On Merkel's Gamble

Bruce Krasting's picture



What to make of the Merkel visit to Athens today? What was she thinking about? Some possible answers:


A) Merkel is a political genius. She has seized on a historical moment. Ms Merkel’s trip has provided proof that she (and therefore Germany) stand shoulder to shoulder with Greece and its leaders.


She has traveled to a hostile capital in the face of growing dissatisfaction in Germany with the Greek bailout costs. She has, once again, stood defiantly in support of the EU, the Euro and Greece’s continuing in the Union.


Any lingering doubts that may exist about the commitment of the EU leaders toward full monetary union should be eliminated as a result of her State visit.


Draghi has said, “The Euro is forever”. That was a monetary commitment. Merkel’s visit to Athens should be considered a political commitment. Of the two commitments, Merkel’s means more than Draghi’s.





B) Merkel is an idiot. She has created the opportunity for a mass protest. The well-published report of 7,000 police in riot gear made it a sure thing that tens of thousands of people would show up in protest to her visit. She knew in advance that there would be images of the German “Nazis” that are taking over Greece. She also knows that these images will be in every magazine, newspaper and TV in Germany.


If anything, her visit will harden the opposition in Germany. This risks a domestic backlash. If the already fragile support in Germany falls further as a result of her trip, then it could accidentally accelerate a Grexit (quickly followed by Spanexit).


These images will not sit well with Germans:












C) Merkel is not an idiot and she does understand politics. She must see the writing on the wall. She is faced with an election in less than a year. There is absolutely no hope that the Euro crisis will be more stable than it is today. It is nearly certain that it will be worse. Merkel needs an exit strategy. The Athens trip will open a door for her. What's in store for the next 10 months?


I) - Spain will have to accept a formal bailout from the ECB in the not too distant future. The cost to Germany will be in the ten’s of billions. Italy will (probably) fight tooth and nail against an ECB bailout. But the prospect (and the need) for an ECB/IMF - Italy deal will be front and center right at the time of Merkel's re-election effort.


II - Merkel also knows that she has to carry all of the weight from now on. She once had a partner with France and Sarkozy. That partnership went bankrupt; Merkel got stuck with all the liabilities and none of the assets.


III - The new Socialist government of France has taken steps that insure that France will lose competitiveness versus Germany at a very rapid rate. France will become Spain over the next few years. Merkel knows this today. The German people will understand it a year.


Merkel went to Athens knowing full well that her visit would demonstrate the impossible situation that Greece is in. She wanted to see riots in the streets. She wanted the scenes to infuriate the German people. She wanted to force the issue to a boil. She needed to show “Pan Euro” intentions as she already has invested so much in that effort. But her effort was a fake “brave face”; her motivation was to create an excuse for her support to fade as she cedes to the popular “will” that she herself has created.


I’m not sure which one of these is right. I think they cover the gamut of possible scenarios. Whether she intended to or not, it is quite possible that her trip will mark a decidedly negative turning point for the Euro experiment. The FX market isn't happy today.



Note: I don't buy the Citi explanation for the Euro's drop today. (Link) This drop is good old supply-and-demand, not a misread of a screen.



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malek's picture

It is C, but neither of the offered paths is relevant.

I) That is independent of Greece, and today's show doesn't improve Merkel's position when it happens.
II) Factual correct. But nothing a visit of Greece can influence.
III) That is something that likely works in favor for Merkel, just by waiting and doing nothing.

Instead I offer:

IV) The visit was mostly to rub reality in the faces of other important German politicians, mostly from the opposition. Especially Steinbrück will now have a hard time talking arrogant while avoiding all facts.
And maybe, if she really wants to do something for the good of the country and she believes this to be it, Merkel is looking to find partners across the political spectrum to push for a Greek or German exit in the medium term.

MrSteve's picture

Germany has recent, highly instructive experience in supporting the assimilation of socialist cultures. The former East Germany was a huge social support sinkhole for "West Germany".

Now that the capital is back in Berlin, Germany might appear to be its old self again. Germany has domestic issues with its state-chartered Landesbanks and their huge 100:1 leverage supporting state-level policy manufacturing (a full employment policy). Germany decided to run its welfare payments through the manufacturing sector.

Germany is now like Japan in days of yore, where it was publicly stated policy that it must export to survive. Germany looks landlocked but it is really an island-like economy.

Siemens centrifuges and their now-Stuxnet infect PLCs show how necessary any and every big sale is to German manufacturers. Current NFL ads for BMWs starting at $34K and $43K show pretty savvy marketing and the need for big chunks of FX income. The Mini, not so visible due to its lower "efficiencies".

I expect "flow" solutions rather than "stock" solutions for Germany's self interest so a currency revaluation fix in some disguise is in their and our future.

It always shakes out to the oldest common denominator of a medium of exchange and a store of value. The Euro is looking more and more like notgeld every day.


worbsid's picture

Nothing will happen until after the US election.  The fix is in.

chump666's picture

Merkel is a chemist cooking up bullsh*t

Mediocritas's picture

I think it's C while pretending to be A.

Big Ben's picture

Once again, boys and girls, It is spin and leak time:


Merkel's visit may have had both short and long term goals. In the short term, she wants to reassure the Greeks that Germany still wants Greece in the EMZ. (Of course she does, because German banks will be in big trouble if (= when) Greece repudiates its debts. Kick the can, yes we can, kick the can ...)

In the long term, she may be trying to prepare Germans for the eventual departure of Greece or even Germany from the EMZ. When Germans see how she is treated in Greece it probably helps to weaken support for the euro within Germany.


rockraider3's picture

Maybe she was just shopping for a vacation retreat, as there should be some good islands up for sale.

THE DORK OF CORK's picture

I don't think you get this.....

"France will lose competitiveness versus Germany at a very rapid rate"

- what are they competing for exactly ?

Germany and to a lesser extent France produce goods that the PIigs do not need.....

They are called cars, especially the fancy ones.

Look this is how Germany works - it force feeds the PIigs cod liver car oil ,extracting from their domestic demand and rational investment.

In Ireland most of the money production is fiscal in nature , the credit remaining is mainly the BMWs of this world.

BMW Ireland


See finance offers for BMW 1 & 3 (credit only given for diesel cars)



The biggest selling car model this September was the diesel BMW 3. (130 units)
BMW Ireland have been offering 37 month credit packages for both the BMW 1 & 3.
I don’t think Iceland was buying too many BMWs back in 2009 or 2010 – everything went into sustaining domestic demand.

Countries such as Ireland have always functioned as a conduit for the core.

Irish Market share (Jan -Sep)
BMW Y2012 : 4.27% Y2007 : 3.88%
Audi Y2012 : 4.67% Y2007 : 2.89% (rich mens toys increase market share)

Ford Y2012 : 10.8% Y2007 : 11.42 %
Toyota Y2012 : 12.54% Y2007 : 15.22 % (everyman cars decrease ? )

Volkswagen Y2012 : 12.66 % (number 1 brand 2012) Y2007 : 11.41%

Y2007 (Jan -Sep) BMW sales Petrol :3,690 , Diesel : 3,320
Y2012 (Jan – Sep) BMW sales Petrol : 38 ,Diesel : 3,236


Germans can sell more BMW 3Ds in Ireland (770 units this year)
BMW 316d
* Price: From £27,255 (as tested) (UK price)
* Engine: 2.0-litre 4cyl turbodiesel
* Transmission: Eight-speed automatic, rear-wheel drive
* Power/torque: 114bhp/260Nm
* 0-62mph: 11.2 seconds
* Top speed: 126mph
* Economy: 64.2mpg
* CO2: 117g/km

rather then Volkswagen UPS (248 units)
Price: £10,390 (UK price)
* Engine: 1.0-litre 3cyl, 74bhp
* Transmission: Five-speed manual, front-wheel drive
* 0-62mph: 13.2 seconds
* Top speed: 106mph
* Fuel economy: 60.1mpg
* CO2: 108g/km

for 3 ~ times the cost (they both have similar fuel consumption figures) which means more fuel is available for them to waste or invest at home in Germany

If Ireland or even Greece or whatever were early 1980s semi - national economies again they would be buying 10,000 Volks Ups 1 litres for the same German cost of their BMW purchase but burning more Euro oil rations.

Subtracting from German wealth.


The irish car market is very very different from the early 1980s depression........almost the entire car market back then was very small modest /cheap  petrol cars.

The truely Absurd Nissan Qashqai (British made)

is the number 2 top selling “car” model in Ireland so far this year with 3,256 units sold (2,611 Jan -Sep Y2011)
Who the hell is buying these capital & fuel intensive cars ?

This car model alone has bigger sales then the entire 1 litre car market.

the Toyota Yaris dominates the small Irish 1 litre petrol segment.
With 1,908 units sold out of a total of 3,175 units (Jan to Sep)
Volks UP : 248
Opel Corsa : 240
Kia Picanto : 186
Toyota AYGO :124
Skoda citigo : 69

The euro is preventing these PIig countries from sustaining rational domestic demand.

Germany and the rest of the core needs us (The PIigs) more then we need Germany.

They have a serious overcapacity problem.....mercantile states outside of a currency union do worst in a depression as that is where the malinvestment is.

Debeachesand Jerseyshores's picture

Herr Merkel has just fired the first shot in Germany's rear guard action as a prelude to Germany's and the rest of the Northern Tier of EuroZone countries leave the EZ and form their own version of the Northern EuroZone.

123dobryden's picture


Upon becoming president, de Gaulle was faced with the urgent task of finding a way to bring to an end the bloody and divisive war in Algeria. His intentions were obscure. He had immediately visited Algeria and declared, Je vous ai compris - 'I have understood you', and each competing interest had wished to believe it was them that he had understood. Whatever his intentions, "he soon came to realize that Algerian independence was inevitable."

blu's picture

D) Merkel cannot read a departure gate correctly; she got on the wrong flight and ended up in Athens.

bilejones's picture

E) Herr Merkel discover a cheaper out than divorce.

geno-econ's picture

Greece has always been just a holiday/vacation destination for Germany.  Perhaps the message is treat Germany with hospitality or very few Germans will spend their money there in the future. Hospitality means "do as I say,dumkof" .  Without Germany, Greece has no other friends in Europe with deep pockets.  Then again there is always Timmy who is easily influenced

barliman's picture


One would almost think you have never been to Germany, Bruce.

"The new Socialist government of France has taken steps that insure that France will lose competitiveness versus Germany at a very rapid rate. France will become Spain over the next few years. Merkel knows this today. The German people will understand it a year."

Having spent enough time in Germany to appreciate how well educated and read the average citizen is compared to the U.S. (Hony Boo Boo - need I say more?), I know this was intended as a snarky bit of sarcasm. The average German is far more concerned TODAY about the EU/euro situation than any other citizen of any other country in the world. Merkel is trying to get back in front of her electorate (especially vis a vis France) so she can lead them.

 "Merkel went to Athens knowing full well that her visit would demonstrate the impossible situation that Greece is in. She wanted to see riots in the streets. She wanted the scenes to infuriate the German people. She wanted to force the issue to a boil. She needed to show “Pan Euro” intentions as she already has invested so much in that effort. But her effort was a fake “brave face”; her motivation was to create an excuse for her support to fade as she cedes to the popular “will” that she herself has created."

Having lowered the bar in the first quote above, you then neatly step over it in the second. Yes, Frau Merkel wanted a clear demonstration of unappreciative Greeks and she knew full well she would get one.

The Merkelstein Monster's goal, however, is more direct and to the point than what you suggest. She got from the Greeks the desired response. Now, she needs to "get ahead" of where the German collective mind is headed and push for GERMexit ...

... being seen as "seizing the moment" and abandoning the southern Europeans and France to their collective bankruptcy will refresh her political capital and cement support for Germany exiting the EU/euro before Greece, Spain or any other member state starts a race for the "EXIT".

What's the internet meme? "Not sure if entirely her idea .......... or if it is 'guidance' from Goldman Sachs?"

walküre's picture

Germany invented Goldman Sachs!

The Golden Rider ... I was so high up on the ladder and then I crashed

Lloyd Blankfein is the love child of Adolf Hitler and Ayn Rand. Damnit!

barliman's picture


Excellent! Thank you for the link.

falak pema's picture

The upcoming electro-shock in France with the fiscal discipline imposed, will show us if the French model has resilience. Its a race to bottom so there are many issues possible depends who screws up first.

The French have a model which is now state side overweight. It needs to be thinned down and Hollande will pay a heavy price if he doesn't shed more state expenditure in 2014. His 2013 budget is decided and it does not cut down enuff on state expenditure. 

That is clear as daylight as he did make campaign promises to his state side constituents, to get elected. It will NOT last more than 1 year. More important he is being obliged to reduce corporate social contributions to salaried personnel by 40 billion in 2013/2014 which means fiscal pressure will not diminish but private business productivity will increase.

Competitivity is important and this is now coming back on agenda. Its time to increase the working hours schedule pulled back from 39 h/week to 35 hours/wk. But this will be left to industry to renegotiate on sector per sector basis with the trade unions, if the unemployment gets worse. 

Humble pie and belt tightening. The socialists will renege all their electoral promises within one year! 

disabledvet's picture

I give France two weeks...not two years.

barliman's picture


I have no disagreement with your analysis over the one year time period.

But I am curious, how you think Hollande/France play out if Germany exits the EU/euro in the next 3 - 4 months?

falak pema's picture

If either Germany or France leave the Euro its the end of it and more likely the Euro will split into two blocks north and south, with a market mechanism, like of old pre Maastricht, but with two currencies and some sort of linkage for trade outside EU.

It won't compromise the EU in the longer term if they keep their heads screwed on but it will kill the Euro. Its consequences to German and French banks as to world finance are incalculable. There will be blood as the pain will be huge. 

We are in unchartered waters bigtime. 

In any case, either way we are in unchartered waters. 

disabledvet's picture

Germany is the euro...the euro is Germany. Move along...

falak pema's picture

one eyed and the  blind...

andrewp111's picture

Maybe Berlusconi (my favorite European politician) will make his comeback and pull Italy out of the Euro.  That will pull the plug and force "the burning building with no exits" to collapse.

bobbydelgreco's picture

all politics is local so bruce the answer is c she has to bolt before italy hits the fan

bobbydelgreco's picture

all politics is local so bruce the answer is c she has to bolt before italy hits the fan

crzyhun's picture

Bruce, an outlier will pull this into a vacuum. China? Not powerful enough to capitalize, and too fragile; they could affect interest rates. The common man, as in Greek, or Spanish man in the street call it quits. Cession of Caledonia? Perhaps an assassination? Archduke Ferdinand type of event. A computer malfunction like in the movie Terminator...

Who knows?

Tombstone's picture

Merkel can do whatever she wants.  When push comes to shove, rest assured,  the EU can depend on Benny to provide QE-U as a prop.  Who else has the bucks and the agenda to keep the world-wide fake money balloon afloat?

kaiserhoff's picture

Benny go Bye-bye.  Run, Ben, Run

jg's picture

Cool mask, Bruce, but I wanted graffiti!

Very nice layout of the possible thinking of Frau Merkel, sir.  The third makes sense to me.

walküre's picture

If her plan was to motivate Grexit, then the Greek's comparing her to Hitler have made their point. Unknowingly.

That would be purely evil genius. Time will tell if she succeeds. Germans should consider then how quickly and easily they can still be moved into a certain corner and direction. Not that it's exclusively reserved for Germans to live by propaganda and die by propaganda.

pashley1411's picture

As has been pointed on this site, many times, once you take the red pill, the best possible solution is if the Greeks kick themselves out.     Win for them, win for you in the next election.

Village Smithy's picture

Merkel went to Greece to deliver bad news the way it should be delivered, directly and personally with no fumbling intermediaries. Grexit in 3...2....1...

kaiserhoff's picture

As the Jews say, from your lips to god's ears.  About damn time.

kaiserhoff's picture

If the Greeks are going to play like that, Frau Merkel should pull up her panties and go home.  (with the money)

billsbest's picture
While the international bankers have goaded the world public to malign and hate Angela Merkel to 'save' the eurozone regional government, our very own Fed still has not repatriated Germany's gold reserves despite pleas to do so from the German people!
The US Fed Has Stolen the German Bundesbank's Central Bank Gold Reserves


Wakanda's picture

Bruce, I'll take door C.  Angie needs a teargas smoke screen to fade Greece. Those riot images on German screens will give her the political torque to "git r dun".

optimator's picture

They should have picked her up at the airport with a Mercedes 770K for effect.  (She won't fit in a Kubelwagon).

Cpl Hicks's picture

How about letting her drive a turbo-powered Kettenrad around Syntagma Square in a black garter belt waving a riding crop at the crowd?

jag's picture

Nothing better to demonstrate to the German people that its a waste of time and money to try and support Greece than to have Nazi clad idiots rioting in the streets to protest Merkel's visit. 

All the supporters of the Euro, save the elite bureaucrats who populate the EU boards and sinicures, know the writting is on the wall. The only questions are when it will happen and how to make it happen with plenty of popular support. The Euro was shoved down most of Europe's population without popular referrendum. Its not bloody likely this anti-democratic stunt will work again. 

Kiwi Pete's picture

Not only that Jag, it will completely crush the Greek tourist industry as few Germans will want to holiday there. Garmans were at one stage their biggest market for tourists. Not so much now. Talk about an own goal!

falak pema's picture

Greece, the little pebble in the heel of the German banks; and its been going on for more than two years.

Tells you all, the fragility of the banking cobweb. Has she a solution; for Greece as for all the others?

You bet she doesn't, so whats the problem! 

ECB prints, prints, prints.

Jack Sheet's picture

1. Greece will not be allowed to leave the Euro: the debt must be maintained in EUR terms with the entire country including for example the income of the next 5 generations and Aegean oil and gas reserves as collateral. If Greece leaves the Euro it will be bought u p by Russia (see Cyprus) and China.

2. Merkel assures the rulung political parties that their pockets will continue be lined with printed money, and f*** the common populace.

3. A PR "cunning stunt" into the bargain 

falak pema's picture

Its been pre-planned, the Greek debt will be kicked to eternity, the printing ensures it.

Meanwhile the greeks will be in regime change which will make normal folk become like matchsticks. 

The opposite of the fatso people's regimes that reign in northern countries. 

A third world enclave in a continent now condemned to slim fast like fish thrashing out of water. 

Will the Euro survive, difficult to say, it was wrongly conceived, but now its a political thing, the stuff that legends and wars are made about. Reason has nothing to do with it. It could be the rallying cry; like Papist Welf and Hohenstaufen Ghibellines in olden days.

People either coalesce around Europa or they break apart. If the US loses it pre-eminence the Central Banking model, now seeing the light of day to the detriment of entrepreneurial markets, corresponds better to the Euro-Sino-Indo Asian mindset. As it does to Brazil/Venezuela/Russia political construct today. Europa is a "diluted",  central planned model, under democratic control,  with a smaller component of private entrepreneurship than the "old" US model now deep in trouble. This is all now occuring as a result of PAx Americana morph into Oligarchy land, more monopolisitc than old Euro economies, more hegemonic than Pax Britannica of old. What the US hubris has sowed it will now reap.

The death of financialised captialism, the death of Pax Americana Oil strategy; if the kingdom of Saud implodes; could herald a world order that Bush Snr, GWB, Daniel Pearl, PAul Wolfowitz, Donald Rumsfeld, Dick Cheney, didn't dream of when they launched NWO crusade, Clash of civilization to chastise renegade ex-Cia operative Saddam Hussein, like they would do subsequently with Bin LAden-Talibans clique in Pak/Afghan, Frankensteins of their own creation, (you can't invent that type of hubris it has to be seen to be believed),  but which they heralded in, as catalysts to a chain reaction that is beyond the control of their successors; in the current meltdown. 

Now all three threads of US hegemony are compromised : the money thread of USD hegemony, the MIC/OIL hegemony and most vitally the economic model which has been outsourced to allow WS to surf on Apple-Wal MArt type delirium, the death of industrial heart of America. The unkindest cut of all as it destroys the middle class and democracy.

What more needs be said...the Founding Fathers, men who glorified civilization, must be turning in their graves.


disabledvet's picture

it's just a piece of paper. nothing more.
nothing less either.

Popo's picture

The problem ultimately is chaos theory.  Only a small fraction of variables can be accounted for at any given time, even if Merkel believes she has planned accordingly.   Randomness is a bitch.  Sorry Angie.

BandGap's picture

Even if all the variables are known, it is the second and third order outcomes that will start the wobble. The slight misperceptions and their outcomes are what will get the ball rolling.  Snowballs start with the smallest of flakes.

Is this the week we are looking away from SE Asia?