Germany and France: Kiss, Make Up, and Flip-Flop

Wolf Richter's picture

Wolf Richter

Originally, François Hollande planned to visit Germany on May 16, the day after becoming President of France, to meet with Chancellor Angela Merkel for some barbed-wire fence-mending—after a campaign during which he declared war on Merkel’s debt-crisis policies. But now, he pushed their date up to May 15, the earliest second possible. At midnight that day, Nicolas Sarkozy will hand him the keys to the Élysée Palace. Then Hollande will take care of some formalities, sleep a few hours, take care of more formalities, and back down from some additional campaign promises.

Already officially out the window is his promise to cap gas prices, now that they’re declining. And he backtracked on his promise to cap executive salaries at state-owned companies—at first, he’d said he’d tolerate up to 20 times the minimum wage of €16,780 per year (hence a salary cap of €335,600), but now, only new contracts would be concerned, not current ones. The sigh of relief from these executives could be heard across the Atlantic. Ever active, he also promised a new measure: layoffs designed to goose stock prices would become “extremely expensive,” though he wouldn’t actually prohibit them.

While Hollande’s honeymoon with the French public is in full swing, Sarkozy is quitting politics. He complained about journalists' dogging him. “I’m spied on,” he said (ironically, as we will see). “I hope they will leave me alone.” But that’s precisely what they won’t do because, on the first day of Hollande’s presidential term, Sarkozy will lose his immunity that has protected him against a growing pile of malodorous allegations with deadly consequences. Read.... Blowback from 15 Years of Campaign Finance Shenanigans.

Then in the afternoon, Hollande will fly to Berlin for his first trip to another country as President of France—for his date with Merkel. Well, it will be a working dinner. Some menu items, unpalatable as they appear, are already known: the fiscal union pact and Greece. Dinner will be followed by a dog and pony show during which a smiling Hollande and a dour Merkel will claim that they have kissed and made up, and that they form a perfect couple despite a few minor differences (ah yes, “minor”: read.... Pushing the Euro to The Brink).

While they do have a few things in common—both believe in the EU and in the euro—his demands to renegotiate the fiscal union pact remain uncircumnavigable. “He campaigned on the renegotiation,” said his spokesperson Benoît Hamon. “And we couldn’t be clearer: If the pact isn’t renegotiated, it won’t be ratified.”

But Merkel has yet to flip-flop on that issue. “Growth based on borrowing would take us back to the beginning of the crisis,” she reiterated on Thursday in the Bundestag. Reducing debt and stimulating growth and employment are what it takes to get over the debt crisis, but only growth through structural reforms makes sense, she said in direction of the opposition parties that, in line with Hollande, were clamoring for more spending.

And just then, inflation was heating up if not actual prices but conversations and debates in Germany after the Bundesbank confessed to a sudden tolerance for more inflation in the “medium term.” Inflation in Germany—for the first time since the introduction of the euro—would be “somewhat higher than average in the European monetary union,” said Jens Ulbrich, head of the Bundesbank’s economics department. That was Wednesday. It sent shock waves through Germany. And by Thursday, warnings and clarifications were being shot from all sides.

“There must not be a loosening of the Bundesbank’s inflation policies,” urged Klaus-Peter Flosbach, financial spokesperson for the governing CDU/CSU coalition. Taxpayers who already shoulder the bailouts “must not also be burdened by inflation.” The Bundesbank with its consistent stability-oriented policies was an “important pillar” of the euro system. “That must not change,” he said. “The Bundesbank must remain the guarantor of a stable currency.”

But Finance Minister Wolfgang Schäuble, too, suddenly became tolerant of inflation. And turned into the unlikely hero of German workers when he spoke out for wage increases—with an eye on wage negotiations currently underway across the country. Higher wages would make German workers less competitive and thus would give Greek workers a chance, while simultaneously increasing internal demand, presumably for Greek products, his thinking went. Exactly what the Eurozone needs. The free lunch has arrived. Upward wage pressures, after more than a decade of real-wage declines, are already building up in the pipeline. The government fired the first shot when it bestowed a wage increase of 6.3% over two years (astonishing in recent memory) on government employees. Germany could “permit itself an inflation of 2% to 3%,” Schäuble said to calm edgy tempers, though higher prices for too long wouldn’t be acceptable, and “the Bundesbank wouldn’t accept it either.”

Inflation Alarm: Bundesbank Softens the Euro,” screamed the Bild, the largest daily paper in Germany. And then more articles: “Where Is My Money Still Safe Today?” and finally, "The Coward Way Out." Not exactly a chorus of sudden pro-inflation unanimity.

Hollande must be scratching his head. One of his campaign promises—he’d push the ECB to be more aggressive and fund sovereign debt directly—had just taken a leap forward. The sea change in the Bundesbank may well allow the ECB to turn on the printing press once more—and hand out money more directly—to keep the Eurozone afloat. German savers and bond holders be damned. Yields will be pushed down by the ECB, and inflation in Germany will drive real yields into negative territory: financial repression, another price Germans are asked to pay (Americans have been paying it ever since the Fed decided to bail out Wall Street). But Hollande couldn’t have asked for better timing. And he must be thinking, if the Bundesbank can flip-flop, why not Merkel?

With the euro on uncertain ground, there's another major shift under way, one the American mainstream media has left largely untouched even though it will send the US into an economic maelstrom and dramatically reduce the country's importance in the world: the demise of the US dollar as the world's reserve currency. Read.... Marin Katusa: So Long, US Dollar.

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Joe The Plumber's picture

Get ready for "growthy" comments coming put of europe and compromise with greece. Get ready to buy back into risk assets next week

covert's picture

politicians selling out the people again.


ebworthen's picture

Perhaps she can bring him a proof set of 2013 Deutschmarks?

The Alarmist's picture

I recently had a woman sacrifice her shopping cart to me because there was no chain to plug it into to collect the coin she had placed into it as a deposit (it's a European thing, folks), and when I returned it to the queue and collected the coin, it was a Deutschmark ... these things are still floating and still work in a number of things, so it could be that a changeover is not as difficult as some "experts" say it will be.

besnook's picture

hollande scares the leather corset off of merkel and her party. they will print with abandon to save their power.

OldE_Ant's picture

Hollande arrives in Germany to find Merkel seated at a large table greece laden fingers stuffing her face with huge hunks of meat.

Hollande, "Bon Jour Don Merkel". 

Merkel flicks her hand so some chunks of greece come off of it and holds it out to Hollande who promptly kisses it and sits down opposite Merkel while wiping his lips.

Hollande, "I have brought gifts for your inspection."   He produces a box bloodied at the bottom and opens it to show Merkel, Sarkozys head.   Merkel nods and stuffs her face again with another larger chunk of meat.  Spewing spittle combined with chunks of meat Merkel says, "Enough of the appetizers where is my cash Hollande?!"

Hollande quickly motions for others to come in, all of whom are carting huge crates and boxes.  One of the men comes over with a crow bar and starts cracking open the crates and Hollande starts speaking.  "We have scoured all the bank vaults in France, as well as the public and private collections and this is all we can muster."  The man pops open a crate and inside are gold bars, some gold statues, paintings, various forms of art.

Merkel shouts, "MELT the GOLD, burn the rest of that crap he calls art." Then she sets the plate aside.  "You have dissappointed me Hollande, and you know what happens when I am dissapointed."   Hollande grows white in the face "BUT, BUT Don Merkel I have done everything possible! Everything you asked!  What more must I do?"

Then a loud pop is heard and Hollande clutches his chest, and pleads 'no I'm a good man, no. no. no...'   Then Merkel pulls her plate back and while Hollande gasps his last breath says "Now Hollande you have done all I have required!" and starts stuffing her face with more greece laden meat.  She looks over at the shocked and scared Hollande assistants who don't know what to do and barks.

"Don't just stand there you idiots, pour me some wine and try to look pretty."

Stay tuned for the next Don Merkel episode..

The Alarmist's picture

Gee, thought you might go with the Jabba the Hut scene.

Elwood P Suggins's picture

Is that when they have the orgy?

falak pema's picture

In for a penny in for a pound; the German necktie around Greece has a boomerang attached which is banking collapse dominoese; dangerous as UK finance tanks (see RM post) banking wise, and the sky darkens over US finance; now openly seen as playing "hundred balls in the air and hundred heads up their asses" and all praying FED-Ben will oblige again and again, like Atlas holding up the financial sky. 

Merkel has a tipping point decision, open war with France; who has now the desperation of the damned as their trump card backing; aka Greece/Spain/portugal burning, somethng that will scare the shits out of Euro political shills as it means social wars, and worse; will not only sound euro demise but European split North and SOuth. In a dangerous world Germany has no arms industry surrounded by Russia and Mid-East, where US rules.

A political rift in Europe will balkanise Europe bigtime pushing it back to the 1930s. Merkel has to think hard on this and Hollande as well.

Awesome balancing act for Europe that could redefine its role for next thirty-fifty years. The key issue is HOW GERMANY sees PAX AMERICANA evolving, not how France positions itself. Its the consequences of DIVORCE and its impact on Germany relative to geoplitical PAX AMericana world which is the issue for Merkel. It can survive a south north split. But if it has to rearm BIG TIME on its own that changes everything! As it has no Nukes.

The Alarmist's picture

The Germans have little to fear from France except, perhaps, for the electricity being turned off. The Germans have even more to fear from the Russians, who among other things have joked about turning off the flow of natural gas. Hmmm, maybe that explains all the long piles of firewood I have been seeing up and down the Autobahns the last couple months.

Elwood P Suggins's picture

I'm sure if the Germans wanted nukes it wouldn't take them long.

Mitzibitzi's picture

If they don't have them in pre-assembly status already, I'll be mightily surprised. Same goes for Sweden, South Africa, Japan and a whole bunch of other countries. Merely prudent to have the job 3/4 done, in case the need to finish it ever arose. And, really, who gives a fuck what the UN thinks, beyond keeping your nuclear status a secret to avoid the whining about treaty obligations? Or you just play the Israeli 'Nukes? Us? Couldn't say one way or the other, guv!' game. Shit's worked for them for 30-odd years.

falak pema's picture

would NATO allow that??? 

Its PAx Americana call...changes continental balance, sends Uncle Sam home from Europe!....end of an era!

skepticCarl's picture

Germany, and a few Northern European countries, might be the only countries on earth that still care about inflation.  Every other one seems to be courting it, to bail out their unpayable debts.  Germany will loose this battle with the rest of the E.U., just as the U.S. has lost it's battle with fiscal and monetary responsibility.

battle axe's picture

I would not count the Germans out just yet.....

GeneMarchbanks's picture

With the euro on uncertain ground, there's another major shift under way, one the American mainstream media has left largely untouched even though it will send the US into an economic maelstrom and dramatically reduce the country's importance in the world: the demise of the US dollar as the world's reserve currency.

What a way to end it.

The silly Frenchman being a closeted neo-liberal is no secret Wolf. Only the Tobin counts.

Joebloinvestor's picture

Putin is a fucking asshole, but at least you know how he feels about ya.

(Get the hint Barry?)

Unlike these EU fucks who agree on something (until the next election).

Don't ever wonder why the EU is so fucked up.


sunnydays's picture

Hollande and Obama must be related.  He should be renamed Obamande

IrritableBowels's picture

Yesterday NPR referred to Hollande as a 'moderate democrat.'
I couldn't believe it. They're also going strong with the Ron Paul blackout.

The Alarmist's picture

You know something is wrong when Obama pushes for Hollande to not follow his election agenda because it will make it more difficult for Obama to push his own.

Element's picture

In other words, they're formalising the process to bring about what everyone said they were going to do anyway, the only thing left for the usury-money all-seeing-eye-of-debt pyramid, namely;


  ... etc ... only faster ... and faster ... and faster ... whilst arbitarily moving decimal places.


But the main problem with throwing money from a helicopter is, it's fucking suicidal.


Mitzibitzi's picture

I dunno. What if all the major economies all hit print at the same time? Surely they could accomplish all the goals in one go? Inflate away the debts, beggar the common man and potentially go online with a new global super-ponzi currency the next morning. All the while keeping the process so short that the man on the street hasn't had time to riot yet, and so fucking confused about what just happened that he just accepts it. After all, as long as the card still buys cheese, what's the difference?