Objective analysis, or media spin to gauge popular reaction to Plan Z? Whatever it is, today's staff lead article in the English section of Spiegel has a piece that will likely raise more than a few eyebrows: "The common currency union was supposed to benefit the economy of the entire European Union. Now that the euro is struggling, however, it is bringing growth down with it. Germany's economy, once seemingly immune to the crisis, is now facing mounting difficulties."
When the board of Commerzbank met last Tuesday, Stefan Otto was supposed to make an appearance. The chairman of Deutsche Schiffsbank, a Commerzbank subsidiary based in Hamburg and focused on the shipping industry, had been summoned to Frankfurt to present the bank's financial results. But the presentation was cancelled; Commerzbank had no need for the numbers, having previously decided it no longer wanted anything to do with German shipping.
The executive board of Deutsche Schiffsbank was not notified in advance of the parent company's reversal. The supervisory board was also taken by surprise. Only three months earlier, Commerzbank CEO Martin Blessing had declared the financing of ships and commercial real estate to be part of the bank's core business. And although it was expected to shrink, Germany's second-largest bank intended to create a separate segment for the business.
But the executives had underestimated the risks that the European sovereign debt crisis presents to Commerzbank, and how much capital the ship and commercial real estate business ties up. Now Blessing has slammed on the brakes. Deutsche Schiffsbank Chairman Otto characterized the parent company's about-face as the "decision of a cautious businessman and not of a skydiver."
Commerzbank has recently made a huge effort to satisfy and even exceed the capital requirements set by the European Banking Authority (EBA). But if the euro crisis worsens, new gaps could soon open up, say banking industry insiders.
In Spain alone, Commerzbank is exposed to the tune of €14.2 billion ($17.9 billion) via investments in banks, companies and the government. The lower the rating agencies assess the creditworthiness of these borrowers, the more capital the bank will have to place in reserve for these investments in the future -- to say nothing of potential defaults.
Commerzbank isn't alone with such problems. The euro crisis and the higher capital requirements being imposed by regulators have adversely affected almost all European banks. And because of growing fears within the banks of a collapse of the euro zone, they are preparing for the worst by withdrawing to their home markets and winding down many investments.
This has serious consequences for the economy, not just along the periphery of the euro zone, but also in Germany, which had proved to be crisis-proof and was in fact booming until recently.
The euro crisis hasn't yet reached the German labor market. Last week, Frank-Jürgen Weise, head of the Federal Employment Agency (BA), announced a new jobless low: With 2.8 million people out of work, the unemployment rate had declined to 6.6 percent, the lowest level in 21 years. But in the economic cycle, the labor market is considered a "trailing" indicator. In other words, when things go up or down in the economy, it takes up to six months before jobs are affected.
Indeed, even though the German job market remains robust, BA head Weise says he sees "signs of weaker development." Month after month, the BA surveys all 176 employment agencies throughout the country about early indicators, so as to forecast labor market developments for the coming months. According to these indicators, the jobs situation will not deteriorate until autumn. But "we are nervous about 2013, because of all these risks relating to sovereign debt in the euro zone," says BA chief Weise.
Why is all of this relevant? Because as we get closer each day to the German ESM/Fiscal Pact constitutional court ruling, now expected on July 10, or a day after the ESM was supposed to go into operation, passions will rise. In fact, the Germany CSU chief Seehofer is already making waves with several announcements that put the bailout MOU achieved by Monti over so much blood and tears under question:
- German CSU chief says the CSU can't back limitless German Euro aid
- German CSU chief says concerned markets may question German Euro strenth
- German CSU chief says the CSU doesn't want new constitution for Germany
- German CSU chief says CSU rejects transferring powers to EU "Monster State"
- German CSU chief says Merkel has no majority without CSU lawmakers
In other words, politicians are already preparing for the fallout from what this latest compromise will mean for Germany once the euphoria from last week's still completely unclear MOU fades, and with Spanish bonds having topped at 6.33% we wonder: was this it?
So when all fails, Germany will need a plan Z. The plan is outlined above, and it involves what Ray Dalio and increasingly more people say is a very real option: Germany just getting the hell out of Dodge first.