Pushing The Euro To The Brink

Wolf Richter's picture

“There is no more risk that the euro will implode,” declared French President Nicolas Sarkozy on Friday, two days before the first round of the presidential election. Europe is “recovering,” he said desperately. Thanks to his leadership. To make sure that Europe doesn’t fall back into the hole, the French would need to reelect him. A few weeks ago, he’d proclaimed “The crisis is finished.” But Spain may require an emergency bailout of such proportions that the IMF is already collecting hundreds of billions of dollars from around the world. Then there is Italy....

However, François Hollande, the socialist challenger and likely winner, has a prescription for fixing the very crisis that Sarkozy declared finished, he confirmed on Friday. If elected on May 6, he would immediately set out to implement his ambitious plan—though it might lead to the break-up of the Eurozone.

He’d renegotiate the fiscal union pact, a hastily drawn-up document that is supposed to induce budgetary discipline into the 25 governments that signed it in even greater haste. The pact is German Chancellor Angela Merkel’s grand oeuvre. She forced it through at the height of the crisis. But Hollande wants to include provisions for additional government spending and borrowing, his “measures of growth,” and he’d block ratification of the pact if he had to.

Then he hammered home just how serious he was in pushing the ECB to print money and lend directly to the governments. “It’s incredible that the ECB floods the market with liquidity,” he said, and that the “banks borrow from it at 1% and re-lend to the States, specifically Spain, at 6%.” Oops, he saw the 5% spread. A breath of fresh air. A politician who looks at the numbers!

“There comes a moment when one can no longer accept phenomena of that kind of income,” he added with an eye on the €1 trillion that the ECB lent to the banks via its Long Term Refinancing Operations. “It would be more judicious, more efficient, and faster for the ECB to lend” directly to governments “as first and last resort.” In other words, he wants to cut out the middlemen, namely the banks. And he has his eyes open: “I know that the Germans are totally hostile to this; well then, this will be part of the negotiation.”

But he is dreaming; in Germany, frustration with the ECB’s bond purchases caused two well-regarded German central bankers, Axel Weber and Jürgen Stark, to resign from the ECB last year. The €1 trillion LTRO actions have heated up opposition to the ECB. And now, the battleground is the “Target 2” balance of €800 billion, of which €635 billion is owed the Bundesbank. Long swept under the rug, then declared harmless while mushrooming unchecked, it is now inciting a rebellion of sorts in Germany. Read.... Bundesbank Gets Sued for Perfidy.

Thus, the conflicts between the ECB and the Bundesbank, and now the German government, can no longer be bridged with soothing words. Former German central bankers are shaking their heads in dismay, wondering if ECB President Mario Draghi will ever draw a line as the ECB, tangled up in sovereign debt and bank bailouts, is abandoning its treaty-set monetary stability priority—and its independence.

Exactly what the Southern European countries, including Draghi’s Italy and Hollande’s France, demand. They’re in the majority. An eternity ago, the Bundesbank with its 27.1% share practically controlled the ECB. No longer. Yet Germany has its own issues. After nearly two decades of declining real wages, a stagnating economy, and high unemployment, optimism has set in and is driving internal demand, even as the powerful export machine has slowed down a notch. Inflation is raising its ugly head. And central bankers see a nascent housing bubble—and the blood-letting that will follow. Read.... Now a Housing Bubble in Germany.

Germany needs a tighter monetary policy—which would be the last straw for teetering economies like Spain and Italy. While the ECB is contemplating even more purchases of sovereign debt, the Bundesbank wants it to exit from its existing positions. And the time frame for the exit is one year.

Just enough time for Hollande to get his feet wet. He is already building alliances to be able to hit the ground running. “I have met with many European heads of State, and hardly anyone is satisfied with the economic situation,” he said in an interview. “I’m not isolated. A common initiative is possible.”

He might succeed in building enough momentum to push the ECB where he wants it and put the fiscal union pact back on the table. Despite his reassurances—“No matter what happened during the campaign, if I’m elected, my first visit will take me to Germany”—his policies are anathema to Merkel’s government and the Bundesbank. And the unity of the Eurozone could be at risk.

Already, there are numerous other conflicts, particularly over taxpayer-funded subsidies. The latest is the nuclear power industry that is going after taxpayers—in other countries. For that ingenious plan that once again pits France against Germany, read.... Suddenly a Nasty Fight over Subsidies for Nukes.

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steve from virginia's picture


Last gasp of the Ancien Regime ... Hollande, Merkel, Flannel-mouthed liar in London, blow-up doll in Washington ...

Funny what isn't noticed hiding in plain sight: the Europeans demand the system be bailed out. Whom do they ask? Pensioners.

Why not more machines? If machines were productive, wouldn't deploying more machines solve the economic problems around the world rather than deploying more pensioners?

Just askin'?

Joebloinvestor's picture

What does his wife look like?

walküre's picture

“banks borrow from it at 1% and re-lend to the States, specifically Spain, at 6%.” Oops, he saw the 5% spread. A breath of fresh air. A politician who looks at the numbers!

Is it really that simple, cut and dry? Could be that Sarkozy is using a populist axe to elevate himself at the expense of the banks? He's playing with fire either way.

The cat is out of the bag. Once people realize that they're working exclusively for the banks. That their incomes are directly supporting bankers and their lavish lifestyles, the bank bonuses and the bank's business escapades it is


Banks vs. People. Elite vs. People.

Banks and Elite lose all the time unless they're forming strategic alliances with the emerging people's leadership. Alas many of the bankers and elites will perish. So is the course of history.

theprofromdover's picture

Falak- you seem to know what you are talking about, keep going.

Shah was not pulled by the people, US did it when they found out he had decided to stop taking dollars for oil.

US State Dept thought Khomeini would take Iran back to the Stone Age for a few years and then get bounced.

US State Dept have basically got everything wrong in the past 80 years. Between them & Wall St, they destroyed the American Empire.

eddiebe's picture

If nothing else the Euro sure serves the dollar well by taking on the ' bad cop' role in the ' good cop bad cop routine'.

irishlink's picture

Thats is called hiding in plain sight. To prevent the dollar from loosing it's reserve status the USA will push Europe to the brink and the rest of the world will have new respect for the almighty buck. It would also counter inflation in the US . Leaving the Euro may be Germanys only option yet.

eddiebe's picture

Seems to me loosely speaking Hollande is a bit like Ron Paul. On the outside chance that either get into office, they will either get offed or they will learn to eat the banksters shit like the current " elected" leaders do.

markar's picture

The similarity ends there.

JustObserving's picture

There is no chance that Europe or the US can ever repay their debts.  When there was no China, they had a chance to grow at rates where their debt was manageable.  Now there is no chance of competing with the lower wages of the BRICS,  So the only choice is to continue this masquerade as long as possible and keep printing.

About 2.8 million US jobs have been lost since China joined the WTO in 2001. Oil was $20 a barrel in 2001 and $120 now as China sells 20% more cars than the US. China car sales were 2.5 million in 2001 and now exceed 15 million a year.

US debt grows at $1.5 trillion a year (though allegedly we are not in a recession) and unfunded liabilities grow ar $6.63 trillion a year for a grand total of $8.13 trillion growth in debt and unfunded liabilities this year.  That is more than 50% of the GDP and represents $105,000 for a family of four this year alone.

The situation in Europe is quite similar.  Debts and unfunded liabilities are so large that there is no chance that they can be serviced let alone paid down.

It is not just the Euro which is at the brink - the dollar is there too.


Peter Pan's picture

JUST OBSERVING I agree and might I add by asking what the increase in GDP of the US and Europe would have been without all the massive increases in national debt? Zilch.

The house of cards cannot grow forever although I will admit that using the super glue of the printing machine in conjunction with low interest rates, we are bound to witness this monstrosity continue for quite some time.

Kina's picture

Another black swan.


François Hollande, = Archduke Franz Ferdinand

dinastar2's picture

Choice is very simple: France (under Hollande ) + Italy + Spain+Portugal force Germany to stop the current LTRO towards banks, and bring the BCE towards more Euro-bonds buying.Germany refuses and steps out of the Euro back to DM.

The FISP group is left with a 30% devalued Euro and a mountain od debts to pay back plus a zooming interest rate on their coming T bonds auctions.So they declare a 10 year Moratorium on their debt refund .Big upheaval amoing the investors : It' s nothing but a default.

Short the US $ and the DM will zoom up then the pressure will abate.

So Euro goes down the drain but the economies of the FISP are ramming again and Germany is left with the too expensive DM to retain its export advantage. Call it a mega -adjustment, call it a default, call it the collapse of the Eurozone but that will alleviate the current deflation and that 's very positive, especially for France who enjoys 85 million turists per year.

masterinchancery's picture

Hollande's ideas would lead to a 99% devaluation of the euro, followed by civil war--well, at least he is speeding up the timetable.

blueridgeviews's picture

So the socialist challenger wants to increase borrowing and spending.  No mention of Governments living within their means. Where have I heard this before?

i-dog's picture

Pretty much anywhere that a politician is speaking?

Lost My Shorts's picture

OK, so das Oyro ist fertig, geschlossen, kaputt.  The next question is who leaves?  Does Germany go back to the DM and leave the other countries to their inflationfest?  Or does Germany say "Nein!!" to Hollande, and France exits to an inflatable Franc?

And how does it affect my vacation?  Great if the Euro trades 30 to the US$, except if a baguette costs 300 Euros.  If I reserve a five-star hotel in Paris for next year, will they honor the price quoted today?

falak pema's picture

Frau Merkel took a wrong turn with Draghi, now she is caught in the international banking cabal loop. Geithner won and Germany lost when Draghi replaced Stodgy Trichet, as the international Squid was now boss of Euro currency. France doesn't count at this level as its not the financial boss of Euroland. Its part of the PAX AMericana financial shooting match and Sarkozy was already on board in 2009 along with king stooge Brown, who was protecting the crown jewel of City, home par excellence of the scam along with WS. Merkel's wrong call in 2009 NOT to unplug German, aka Euro finance, from Anglo-saxon finance, by GOING JOINT AND SEVERAL IN ECB FUNDING DIRECT TO COUNTRIES AND BREAKING DOWN THE SECOND FAUCET OF PRIVATE BANK LENDING, SOURCE OF FINANCIAL MADOFF LAND, was the straw that broke the Euro currency and Euro finance camel's back. It all happened in 2009 when she shirked out and didn't listen then to the French promoted 'joint and several' argument of DECOUPLING Euro financing from the private banking spiggot, something which is the WS/City mantra and religion since 1971; Eurodollar and subsequent Petrodollar hegemony from 1973 onwards were BUILT on that fiat debt slavery pump. It made the banks what they are today, by controlling more and more the money line under deregulated Reaganomics and Thatcherist big bang, and Clinton-Greenspan GS revocation, and NWO outsourcing and...GWB war and derivative bubble balooning. 

Could she have had the 'cojones' to bring down the system by making that call? Its debatable as it would have caused the probable collapse of anglo-saxon and therefore world finance, but she didn't and that's what counts. Now the chickens are coming home to roost, and Eurozone burns as will Pax Americana financial construct.

That was the crucial tipping point for Eurozone financial call. By playing along with the WS/City dictat Merkozy/Brown sank the European banking system, the European public borrowing system which TOTALLY relies on private bank fractional reserve spiggot, not central bank spiggot, and finally the EUro currency itself. Both surrogate EUro and King USD are now tied together as reserve currencies that will burn in coming hell.

So what bitter lemons Hollande, Merkel and EUrozone will now suck is just the inevitable unwind of an financialised unsustainable system which will come down in flames all the way to its queen bee nest in City and WS. 

Don't cry for Argentina, cry for the West. Cry for the world, as these Oligarchs will not go down easy but in flames and violence. Meantime the bean counters count the beans on a dying stalk where Jack will only have himself to blame for his profligate debt accumulation. Jack being the people who elected the surrogates who bow to the Oligarchs of Caymans and Singapore. Transnationals galore and bunga bunga amor!  The 1% couldn't care, they always come out on top even after the fire which burns the poor and defenseless, drowning in countless numbers. There will be a new world order and so what! 

disabledvet's picture

You really do great stuff falak. The problem of course is that the 1 percenters were annihilated in 2008...so in my view "like auto motons" they keep "doing what they do" oblivious to the alternatives...if they ever considered them to begin with. You folks simply don't understand "New York" America and its truly staggering "insecurities" and "need to be." madness really. anywho "epic fail" is the operative phrase...but in the good 'ol USA this is about WINNING...so "rather than proceed rationally" on the basis of what is achievable "time and space will be ignored and total lunacy will proceed." The fact is this ending has been written so many times in American history it's amazing it has to be written yet again. For those that have never had the chance to read what i consider the greatest ending ever written in the English language, here it is:
"the original and still the best." perfection really. read the book world! you'll understand PERFECTLY what you think you see going on on television..."and what a book of lies it all TRULY is." is war THE option falak? of course it is! unlike New York however "those people really do believe in winning." and the history books show that. and this is what New York truly hates. so let the farce proceed apace then!

Ghordius's picture

nah, it's just the first tentative beginnings - lots of streams to cross yet

i-dog's picture

I agree ... but there are more streams needing to be crossed every day now. I'm still sticking to my prediction on here of more than a year ago that August-September this year will be the dénouement ... one way or the other.

andrewp111's picture

I would love to see France do something that makes Frau Merkel say Nein Nein Nein, ditch the Euro, and go back to Reichsmark.

Dick Darlington's picture

AEP in Telegraph:


The latest poll shows that 56pc of Germans want a return to the D-Mark.


walküre's picture

56 percent never wanted the Euro.

polls schmolls.

they don't matter, they never mattered.

what matters is affordability.

Loukanika the riot dog's picture

"I “personally guarantee” Greece will recover from the crisis" Venizelos reported here http://www.ekathimerini.com/4dcgi/_w_articles_wsite3_30778_20/04/2012_43...

Also slightly O/T Is this the start of the real German occupation of Greece http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_20/04/2012_438662 

WWII grenades found in potato shipment from Germany

Dead Canary's picture

Sorry, sorry. I have a black belt in smart-ass and just get carried away sometimes. Sorry.

Dead Canary's picture

“No matter what happened during the campaign, if I’m elected, my first visit will take me to Germany”

Wow. Do you think he will have....have...a MEETING! Sit down with other leaders, iron out their differences and EVERYTHING IS SOLVED!

Man, this guys some sort of political genius! A real dynamo of action.

Watson's picture

Why does he assume that the Germans want to meet him?

falak pema's picture

Germany does not look up its ass to see the world, it has to look out, and out is where its biggest Euro neighbour and Partner  is. But there will be blood sweat and tears, not just for the dumb french but also for the dumber americans. They have more to lose. 

i-dog's picture

Problem: Governments borrowing from a pack of banks at 6%---which have in turn borrowed "money" created from thin air, and lent to them at 1%, by the ECB.

Reaction: That's too much of a cut for the banks!

Solution: One central bank (ECB)---which is jointly owned by all the privately owned central banks of the EU!---creating "money" from thin air and lending to all governments at, say, 3%. Savings!! Hollande is hailed as a hero!

Result: Further consolidation of control into the centrally-planned EZ!! No soup for you, Germany!

Hegel would be proud!!

Peter Pan's picture

Does anyone remember what happened to Gadaffi or Saddam Hussein when they decided to freeze out the US dollar? Good. Then ask yourself what will happen to Hollande either at or after the elections if he decides to take away the free money from the banks and the juicy margins they make on it.

falak pema's picture

France is NOT Q daffy's Libya or Saddam's Irak. Don't mix apples and  stale dates. Saddam and Q daffy were products of the MIC/Oil age. They got rich then as despotic ONE man constructs, as the west wanted them as suppliers/clients. Just like Iran did under a FRIENDLY Shah, until the people pulled the rug. France can buck the Pax Americana construct, if the Euro group follow its  lead. BTW the rug pulling could continue in surrogate Arab territories as the PAx Americana shows its cracks. 

It will all depend on how sustainable the current ECB play is as things hotten up in 2012. If the people's pain gets too big, the Euro economies could decouple with Euro, and then all hell would break lose in US zone, as they would be front line in currency war without the current Euro lame duck buffer, of rich zone to milk as its rudderless. 

Tipping points are periods where nobody has friends, the game is too dangerous. But you have to have the guts that come from desperation and realisation that you are all in,  or else bend your knee as defeated country. That battle is ahead for Europe. 

The enemy now is clearly the Anglo saxon financial cabal that runs the world, as its doing it so badly there is no hope for real growth. 

Not saying Hollande has the guts to do it; but the dawning of this coming battle is now staring the French people in the face; like the people all over FIRST world. 

AnAnonymous's picture

France is NOT Q daffy's Libya or Saddam's Irak.

No, they are not.

In a ponzi, wealth exists. Wealth has to exist.

In order to run properly the USD ponzi on the world scale, the US of A can not afford the likes of Libya or Iraq to stay away or leave. They are the ones providing wealth to the Ponzi.

The Europeans? They will fight to get their share of the USD ponzi. It is not their new colonial wars streak that can help them here. It was already conquered turf.

Europeans will kill to be part of the USD team. Certainly not to get away from it.

TheFourthStooge-ing's picture

AnAnonymous said:

Europeans will kill to be part of the USD team. Certainly not to get away from it.

Just like Chinese citizenism citizens have done, blobbing up into Tibet, Mongolia, Nepal.

All to embrace automotive lifestyle of consumptiveness.


Peter Pan's picture

Thank you for your comment and I must say that some aspects are worth considering. However, currencies are meant to serve nations whereas the Euro is now at a stage where nations are serving the Euro and behind that Euro lie the interests of the banks.

The Euro in my books has only a slim chance of survival and the longer they persist in the light of its structural, cyclical, political and cultural problems, the greater the damage that will accrue both prior and following the breakup.

As for Hollande let's see what happens either to him or his promises should he win and even that is not certain.

At the end of the day, there is nothing substantially positive about the Euro area that can generate enough positivity from where further positivity can be generated. Headlines of a largely compliant press and obvious goosing of the markets will mean nothing and come to nothing whilst unemployment and quality of labour earnings continue to show troubling weakness.


steve from virginia's picture


The little man in the TV promises that 'the people' will all live like Americans: big cars, big boobs, big TVs, big burgers 24/7.

Mr. Thermodynamics promises that the enterprising won't starve but nobody will have anything resembling big: no cars no TVs no burgers and small boobs (small peckers, too).

He also cautions that making mistakes here will destroy the human race. "You get three strikes," sez Mr. Thermodynamics.

Human race: fingers in ears, "Lalalalalalalalala! I don't hear you Mr. Thermodynamics!"


"Strike one ..."


AnAnonymous's picture

It cant be about survival of human species.

Too much difference between today's consumption and lets say, bronze age consumption. Huge margin here.

The US citizen middle class has to shrink. Drains too many resources.

Upper class life standards will keep rising on a global scale while lower class will do as it does under US citizenism, benefit from side effects, not much.

TheFourthStooge-ing's picture

AnAnonymous said:

Too much difference between today's consumption and lets say, bronze age consumption. Huge margin here.

I wonder why. Blobbing up population of Chinese citizenism perhaps...


eddiebe's picture

Greed is turning this planet into a real shit hole. So much potential and beauty. Such a waste.

LowProfile's picture

“There is no more risk that the euro will implode.”  -Nicolas Sarkozy, President of France

"When it gets really serious, you have to lie." -Jean Claude Juncker, head of the Eurogroup council of eurozone finance ministers