Cembalest On Germany: "You Can Ignore Economics, But It Will Not Ignore You"

Tyler Durden's picture

Ten months ago, as the latest Grand Plan was being announced, we wrote in detail on just how angry Zee German people might get once they realized what was going on. With the weight of the world increasingly burdened on their shoulders, Michael Cembalest of JPMorgan asks "will Germany spend its accumulated national wealth to save the Eurozone (at least temporarily), and how much might it cost them?" Notably, for the better part of a century, the tendency for conflicts in Europe to coincide with Germany's relative economic might is astonishing, but between backstopping the Periphery, a non-inflationary ECB solution, and five years of support to finance the departure of foreign capital - avoiding social collapse in Greece for example - Cembalest estimates the cost to be around 1 trillion Euros. What is more astounding is that he then goes on to compare this cost to re-unification (over the past 20 years) and notes that even if Germany had to pick up half the trillion-euro tab, its debt-to-GDP ratio would rise above 100% (well over the 90% 'This Time It's Different' tipping point). Just how much does this mean to Germany and Europe? IMF Managing Director Lagarde gave a speech last week in which she highlighted the historical importance of Europe and how the concept of the Euro dates back to Charlemagne in the 800s. True, perhaps; but that has not prevented other European monetary unions from failing in the interim. You can ignore economics, but it will not ignore you.


JPMorgan: The German Question

For the better part of a century, the “German Question” related to conflicts in Europe that tended to coincide with Germany’s economic might galloping ahead of its neighbors:


Over the last 3 years, the gap between Germany and the European Periphery has been widening at a similar pace. Now, however, the German Question is quite different: will Germany spend its accumulated national wealth to save the Eurozone (at least temporarily), and how much might it cost them? This is a complex question, so Michael Vaknin and I tried to strip it down to its underlying economics. Let’s assume the following: Germany has to bear the cost of backstopping the crisis in the Periphery on its own, without the ability to rely on countries like France (which are struggling themselves) or the IMF; the ECB cannot be used indefinitely as a dumping ground for questionable collateral; Germany will not accept an inflationary solution; and the Periphery needs another 5 years of help to support growth, finance the departure of foreign capital (see “running of the bulls” below), and avoid the kind of social collapse seen in Greece. Our estimate: around 1 trillion Euros.



How much is 1 trillion Euros for a 5-year fix? For context, we compare it below to estimates of the cost of German unification. If our estimate is anywhere close to reality, this is a political decision rather than an economic one. After having paid for German reunification over the last 20 years (which explains part of the steady, gradual rise in the chart on the right below), from a purely financial perspective, there’s not that much room to add more debt.



Even if Germany only had to pick up half the tab we estimate, its debt to GDP ratio would still rise above 100%.


Just how much does this mean to Germany and Europe? IMF Managing Director Lagarde gave a speech last week in which she highlighted the historical importance of Europe and how the concept of the Euro dates back to Charlemagne in the 800s. True, perhaps; but that has not prevented other European monetary unions from failing in the interim. You can ignore economics, but it will not ignore you.


Source: JPMorgan

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Cognitive Dissonance's picture

The Germans should kick back and let the Greeks support them.


Nussi34's picture

I will vote for any party that is against the bailouts of the PIIGS (actually PIFGIBS). If the only one against that and for getting rid of the Euro are the Neo Nazis, I have to vote for them out of self interest.

Bastiat's picture

"Hilarious G8" -- a new rap group. 

cnhedge1's picture

Are concerns over a Greek Euro exit overdone ?

Is the Euro area Credibly on Target?

GeneMarchbanks's picture

JPMorgan: The German Question

At that point I began to question what I was reading.

Kayman's picture

How can anyone chart the delta of 1933-1942 of Nazi Germany vs. France and Britain. A war economy is an excellent short term sprinter but fails at a marathon.  The numbers are nonsense.

And making Germany save the unproductive members of the European Club is no different than enforcing the Treaty of Versailles. Perhaps Hollande should try marching into the Ruhr and help himself to his "fair share"

insanelysane's picture

Guest on Bloomberg tv this morning had a good observation about this whole mess.  It would be easier for the Eurozone if Germany left and returned to the mark. Then the Eurozone could Ctrl-P to infinity and the Germans could manipulate the mark to EURUSD.

Cugel's picture

True, but I think deep down they still believe that would be giving their neighbors the "advantage" of a weak currency.

PivotalTrades's picture

If Germany is going to manipulate the Mark to the Euro why leave. Stay and print. Thea same thing.

Doubleguns's picture

After supporting the east germans in unification the germans are now supporting the south germans, south west germans, west germans, far west germans and north germans in hopes of unifying all the german peoples.

mc_LDN's picture

Under the auspices of the 3rd Holy Roman Empire. The same one attempted by Hitler but a close miss.Lets try again Lagarde!!

i - 27 BC–AD 476/1453

ii - 481 - 815 AD

iii - 2012 ... ?

Sudden Debt's picture

In return they might confiscate the Greek woman?

After importing Thai woman by the busloads, it's now time for Greek Love You Longtime Weddings in Germany!



Manipulism's picture

They can keep them.They are too ugly.

mc_LDN's picture

Ahhhhh - at last! We have the head of the IMF - Lagarde mention the first attempt at the renwed Roman Empire - Charlegmane. For those who know their history this is the one and teh same thing Hitler was looking to achive with his 3rd Reich - or 3rd Roman Empire. Lagarde just let the cat out of the bag... Now it gets interesting.



Dr. Engali's picture

I have an idea.....let them figure a way to support themselves. Kick out the damn crutches.

distopiandreamboy's picture

You can't spell Economics without CON

bigwavedave's picture

Germans and Chinese. This is the future?

CPL's picture

<chuckle>...no body gets to "win".  This is a sum game situation.  Governments might be lucky to be established in ten years, not a handful of them.


All of them.  Blow up your money supply and blow up your sovereignty, simple as that.  There are debtor nations in Africa with a better financial track record than the "developed" world.

CPL's picture

German economic might...like a little big man...or soon to be ant threating the foot.


Someone correct me if I'm wrong but aren't they still paying for WW1 and countless numbers of reparations in the teens for interest rates.  I don't recall the ECB giving allowance to expunge all prior debts.  All four hundred years of them.


Oh well, since we all know the outcome, start investing in leather companies in Germany that make good solid boots to grind people and countries under. 

Sandmann's picture

Zee German people


What kind of drivel is this ? Is this what they call White Negroism ?

Let's talk war. 1870 FRANCE goes to war with Prussia declarinf war on 19 July 1870

Germany had no economic might in 1914 and was fearful of Russia's fast-growing economy in alliance with France and the British Empire. It faced two major land powers and the world's greatest naval power.


Go look at the US PLan Black for going to war with Germany. Or Plan Red-Orange for war against the British Empure and Japan simultaneously in the 1920s.

As for 1939 where was German economic might ? It had a small Army and fewer tanks than France and borrowed heavily from London and New York.

There are some real fantasists posting Hogan's Heroes History..........

GeneMarchbanks's picture

RE: color coded plans... wouldn't be surprised if the same is happening today in the "Pacific Pivot".

Entirely way too much historicism here, agreed.

Kayman's picture


Uhhhh.... your's is the other extreme of ignorance.  Napolean excepted.

Russian economy growing under the Czar?  Russia and France ganging up on the Kaiser, pre WWI ? Absolute fantasy.

1939 German military might ? Sudetanland, the Ruhr ?  Handed over by Herr Hitler writing nice letters to foreign governments.  What an idiot.

Kayman's picture

"Someone correct me if I'm wrong but aren't they still paying for WW1"

No, at least not directly.  Unless you want to call the Euro an attempt by the rest of Europe to impoverish Germany.

q99x2's picture

That must be a situation that is more intolerable than the unemployment here in the US. Mark another one up for the collapse of the bankster economy.

mc_LDN's picture

Link to the Lagarde Charlegmagne speech here -


Whats somewhet problematic with IMFs grand vision is that Charlegmagne was an "Emperor" through and through.

She is selling the idea of a utopian prosperous unity. For whom? Lots of issues with this vision.


TheGardener's picture

Under Charlemagne the French still equaled the Germanic
tribes. If I were an Arab looking French, I would long
for those good old days.

timbo_em's picture

Seriously, do these guys at the JP Morgue know anything about the German constitution? If Merkel and her government want to bail out other countries significantly more than they already have, they have to start a coup d'état first (which they might have started two yeras ago when the whole Odyssey started). There is a reason why the bail out mechanisms currently in place are as twisted and complicated as they are - a. the Lisbon Treaty (which menawhile has become a worthless piece of paper because even the highest EU officials want to break its fundamentals) and b. the German constitution and verdicts of the highest German court on the Lisbon Treaty. Simply put, before eurobonds can be introduced, Germany needs a new constitution (the corresponding articles simply cannot be changed) or the current one has be overthrown 1933-style.

SheepDog-One's picture

The whole 'Odyssey' proves 1 thing certainly, all the constitutions and treaties are just worthless trappings which can be shredded anytime that 'we have a problem'.

timbo_em's picture

You are absolutely right.

It somehow reminds me of Cpt. Barbossa: "...And thirdly, the code is more what you'd call "guidelines" than actual rules. Welcome aboard the Black Pearl, Miss Turner."

TheGardener's picture

Germany has a constitutional court, but no constitution.

Some basic law was bestowed to them by allied occupiers
called Gundgesetz, which does not resemble a founding law or treaty .

Sandmann's picture

the current one has be overthrown 1933-style.


I hadn't realised the Weimar Constitution had been overthrown so much as amended. After all Art 48 gave enormous power to the President and Bruening by-passed the Reichstag under Art 48 BEFORE Hitler ever took office


In fact there is little in this Enabling Act that is not present in the United Kingdom under Secondary Legislation using Orders in Council and The Civil Contingencies Act 2004.

I do take the point however that the Verfassung imposed on Germany by the Allies in 1949 does impede the Executive Authority of the European Commission

Article 20 (4)  All Germans have the right to resist any person seeking to abolish this constitutional order, should no other remedy be possible.

Article 146   [Validity of the Constitution]
This Constitution, which is valid for the entire German people following the achievement of the unity and freedom of Germany, ceases to be in force on the day on which a constitution adopted by a free decision of the German people comes into force.

fockewulf190's picture

Germany has over two trillion euros of debt. There is a mega demographic time bomb going off. The upcoming wave of Alzheimers patients alone is going to blow the social medical system to shreds ( which is not free and costs the average worker 17.5% of his pay every month). Germans are taxed to the hilt on virtually everything in life from gas to insurance, from food to death. Wages and retirements, with the exception of those who happen to be working for the state, or happen to be members of the IG Metal or Verdi unions, have grown sub-inflation for well over a decade. Electricity has just been hiked by 7%. Home heating oil and natural gas have exploded in price. Food prices are up big. On top of all that, Germans are still paying for reunification with a Solidarity tax. There is no more room for tax hikes to pay for this farce, yet almost every political party wants to save the euro, regardless of what the people think. Unfortunately, most Germans are hopeless sheeple and almost never protest en masse, unlike the French. They may complain over the stammtish, but thats it. I fully expect the politicians here will bankrupt this country, all in the name of bullshit european solidarity.

Vince Clortho's picture

Thanks for your observations.  What part of Germany do you live in?

slackrabbit's picture

Germany should just bail.....either way its going to be bad for them, but at least you dont keep paying your neighbours rent..

tok1's picture

There is no cost to Germany if they let thr ECB buy periferial
bonds at the same rate as the FED/ BOJ or BOE. They don't want to do that because if the periferial situation is resolved their rates will go up
and euro will strengthen . If the ECB had support periferial debt
properly Gesny would not have to pay anything . This is all an exercise
to transfer funds to the real troubled bond marks ie US / Japsan / UK.
It's a scam to keep the funds flowing into their bond markets .. until US feels safe in the recovery and Germany is assisting out of their own self interest . It's no different to US with German support invading the periferial and stealing their assets .

Peter K's picture

So the Euro F****d up Euroland, and now it will take 1bEuro of German savings and 5 years to fix. Hmmmm. I got an idea. Why not just dump the Euro, and the Germans will only have to clean up the mess the French and they created ONCE.:)

It's just that simple.

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