German Chancellor Angela Merkel has walked a tightrope over the last few years of keeping the EU together without infuriating the German populace to the point of having to abandon ship.
To do this, Merkel has maintained a firm stance of “we’ll write the check provided conditions are met” much as a parent would give a child his or her allowance provided the child performed its chores satisfactorily. In the case of German, the “chores” are required conditions of austerity measures and budgetary requirements in exchange for bailout funds.
By doing this, Merkel is able to play hardball on an economic front (having failed to meet its German-required financial targets Greece had to wait an additional six months to receive another installment of its Second bailout) without appear too hard-nosed on a political front (she continually pushes to keep the Euro together, expressing a willingness to help other nations… as long as they meet her budgetary requirements).
The policy has thus far been a success with Merkel’s approval rating soaring to its highest level since 2009 (before her re-election bid). However, the latest state election in Germany upset this situation with Merkel’s party losing.
Indeed, things are worsening for Merkel and her pro-Euro efforts at an alarming rate… … a recent poll showed 26% of Germans would be willing to vote for an anti-Euro party if the German elections were held today. When you consider middle-aged Germans, the percentage against the Euro rises to 40%.
Which is why Merkel is playing hardball with Cyprus… she’s up for re-election in September, and wants to make the appearance of not putting up with any more bailouts.
Unfortunately for her, Cyprus is telling her and Germany to shove it.
Why does all of this matter? Because Merkel cannot simply go ahead with another bailout without killing her chances of re-election. And Cyprus has indicated it is not going to confiscate depositors savings to help Germany out (at least for now).
Which brings us the core point we’ve been making for over two years: that Europe in its current form is finished. It’s simply a matter of who quits first: a smaller country like Greece or Cyprus, or if things hold together long enough that the bi bill comes due and Germany walks (Germans will promise to pick up the tab, but when the actual tab comes due, they won’t pay).
So what happens when Europe breaks up? Systemic failure.
EU banks are packed to the brim with garbage debts. Add to this the sovereign bonds they own in bankrupt nations and the entire European banking system resembles Lehman Brothers. We all know how that turned out.
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