks

this 'frat' is between small groups of political teams, probably not more than 3 figures in each nation and is simply about putting their Govt (taxpayers) on the hook for others countries debts

it isn't rocket science to work out if a bankrupt country cannot pay its debts you shouldn't put your more solvent country on the hook for those losers

friends are friends but sometimes you just gotta let them go learn their own lessons the hard way... Bumma, Draghi and Monti's whinging should be completely ignored 

disabledvet's picture

they're low unemployment and the fact that they got it "made in the shade." As we used to say back in the day "sucks to be you!"

sangell's picture

Yeah right, guarantee banks that hold as 'risk free' assets the sovereign bonds of bankrupt states. The bank deposit guarantee is just Eurobonds through the back door.

Dien Bien Poo's picture

Amen. but possibly the only way out of this?

Germans have to decide between saving the union or becoming un competative. its truly a horible choice but one that will surely mean we see eurobonds before year end.

disabledvet's picture

perhaps "contemplative" is in order then?

Rynak's picture

Fuck international "competition" (more like a slavemaker-competition), when your own domestic market.... your own backbone, is in ruins. I'd rather first get a country in order internally, and THEN consider external politics.... but you know what? This mindset implies that imports and exports - or actually supply and demand inbalances - ARE BAD. It implies - gasp - that the purpose of a market is to balance itself as much as possible.... as opposed to INTENTIONALLY escalating inbalances, so that the "traders" profit in the short-term.

But nooooo, can't have that.... must create maximum internal and external inbalances, so in the short-term profit margins for multinationals are maximized, while in the long-term, the countries sink in debt, so that the global creditors can then shoot the host to pieces, and buy up the bloody bits for pennies. It's like working yourself to death, and then selling your organs for the price of a snickers wrapping.


pissing_excellence's picture

hahahahaha wb7, deluxe hot shit.

Looks like Germany has a groupie problem.

falak pema's picture

So if the US is trying to win the currency war how is making the Euro drop to 1.23 making this master plan successful?

Merkel is right to resist to euro bank bailouts.

Draghi along with Barosso and Van Trumpoy represent that squigly thingie we call GS disease.

disabledvet's picture

a currency war? the Yen's at 78! Nope...methinks "the Americans are trying to win the real war thing again."

Zero Govt's picture

my thoughts too Falak

no politician has the spine it appears to avoid this huge sucking sound.. I hope Merkal puts these sewers in their place and dumps Europe in their own mess 

Ahmeexnal's picture

Draghi: "Dispel this fog"
Bunga Bunga: "That is notte a fog, my sonno molto felice di you have a rag to clean my...."

XitSam's picture

What Draghi meant to say was "Dispel this frog,", meaning France.

williambanzai7's picture

The fog of whores--Twisted Clausewitz