While France Simmers In Its Own Juices, Germany Frets

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By Wolf Richter  www.testosteronepit.com

"We're not doing this for the Greeks, but for us," said Chancellor Angela Merkel during a TV interview Sunday night. It was part of her efforts to ramrod a law through parliament that would raise the German contribution to the European Financial Stability Fund (EFSF) from €123 billion to €211 billion ($285 billion). In a moment of truth, she'd admitted that the fund would bail out German banks and prop up German exporters. But when asked where the money would come from if Germany had to make good on its promises, she weaseled out.

"Chocolate for diabetics," is what Peter Gauweiler called the EFSF in a counter-interview (Tagesspiegel, article in German). Ranking CSU member and a significant figure in Merkel's coalition, he is vociferously opposed to her efforts. "I will only be content," he adds, "when this form of bailout chaos that is taking place in Berlin these days stops."

In contrast to Germany's cacophony of discussions, opinions, and doomsday scenarios, France curiously seems to be sleepwalking through the debt crisis. For the largest dailies, Le Monde and Le Figaro, it doesn't exist (September 26). Le Monde gives top billing to the defeat of President Sorkozy's party in the senatorial elections, followed by three stories about Dominique Strauss-Kahn, the ex-alleged rapist of New York, followed by turmoil in the Russian government, followed by toxic loans that towns in France are drowning in. Facebook is big, too. Among the dozens of articles, only two headlines in small font mention the debt crisis. Another article covers Dexia's efforts to unload $27 billion in rotten assets—the bailed-out French-Belgian bank is failing again.

Le Figaro engages in similar non-coverage of the debt crisis but adds some articles on the corruption scandal that has been dogging President Sakozy and his top lieutenants. For L'Express, an online news magazine, there is no debt crisis. L'Expansion, a property of L'Express, does a hype job on how Eurobonds will save the world. Les Echo, a business daily, relegates the debt crisis to the bottom half of its home page—an article based on a CNBC story. Only La Tribune, another business daily, gives the debt crisis top billing with the same CNBC story.

No soul searching about the debt crisis tears apart the political establishment in France. Only Marine Le Pen, the right-wing presidential candidate, has made pronouncements on the issue, has in fact declared that the Euro should die its natural death (article 'Let the Euro Die,' Said the Woman Who Could Be the Next French President), but her comments have disappeared from the press. No lines have been drawn in the sand. No compromises are up for discussion.

Aren't French politicians and finance gurus concerned that the debt crisis might also impact France? Shouldn't that be discussed publicly, as behooves a democracy? Apparently not. Perhaps the government imposed a rule to avoid getting its citizenry all riled up—a Gallic version of the Denkverbot (prohibition to think) that Merkel and Timothy Geithner wanted to impose on the political scene in Germany, but failed.

Even in Germany, there are efforts underway to limit public discussion when topics get too hot. Yet again expanding the bailout fund, before the current expansion is even voted into law is one of them. The idea to add leverage via the European Central Bank (ECB) gained momentum at the G-20 in Washington when it became clear that doubling the fund would still leave it way too small. In addition to bailing out Greece, Portugal, and Ireland, it might also have to bail out Italy, Spain, and other countries, plus recapitalize the tottering banks in the Eurozone. Apparently, this topic could only be discussed in Washington. But not in Berlin. Otherwise, someone might ask in shock, who should fund all that (FAZ, article in German).

Yet, while still in Washington, Bundesbank president Jens Weidmann forcefully excluded participation by the ECB in a leverage mechanism; its founding laws specifically prohibit it from monetizing governmental debt.

"There are other possibilities," Wolfgang Schäuble, Germany's finance minister, told journalists, without elaborating what these possibilities were, though discussions already started on how to structure the leverage mechanism in such a way as to get around any laws governing the ECB. With his other foot, Schäuble tried to step out brushfires by denying that there were plans to increase the EFSF far beyond the new limits. But skeptics have lost trust in his denials and assume that the EFSF will become a bottomless pit. Already, the number "€2 trillion" is being bandied about.

Now this: Ratings agency Standard & Poor's warns that the increased contributions by Germany, France, and other triple-A countries to the bailout fund might have negative consequences on their credit rating, and that leveraging the EFSF might cause it to get downgraded as well (Reuters, article). The free lunches have all been eaten.

Meanwhile in Greece, which continues to sink ever deeper into its own hell, "Merkel" has become a practical cuss word that people hiss out between their teeth (Zeit, article in German), and the old friendship between Greece and Germany has crumbled. In 2005, 78% of the Greeks considered Germany their favorite foreign country. Now it's 29%, behind China, Russia, and India.

The Denkverbot, Geithner's smack-down, and Germany's struggles with the debt crisis: Bailout Rebellion in Germany Heats Up.

Wolf Richter   www.testosteronepit.com