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How and Why Germany Can Leave the Euro If It Has To

Phoenix Capital Research's picture




 

For months now I’ve averred that Germany can leave the Euro if it needs to. It is clear Germany does not want to leave the Euro as doing so would:

 

  1. Mean it taking the blame for the collapse of the Euro and EU.
  2. Create a systemic Crisis in the EU banking system.

 

We must remember Germany’s place in the political strata of the EU as a whole.  Aside from the fact that Europe’s history is replete with wars involving Germany, we must also remember that WWII was not that long ago. Indeed, most of the major European political policies implemented in the last 80-90 years have involved limiting the possibility of a German-lead Europe.

 

As a result of this, Germany cannot afford to be seen as the reason for the collapse of the EU. For this reason, Germany, as much as it hates footing the bill for various bailouts, will not want to leave the Euro unless it absolutely has to.

 

Thus Germany’s “Plan A” in dealing with the EU Crisis has consisted of offering bailout funds to Greece and others under conditions so onerous/ offensive that it was highly unlikely Greece or other nations would be willing to submit to them.

 

However, the PIIGS in general are so desperate for cash that for the most part they’ve accepted Germany’s terms. As a result of this, Germany has found itself footing the bill for deals that most German voters are furious over.

 

In the midst of this already tenuous situation Germany is also trying to balance its relationship with the “pedal to the metal” debt-monetizer that is the ECB. Having already seen what happens after rampant monetization (Weimar) Germany is none too pleased about the ECB expanding its balance sheet by over $1 trillion in a mere nine months.

 

However, what choice did Germany have? It doesn’t want the EU to collapse anymore than anyone else. So Germany did what any sensible entity would do when faced with a situation that offers no positive outcomes: it began to develop “Plan B”: protecting itself once this whole mess comes crashing down.

 

“Plan B” consisted of two parts:

 

  1. Writing legislation permitting it to leave the Euro but not the EU
  2. Reactivating its Sonderfonds Finanzmarktstabilisierung - Special Financial Market Stabilization Funds, or SoFFin for short.

 

The SoFFin is essentially Germany’s emergency bailout fund for times of Crisis. It was created in October 2008 to help the German financial system get through the 2008 Collapse by allowing German banks to dump toxic mortgage assets and other items into the fund so they could clear their balance sheets.

 

Once things improved, SoFFin was essentially put on hold in December 2010. But in the last three months, Germany has brought it back. And it’s brought it back with one very crucial difference:

 

            Germany Approves Bank Bailout Bill

 

The SoFFin will give up to €400 billion ($524.24 billion) in guarantees for banks and provide up to €80 billion for recapitalization. The fund, which for the first time will accept euro-zone government bonds, will be operational until Dec. 31 2012.

 

http://online.wsj.com/article/SB10001424052970204573704577184362262410868.html?mod=googlenews_wsj

 

This is the mother of all bombshells in Europe and no one is talking about it. Germany basically announced that it will allow German banks to DUMP euro-zone government bonds off their balance sheets. It also announced it will provide up to 400 billion euros in backstops and 80 billion euros for bank recapitalization.

 

So Germany will put up 480 billion to backstop its own financial system. Just like that. This is the same country that has to be dragged kicking and screaming into raising any additional funds to defend the EU.

 

Still think Germany will be posting money for Spain and Italy?

 

So if you’re not already taking steps to prepare for the coming collapse, you need to do so now. I recently published a report showing investors how to prepare for this. It’s called How to Play the Collapse of the European Banking System and it explains exactly how the coming Crisis will unfold as well as which investment (both direct and backdoor) you can make to profit from it.

 

This report is 100% FREE. You can pick up a copy today at: http://www.gainspainscapital.com

 

Good Investing!

 

Graham Summers

 

PS. We also feature numerous other reports ALL devoted to helping you protect yourself, your portfolio, and your loved ones from the Second Round of the Great Crisis. Whether it’s a US Debt Default, runaway inflation, or even food shortages and bank holidays, our reports cover how to get through these situations safely and profitably.

 

And ALL of this is available for FREE under the OUR FREE REPORTS tab at: http://www.gainspainscapital.com

 

 

 

 

 

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Thu, 04/12/2012 - 19:37 | 2339917 corxi
corxi's picture

Germany will fight tooth and nails to keep the euro afloat, be under no illusion. A scenario of Germany leaving the euro is not on, in my opinion. Who will buy their cars? Italians (one of the biggest markets for Germany) Spanish, Americans? With a strong mark? No. These markets will turn to Japanese cars which are just about to become a lot cheaper...

Thu, 04/12/2012 - 18:23 | 2339669 Muppet
Muppet's picture

It seems so obvious that Germany is the one country that could leave the EU.   Been saying that for a while.  

Thu, 04/12/2012 - 17:35 | 2339523 toadold
toadold's picture

"We are all manly men on the good ship EUropa and too show you how manly we are. we are going to have our good friend Hans the German tax payer bend over and take it like a man."

Thu, 04/12/2012 - 14:29 | 2338814 Bennie Noakes
Bennie Noakes's picture

There is no way that Spain or Italy can be bailed out if the bond vigilantes decide to make a determined attack. In fact, even Greece wasn't really bailed out successfully since Greek government bond investors were forced to take major haircuts. And Greece is a very small nation which ran into trouble before bailout fatigue set in.

So ultimately I think the Germans will be forced to choose between a euro breakup, or allowing the ECB to print at will. Given the German socialist tendencies and the age-old dream of "one Europe under Germany", I think they will decide to let the ECB print.

Thu, 04/12/2012 - 16:29 | 2339279 Ghordius
Ghordius's picture

Yes, yes, NO (why should this be a "dominance" relationship? Can't sister nations just cooperate?). And yes, I also think they'll let print as much as needed.

Thu, 04/12/2012 - 13:56 | 2338686 Jack Sheet
Jack Sheet's picture

And all this going to happen.................................. some time between 2013 and 2020. To get the month, subscribe to the special report.

Thu, 04/12/2012 - 17:04 | 2339406 SAT 800
SAT 800's picture

The Special Report is Absolutely Free! Unfortunately, that's quite a bit more than it's worth.

Thu, 04/12/2012 - 18:05 | 2339619 richsob
richsob's picture

Then don't read the damn things.  Or you can attempt to write something better and we'll take a look at it and let you know if it was any good or not.

Thu, 04/12/2012 - 13:36 | 2338623 toadold
toadold's picture

Germany, where you have to pass a test to get your license to play golf.

Germany where you can find people in the Protestant parts and the Catholic parts still carrying paper against each other over the 30 years war.

Germany where the voters are starting to get a tinsy bit upset with their elite and can be heard humming "Morning Red" the traditional clavary, let's ride out and kill someone song. 

 

 

Thu, 04/12/2012 - 12:53 | 2338475 Bartanist
Bartanist's picture

I have been very impressed with the German people and industry over the many years that I have been traveling there.

This fall at a trade show there was a two day session on new battery technology, where the main topics were not only the technology itself, but what would/could GERMANY'S role be in the market. (It was generally agreed that Germany could not compete on labor, but could be the supplier of automation equipment)

Germany is at the center of alternative power (guess they don't like being slaves to foreign owned oil companies with foreign reserves). They have taken care of their nuclear waste issues. They have a strong preference for trading internally between German companies.

Germany will do fine. They are the ants. The US is the grasshopper ... and winter is coming.

Thu, 04/12/2012 - 13:36 | 2338622 Uchtdorf
Uchtdorf's picture

All those Turks in Germany just gonna go home when things get tight? It's a wee bit premature to declare that Germany will do fine. 

Thu, 04/12/2012 - 16:24 | 2339263 Ghordius
Ghordius's picture

They do valuable work for products and services of value.

Thu, 04/12/2012 - 18:19 | 2339659 Wolferl
Wolferl's picture

Lol, good one.

Thu, 04/12/2012 - 12:14 | 2338308 q99x2
q99x2's picture

Germany. I wanna go.

Thu, 04/12/2012 - 12:13 | 2338302 MGA_1
MGA_1's picture

Umm... how did this guy get such and inside track on zerohedge?

Thu, 04/12/2012 - 11:51 | 2338177 skepticCarl
skepticCarl's picture

Graham, at the end of your articles, I keep expecting a "Wait! there's more!  If you sign up right now, you'll get a free set of steak knives!"

Thu, 04/12/2012 - 20:10 | 2339993 cbxer55
cbxer55's picture

I'd sign up if he threw in a free Fleshlight.  ;-)

Thu, 04/12/2012 - 13:40 | 2338639 Treeplanter
Treeplanter's picture

I bought into the first level, money well spent.  Need to cash in on the crash so I can buy more miners and metal.  Harvey Organ posts his articles.  That's why I gave him a shot.   There's truck parking here and a Thai restaurant.

Thu, 04/12/2012 - 12:06 | 2338259 WhyDoesItHurtWh...
WhyDoesItHurtWhen iPee's picture

 

 

but thats not all!

you also get a one year supply of gartanyas onion rings!

Thu, 04/12/2012 - 11:37 | 2338079 Dr. Crime
Dr. Crime's picture

One problem for Germany if it leaves the Euro, adopts the mark, which then skyrockets in value is who is going to buy the BMWs? What used to cost 100k euro now costs 120k euro if the euro depreciates against the mark. Sure the German market will pay in marks but exports which should a large portion of sales? Or am I missing something here? 

Tue, 07/10/2012 - 00:33 | 2601150 ndrewoods
ndrewoods's picture

Yeah, I do see your point on this. And I do agree. Sales will depreciate if such thing happen. Sales for BMW parts will as well decrease. Why is Germany leaving the Euro? What seems to be the problem?

Thu, 04/12/2012 - 14:29 | 2338815 schatzi
schatzi's picture

Partly.

1. Remeber Germany were export champions BEFORE the Euro. The Euro just made things even easier.

2. The major multinationals have some of their production facilities in all their major export markets.

3. A stronger currency makes exports more expensive, but also makes imports cheaper. Germany as a major energy and commodities importer will benefit quite nicely.

Thu, 04/12/2012 - 11:45 | 2338139 Zero Govt
Zero Govt's picture

yes you're missing exporters hedge their currency

it's another political myth weak or strong currency policy effects imports/exports

Thu, 04/12/2012 - 12:04 | 2338250 Chump
Chump's picture

Seems exporters hedging their currency is a reaction to the effects on imports/exports from monetary policy, no?

Thu, 04/12/2012 - 11:54 | 2338192 skepticCarl
skepticCarl's picture

Zero, the exporters might hedge currency risk, but the buyers of those expensive BMW's will ultimately see higher prices, and turn towards a lower priced auto.

Thu, 04/12/2012 - 13:34 | 2338611 Uchtdorf
Uchtdorf's picture

Whereupon those crafty engineers at Bavarian Autowerks make a less-expensive model, nein?

Thu, 04/12/2012 - 16:24 | 2339264 Element
Element's picture

Nein, if people run to commodities then imput prices will go up ... This must be off-set by lower wages and conditions , and/or lower taxes .... to cover rising deficits. Plus you need major reinvestment for retooling ... Which comes from a bank ... And you need time and steady demand for that ... Especially if you got it wrong with the last model.

Thu, 04/12/2012 - 15:16 | 2338997 Dave Thomas
Dave Thomas's picture

BMW 325i Bitchez!

Thu, 04/12/2012 - 16:30 | 2339284 LowProfile
LowProfile's picture

More like 0.325i...

Kiss your profit margins bye-bye...  I mean, auf widershen.

Thu, 04/12/2012 - 11:24 | 2338012 Clowns on Acid
Clowns on Acid's picture

Uh Oh...Bobby Brusca is going to be really pised off at Germany for not allowing the PIGS to drag them down to their level of socialism.

 

Thu, 04/12/2012 - 11:49 | 2338154 Azannoth
Azannoth's picture

Germany has socialism up to it's eyeballs, the only difference is that Germans are/where stupid enough to actually work to support it, this might be the final straw as Germans see their hard earned Marks go not to their fellow Germans but lazy Greeks and other bums. It's one thing for a German to support a German bum another a foreign bum

Thu, 04/12/2012 - 11:40 | 2338106 Zero Govt
Zero Govt's picture

yes indeed

and at the mo, anyone could potentially pull the plug on Europe, from Greece to Germany itself all the way across to ireland ..it's all looking a bit shakey

Thu, 04/12/2012 - 11:21 | 2337990 Charles Wilson
Charles Wilson's picture

Bring back Alaric 1 and the Visigoths!

 

CW

Thu, 04/12/2012 - 11:15 | 2337943 False Capital
False Capital's picture

Leaving the euro is win-win for the Germans. A reintroduction of the Mark would see it rapidly appreciate, thereby devaluing Germany's euro denominated debt. Debt-free Germany, plus a load of gold in the bank (Ok, imaginary paper gold in the New York Fed, to be accurate).

Thu, 04/12/2012 - 11:42 | 2338123 skepticCarl
skepticCarl's picture

A rapidly appreciating Deutschmark would hurt its exports, so let's call it a win-win-loose.

Thu, 04/12/2012 - 13:55 | 2338684 gorillaonyourback
gorillaonyourback's picture

you stated half the story,   its relative to what the euro,,, yes.   Its is not relative to the the renimbi or the rouble.....    Once the germans think that no more business can be done with the pigs they will exit the euro

Thu, 04/12/2012 - 12:25 | 2338360 DavidC
DavidC's picture

Both valid points though skepticCarl.

DavidC

Thu, 04/12/2012 - 11:01 | 2337879 The Reich
The Reich's picture

The only thing I know is that you have no clou about Germany.

Thu, 04/12/2012 - 16:34 | 2339296 battle axe
battle axe's picture

Be careful, the Gestapo is watching you!! Oh sorry I mean the Fed.

Thu, 04/12/2012 - 16:05 | 2339179 BeetleBailey
BeetleBailey's picture

Fahrvergnügen bitchezzz!

Thu, 04/12/2012 - 13:28 | 2338594 Uchtdorf
Uchtdorf's picture

Don't worry, Inspector Clouseau is on the job.

Thu, 04/12/2012 - 11:53 | 2338188 Azannoth
Azannoth's picture

The 1st thing to know about Germany is that is it run by a bunch of treacherous traitors not patriotic Germans, hence all bets are off and you can assume that the German politicians will do what's best for Germany as much as you can assume that Congress will do what's best for America

Thu, 04/12/2012 - 13:01 | 2338498 Bartanist
Bartanist's picture

That may be true, but the German people are more united, sane and adult (other than the Munich football fans). Their problem is that they have only been given bankers' choices for government.... but in the background the infrastructure has been created for them to survive better than the rest of the world in a crisis.

Thu, 04/12/2012 - 12:42 | 2338448 Motorhead
Motorhead's picture

Say, how's Gerhard Schröder doing over at Putin's Gazprom?  Wasn't Schröder out of office for about 20 minutes before being hired by Vlad?

Thu, 04/12/2012 - 11:45 | 2337929 LowProfile
LowProfile's picture

Please explain, because it seems like he actually made a pretty good point.

(crickets...) : /

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