It would appear that the German public (and political class to some extent) are beginning to see the European project in the same manner as we described back in July. As the increasing burden of saving the eurozone from its own excess falls on the shoulders of every Tobias, Dirk, and Heike taxpayer in Germany, even industry leaders, such as Wolfgang Rietzle, the CEO of Linde, this weekend according to Reuters, are suggesting a line in the sand has to be drawn and that "if we do not succeed in disciplining countries then Germany needs to exit." This has been very much a view we have held for months now that instead of the periphery limping away one-by-one, the very core of the foundation will simply decide enough is enough or as Reitzle notes (among many other critically insightful comments) "the willingness of countries to reform themselves is abating if, in the end, the European Central Bank steps in." This morning Germany's FinMin Schaeuble added to the potential separation chatter with his comments, via Bloomberg:
- *SCHAUEBLE SAYS ECB AS LENDER OF LAST RESORT WOULDN'T CALM MKTS
- *SCHAEUBLE SAYS JOINT EURO REGION BOND SALES NOT A SOLUTION
Hardly reassuring given the dreams of every GGB owner and BTP-exposed insurance company are banking on the ECB cranking the presses to 'secure' nominal returns in the real world. The EURUSD has opened down 40 pips or so on a slow Sunday afternoon as we remind hopeful investors (and the German public) of our comments from last July (which seem even more prescient now with the AAA downgrades and increasing reliance on EFSF and ESM mechanisms placing more burden explicitly on German taxpayers and "in doing so may have jeopardized anywhere between 32% and 56% of its entire annual economic output".
Germany should consider leaving the euro if efforts to impose fiscal discipline upon indebted euro zone countries fail, the head of industrial gases firm Linde (LING.DE) told German weekly paper Der Spiegel.
"I fear the willingness of crisis countries to reform themselves is abating if, in the end, the European Central Bank steps in," Linde's chief executive Wolfgang Reitzle was quoted as saying.
"If we do not succeed in disciplining crisis countries, Germany needs to exit," said Reitzle who was previously a board member at carmaker BMW (BMWG.DE) and head of Jaguar and Land Rover.
Asking Germans to pay more than 50 percent taxes to help fund other euro zone countries will erode the will of the German electorate to support rescue measures, Reitzle said.
Although this scenario is not desirable, he felt that German industry would survive working in a new currency.
"Of course it would lead the new currency - Deutschmark, North-euro or whatever it is called - to appreciate in value. But it would be by a lesser amount than feared," Reitzle said.
"Although this would lead to higher unemployment in Germany because exports would take a hit, pressure would increase to become more competitive."
Reitzle said the euro zone is unlikely to break up completely but Greece is not in a position to service its debt.
"The country is not in a position to restructure itself in such a way that it can remain in the currency union," Reitzle said.
"In the medium term Greece needs to exit. And the writedowns on Greek debt will not be between 50 to 70 percent, but in the end will be written down by 100 percent," Reitzle said.
So long as Greece remains in the euro it needs to be supported. "All in all this is a 500 billion-euro problem," Reitzle said.
Structural reforms need to continue elsewhere in places like Italy too, Reitzle said.
The year of destiny for the euro is not 2012, but three to four years down the line, Reitzle said.
Upon being asked whether Linde has a plan B to cope with a complete break-up of the euro zone, Reitzle said 'no'.
"Even if we had a recession for years in Europe, it would only impact 30 percent of our revenues," he added.
As the ESM is accelerated and deposits/investor-cash flood into German banks and bunds, the risks of subordination of existing sovereign bond holders and devaluation from non-German-euro-holding deposits is perhaps too much to bear for investors/savers and leaves the German politik, CEOs, and public at a critical decision point in terms of extending the socialist empire experiment (at their expense) or going it alone facing pain now for a brighter future - the Linde CEO seems convinced (and Schaeuble seems less than inspired by the euro-bond-based fiscal compact solution).