As noted in our recent article, “The Beginning of Dissent” a key issue for Europe this year is Angela Merkel’s re-election bid in Germany. Merkel has thus far managed to support Europe through verbal and monetary intervention without angering the German populace to the point of outright unrest. However, the political tide in Germany looks to be turning increasingly against both Merkel and the Euro.
In this election, there are three key concerns for German voters:
- The threat of inflation
- The German economy
- The cost of the EU bailouts
Having experienced the result of rampant debt monetization (Weimar) recently enough that it’s still in the public’s memory, the German people are mortified by the specter of inflation. With that in mind, we are already seeing signs that inflationary pressures area rising in Germany though the official date continues to lie about its presence.
Indeed we see inflationary pressures in the form of wage hikes…
Germany's regional public service workers will receive an above-inflation wage hike of 5.6 percent over two years, negotiators said on Saturday following marathon talks between employers and the Verdi trade union.
Verdi had sought a pay increase of 6.5 percent for the 765,000 workers.
Germany, which holds a federal election in September, is under pressure from other euro zone countries to grant higher wage increases to stimulate demand from Europe's largest economy for imports from the bloc's troubled debtor countries.
… as well as rising costs in the corporate sector:
Worlee-Chemie GmbH, a family-owned company that has produced resins in the city of Hamburg for almost a century, is trying to escape the spiraling cost of Germany's shift to renewable energy.
A 47 per cent increase on January 1 in the fees grid operators set
to fund wind and solar investments is driving the maker of paint ingredients to Turkey, where next month it will start making a new type of hardening agent at a factory near Istanbul…
Manufacturers aren't the only ones buckling under the additional costs. Retailers like Oliver Krumholz, who owns seven Intersport stores in western towns including Muelheim-Kaerlich and Andernach, are also hit.
Krumholz is refitting his biggest store with a control system to ensure that the heating, air-conditioning and ventilation aren't on at the same time. He's also buying carbon dioxide monitors to measure how many customers are in the store so the heating will shut down when it gets too stuffy.
And this is occurring at the precise time that the Germany economy is rolling over along with the rest of Europe:
Germany's industrial production stagnated in January as the contraction in manufacturing and energy output was offset by a recovery in the construction sector.
Industrial output remained flat in January from a month ago, when it rose by revised 0.6 percent, figures released by the Federal Ministry of Economics and Technology showed Friday. Output was forecast to grow by 0.4 percent.
Overall industrial production slipped by working-day adjusted 1.3 percent year-on-year, sharper than the 0.5 percent fall seen in the previous month. The rate of decrease slightly exceeded a 1.2 percent drop forecast by economists.
The mainstream media is going bonkers over the improved investor confidence in Germany. Given investors’ lousy assumptions about the economy in general I don’t give this point much weight.
Rising costs… corporations moving aboard (cutting German jobs)… and a slowing economy… this doesn’t bode well for Merkel’s re-election bid… especially given that Germans are increasingly against the Euro bailouts she has supported:
A prominent group of anti-euro German economists and business leaders has formed a political party to challenge Germany's support for euro-zone bailouts, a move that could test the ruling center-right coalition's hold on conservative votes in the fall general election.
With just six months until the election, the new party, which calls itself Alternative for Germany, is unlikely to gain enough traction to win seats in Parliament, analysts say. Yet even if the party comes in below the 5% threshold needed to win representation, it could still attract enough conservative votes to prevent a return of the current coalition government, a combination of Angela Merkel's Christian Democrats, their Bavarian sister party, and the pro-business Free Democrats.
The above issue is not some political ploy… a recent poll showed 26% of Germans would be willing to vote for the anti-Euro party if the German elections were held today. When you consider middle-aged Germans, the percentage against the Euro rises to 40%.
One in four Germans would be ready to vote in September's federal election for a party that wants to quit the euro, according to an opinion poll published on Monday that highlights German unease over the costs of the euro zone crisis.
Germany's mainstream parties remain solidly pro-euro despite grumbling over bailouts of countries such as Greece. A German taboo on nationalism, rooted in atonement for the crimes of the Nazi era, has helped to muffle eurosceptic voices.
But the poll conducted by TNS-Emnid for the weekly Focus magazine showed 26 percent of Germans would consider backing a party that wanted to take Germany out of the euro and as many as four in 10 Germans in the 40-49 age bracket would do so.
This is a big reason why Germany pushed to confiscate Cyprus depositors’ funds during the Cyprus bailout talks: Angela Merkel has realized that her support of the Euro could cost her the election in September.
In plain terms, Germany appears to have finally hit its limit in terms of funding EU bailouts. We get confirmation from this based on the fact that Germany floated the idea of seizing depositors’ funds over such a small bailout (the Cyprus bailout would be €17, compared to €100 billion for Spain, and over €140 billion for Greece so far).
To recap the key point here is that European Crisis is now accelerating right as Germany becomes increasingly uninterested in funding additional bailouts.
Basic common sense dictates how this whole process will end (the Euro being broken up in some form or another), however the specifics of how this will play out as well as the timeline are impossible to predict based on the fact that you simply cannot predict the actions of desperate politicians and financial elites during times of Crisis.
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Thank you for reading!