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Franco-German Divide Nears Record High

Tyler Durden's picture




 

Yesterday we mentioned the chasm between European union nations' minimum wages from the core to the periphery, but when even the so-called 'core' nations are diverging aggressively in their macro-conditions, we ask - rhetorically once again - how can they expect to hold this together with a single monetary policy. The difference is exhibited in many ways: manufacturing (yesterday's PMIs) differentials are the highest since Feb 2011, and as Bloomberg notes, the third highest on record; France's weakness relative to its German neighbor is also evident in GDP where Germany has recovered its post-2008 losses but France remains lower; Unemployment levels are stunningly wide with Germany at a mere 5.3% relative to France's 10.6%. All of this is summed up perfectly in the 'Taylor Rule' suggesting main policy rates that are 4 percentage points apart - a record since the Euro began - stoking inflationary concerns in Germany (relative to France). The market, as repressed as it ever was, is starting to wake up to this divergence with France 10Y yields at their widest relative to Germany in 2013 today.

 

The divergence was just as wide in 2005 - but the other way - though it seems policy is set around the French market (green) and not the German (red)

400bps differential in policy rate now is a record...

 

So Draghi will cut and hike; ease and tighten; jawbone and make it all ok...

 

Source: Bloomberg

 

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Fri, 02/22/2013 - 12:11 | 3267101 otto skorzeny
otto skorzeny's picture

time to get the Maginot Line and out of mothballs and dust off "Achtung-Panzer!"

Fri, 02/22/2013 - 12:37 | 3267215 Buckaroo Banzai
Buckaroo Banzai's picture

France and Germany are the heart of the EU, and between them is the essence of the conflict: Germany, the leader of the "Makers", and France, the leader of the "Takers".

Of course, Germany has been wholly corrupted by its association with The Takers of Europe; for all their trouble, their own culture has now been thoroughly undermined. I suppose they felt they had to get in the gutter with the garden-variety socialists of the left after their disastrous experiment with National Socialism (the socialism of the right), but it seems they went from the frying pan into the fire.

The French, on the other hand, are fucking pathetic.

Fri, 02/22/2013 - 12:05 | 3267106 ZippyBananaPants
ZippyBananaPants's picture

Maria Bartiromo wants me to put some 'froth' in her mouth and left ear!

Fri, 02/22/2013 - 12:05 | 3267108 disabledvet
disabledvet's picture

Simply can't bring this up too often. "Only on Zero Hedge" of course. "Ghe more the regular media denies it the HUGER we know the problem is."

Fri, 02/22/2013 - 12:31 | 3267197 Stock Tips Inve...
Stock Tips Investment's picture

This post is very revealing. In Europe, many differences are becoming evident. And I mean just an economic differences. France has always felt like an economy similar to that of Germany. Grave error. This situation becomes more evident by the existence of a disastrous government as President Hollande. On the other hand, there several peripheral European countries considered to have today a much healthier economy than core countries like France, Italy or Spain. Europe will have to be very humble to get out of this crisis.

Fri, 02/22/2013 - 12:38 | 3267219 LawsofPhysics
LawsofPhysics's picture

Will the E.Z. be buying commodites with PMs in the future or more pretty paper?  "Humble" is an understatement.

Fri, 02/22/2013 - 12:33 | 3267201 Taffy Lewis
Taffy Lewis's picture

These are just small problems, DV. In a Marketwatch article from today:

"The euro-zone economy is expected to shrink in 2013 for the second consecutive year, European Commission officials said this week, citing uncertainty and adjusting balance sheets, among other factors."

You see, it's only uncertainty and adjusting balance sheets (my god I'm living in a parallel universe). Nothing that endless printing can't fix.

Fri, 02/22/2013 - 12:10 | 3267123 Number 156
Number 156's picture

Its not a good time to be French or German.

Fri, 02/22/2013 - 12:33 | 3267203 Haus-Targaryen
Haus-Targaryen's picture

I disagree.  Its a great time to be a German, we're reclaiming our gold, we are sucking capital out of ClubMED re, soverign loan repaments and the emerging markets are creating a middle class that can buy VWs and BMWs. 

 

Being French though ... forget it.  They'll be back to eating cats and marching on le Bastelle in the quickness.  Just wait for the bond market to target Paris.  That is when things get interesting does the EU

 

1) Break up the Euro

2) Let the frenc protest -- torching tens of thousands of cars -- and stimulating the German economy even moar????

Fri, 02/22/2013 - 12:41 | 3267228 Buckaroo Banzai
Buckaroo Banzai's picture

Is it really a great time to be German? The country seems utterly lost and cut off from their own identity. Muslims have overrun it, and their culture is wholly degenerate. They are still the best in the world at getting things done, but they are on a treadmill that is accelerating, and sooner or later they are going to get thrown off. 

Fri, 02/22/2013 - 12:46 | 3267237 Haus-Targaryen
Haus-Targaryen's picture

What is killing German identity at this point in time is the hyper politically correct culture we live in. I would venture to say its even more PC than England -- which is saying something. 

 

As soon as Germans can say, on the whole, yeup, the second world war wasn't a lot of fun for anyone involved, without apologizing I think your thesis is correct.  However, when push comes to shove, the Germans still .. to this day are exceptionally proud to be German, and unless oneisa zealot of the Left (35% of the population) (Grüne, Linke, Left leaning SPD) - want to see a successful Germany in the future that is decidedly German.

Fri, 02/22/2013 - 16:45 | 3268017 Buckaroo Banzai
Buckaroo Banzai's picture

Well, you seem like a "glass is half full" kind of guy. That's nice. As a frequent visitor to Germany, I really like the country and its people. But from an American's perspective, it sure looks like the "Zealots of the Left" are completely in charge. You guys are socialists, through and through, and socialism kills.

Fri, 02/22/2013 - 12:17 | 3267142 Dareconomics
Dareconomics's picture

The fair value of the € is over $1.50 for Germany and $1.24 for France. As long as that divergence remains, German will continue to export and while France is slowly strangled to death by its euro membership.

Maybe France leaves the euro?

http://wp.me/p2y381-C0

Fri, 02/22/2013 - 12:35 | 3267208 Stock Tips Inve...
Stock Tips Investment's picture

Very good point. This easy explanation, the difference becomes apparent that currently exists within the economies of the various European countries. From my point of view, France is a major problem, augmented by a government totally ineffective.

Fri, 02/22/2013 - 16:20 | 3267911 TPTB_r_TBTF
TPTB_r_TBTF's picture

.

"The French, the French, a curious race;

they fight with their feet,

and fuck with their face!"

Fri, 02/22/2013 - 12:44 | 3267234 LawsofPhysics
LawsofPhysics's picture

Great point, everyone from Finland down on that list should walk away.

Fri, 02/22/2013 - 12:17 | 3267144 swissaustrian
swissaustrian's picture

The socialists are gonna make France worse than Italy or Spain.

Fri, 02/22/2013 - 12:24 | 3267167 kaiserhoff
kaiserhoff's picture

A freshly minted Deutschmark would carve Ben & Company a new arse whole.

Fri, 02/22/2013 - 12:30 | 3267191 Everybodys All ...
Everybodys All American's picture

and so would an Italian Lira. We will know more Sunday evening on this ...

Fri, 02/22/2013 - 14:35 | 3267570 Haus-Targaryen
Haus-Targaryen's picture

World's largest bunga bunga party on Wednesday of next week. 

Fri, 02/22/2013 - 12:35 | 3267211 americanspirit
americanspirit's picture

It would be interesting to see a German-French comparison of GDP per employed adult.

Fri, 02/22/2013 - 12:36 | 3267214 LawsofPhysics
LawsofPhysics's picture

We have been here before.  Some of those eastern block countries should be getting nervous.

Fri, 02/22/2013 - 13:15 | 3267341 Rustysilver
Rustysilver's picture

LawsofPhysics,

I know for a fact that Poland bought some 200 CPO Leopard tanks from Germany. At least this time Poland won't have to use cavalry against the tanks. Also, they have some F-16; part of NATO.

What central Europe has going for them is they are not part of Euro currency crap, except for some little Baltic state

Fri, 02/22/2013 - 13:22 | 3267359 Volaille de Bresse
Volaille de Bresse's picture

"I disagree.  Its a great time to be a German, we're reclaiming our gold, we are sucking capital out of ClubMED re, soverign loan repaments and the emerging markets are creating a middle class that can buy VWs and BMWs. 


 

Being French though ... forget it.  They'll be back to eating cats and marching on la Bastille in the quickness.  Just wait for the bond market to target Paris.  That is when things get interesting does the EU

 

1) Break up the Euro

2) Let the french protest -- torching tens of thousands of cars -- and stimulating the German economy even moar????"

 

I don't know if you're German but this is plain pathetic. The Euro was tailor-made for Germany and they used that weapon to live off the other Euro countries for about 10 years. 

 

When the Greek bought German sports cars with their overvalued Euros nobody in Germany complained about that... Now that the party's over you have that "my shit don't stink" pose that's plain silly. 

 

Germany HAS a big problem if you consider the 2010-2025 period of time and not just today. Demography is sinking and poverty is raging as it is raging in many other countries. 

 

Have you forgotten the embarassing report Merkel's trying to hide under the rug till she gets re-elected : http://www.zerohedge.com/contributed/2012-11-28/censored-poverty-report-...

 

And no France doesn't suck the European credits... Poland does! Oh wait It's Germany's good biz partner...

 

Fri, 02/22/2013 - 13:40 | 3267412 Ghordius
Ghordius's picture

+1 "I don't know if you're German but this is plain pathetic."

I'd say juvenile. There is a number of "Germans" on ZH that are incredibly young, know-it-all (eh, youth is like this - it's actually a prerogative) and are often only partly insiders of the culture (often army brats and similar)

it fits the current bias to paint a French-German divide that does not exist this way - in the same way as at least four of the founding nations are always forgotten in any non-continental discourse and analysis

Fri, 02/22/2013 - 13:51 | 3267443 Volaille de Bresse
Volaille de Bresse's picture

"it fits the current bias to paint a French-German divide that does not exist this way"

I agree Ghordius! ;-) The fact is if the Euro blows up there'll be a nice shit sandwich for each and everyone of us...

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