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Germany's Fear And Desperation Leak Out
Wolf Richter www.testosteronepit.com www.amazon.com/author/wolfrichter
A hullabaloo erupted between France and Germany that both governments are trying to silence to death. According to unnamed sources of Zeit Online and Reuters, German Finance Minister Wolfgang Schäuble broached an unprecedented topic with the members of Germany’s Council of Economic Experts on Wednesday when they presented their Annual Report. In its 49-year history of advising German governments, the Council has never delved into policy proposals for other countries. And yet, Schäuble asked them: Could they produce a reform concept for the troubled French economy?
The French, who are currently engaged in national soul-searching and navel-gazing to halt their declining “competitiveness,” were not amused. The office of President Francois Hollande wrapped itself in silence. Prime Minister Jean-Marc Ayrault brushed it off. The German Ministry of Finance declined to comment on “unofficial discussions.” Council Chairman Wolfgang Franz backpedalled: “That’s largely misinformation,” he said. “An order for a Special Report is not even in the most distant sight.” He figured that the French government “wouldn’t tolerate something like that.”
Nevertheless, he said, the government is highly interested in reform ideas that would make the monetary union more stable. And it is in this context that the Council would “think about France” in December. After which they would talk again with Schäuble, he said.
But the Council is already “increasingly worried” about the economic developments in France, admitted Council member Lars Feld when he presented the Annual Report to Schäuble. “The largest problem isn’t Greece anymore, or Spain or Italy, but France because France has done nothing to rebuild its competitiveness and is even heading in the opposite direction.” He didn’t mince words. “France needs labor market reforms,” he said. “It is the country among Eurozone countries that works the least each year; so how do you expect any results from that?”
The problems are piling up in France. While central government spending—56% of the economy!—is expected to remain relatively constant and provide some stability, the private sector is deteriorating with breathtaking speed. Every day, new evidence seeps out.
On Friday, it was an Insee poll of CEOs in the manufacturing sector. They’re cutting investments in plant and equipment in the second half. In 2013, they would reduce their investments by an additional 2%—though in the previous poll in July, they’d planned on increasing their investments by 5%. A harsh reversal [one that has been playing out for months; read... Worse than the Infamous Lehman September: France’s Private Sector Gets Kicked off a Cliff].
Then the Bank of France released an estimate for fourth quarter GDP: it would shrink by 0.1%. For the third quarter, it also estimated a decline of 0.1%. If these figures are confirmed, France entered a recession in July. Five quarters in a row of total stagnation, a first in France’s post-war history!
The Germans are concerned. France bought €101 billion of German goods in 2011, or 10% of total exports. But German exports fell 2.5% in September, and exports to the Eurozone crashed 9.1%. Germany has been through this before. Its economy lives and dies by its exports [The Noose Tightens on Germany’s “Success Recipe”].
Schäuble must feel the pressure. But fear of a dip in exports to France might not be enough for him to risk a diplomatic confrontation with his most important neighbor. He certainly wouldn’t want to stir up, without good reason, even more accusations of meddling and Teutonic arrogance. So why this unusual request?
Fear and desperation within the government about a much greater threat. The credit markets, which are currently sleeping through the French private-sector fiasco, might wake up someday—as Greece found out, it can happen suddenly—and demand much higher yields. Even if still digestible for France, it would likely throw Spain over the edge, and Italy would follow. Or the markets might walk away from France entirely.
France is too big to bail out. If the debt crisis suddenly arrived in Paris, only all-out, no-holds-barred, unrestricted bond-buying operations by the ECB could save the euro. But it would violate even the last pretense of treaty-based limitations, and would in the process debase the euro. While this might please some countries, including France, it would enrage German voters who might take out their anger on Chancellor Angela Merkel and her government. And that strikes terror into their hearts.
Alas, she still has big plans. On Wednesday, she addressed the European Parliament, the only democratically elected European institution—by design, an emasculated one. There, she laid out her ideas on how to bring European nations together to where their budgets and other national prerogatives would become part of her “domestic policy.” And she’d be on top of the heap. For that whole debacle, read.... Merkel Has A Dream.
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mnoga dirma?
It's all fun and games until Xi Jinping commissions a study on economic improvements for the US, and sends his boy to speak for Timmay at press conferences.
Sorry Dork. there is no conventional tactic the French can apply: franc, devaluation, revaluation, depreciation, invade Germany, start eating sausages, etc. All will fail.
The problem is not in Paris, Berlin, Hamburg, Brussells or even Wall Street (a large contributor to Europe's woes), rather the problem in the entire continent is at the end of its driveways. Until the cars are gone the European countries will continue to collapse until the entire Continent is a gigantic failed state. The only change is at the end of the cycle the collapse process will accelerate as is underway in Greece.
Europe is in the process of becoming Yemen: a collection of warlord duchies, attempting to survive on the good-will of other (hopefully) surplus countries and what can be produced with so-called 'organic' (non-petroleum) agriculture. The Continent's 'wealth' (accessible surplus capital) has been exhausted into the fuel tanks of hundreds of millions of useless automobiles as well as other pointless conveniences (i-garbage, flat screen TVs, airports, 'vacation' resorts, freeways, militaries, etc). Capital is gone, there is no replacement on the Continent, there is insufficient money capital and Europe cannot borrow any more because it is insolvent ... (because it cannot borrow any more!)
Not only: nobody will buy Europe's hundreds of millions of used cars (new car sales are collapsing), the Europeans have nothing to offer anyone. Meanwhile, Europe becomes car-free the hard way, by total economic collapse rather than by voluntary conservation and the elimination of private, 'convenience' vehicles.
There is no way out of the current situation for either France or Germany ... nor anyone else. If Americans believe they are immune they are fooling themselves. Right now the smart Europeans are voting with their feet: car sales and petroleum consumption are shrinking. The dumb Europeans are having their feet chopped off. That is the choice as it stands right now.
To escape its fate, Europe must shrink its gross energy consumption (mostly petroleum) by at least 2/3ds ... instantly, starting tomorrow. The rest of the world must do the same: don't worry it's all going to happen and nobody is going to like it ... tough shit.