Ignore Merkel And Brexit: According To Bill Blain, A New Threat Can Bring Europe Crashing Down

Blain's Morning Porridge, Submitted by Bill Blain of Mint Partners

Europe is like a 4D game of Jenga, and Germany is a very wobbly block - as are the banks

Europe is an enormous 4 dimensional game of Jenga.  At the moment there are far too many blocks in play. Some of them are likely to leave the edifice teetering but standing. The question is: will any cause it to tumble?

Top of the wobbly blocks list is Merkel – what happens next in Germany? The CDU’s disastrous shift left has opened the door for the extreme right, and has fractured her own support.

Merkel’s survivability is questionable. In her wake, all efforts to rejig Europe via closer union and monetary/fiscal harmonisation via banking union are absolutely on hold while the German constitutional crisis (yep, for that is what it is) plays out.

Markets don’t seem particularly worried – they have become blasé about political risk and look to the upside of Germany’s apparent rosy and robust financial strength. What’s not to like about Germany?  What can possibly go wrong – it regards the current Merkel issue as a short-medium term minor concern. Get over it.

On a purely German basis they might be right. The critical thing for Europe is who follows Mutti?

Merkel’s threats to call another vote rather than continue coalition talks looks like bluster – sounds like she’s trying to scare the opposition parties into a deal rather than go through the uncertainty of  second election. If it comes to a second vote, it’s another miscalculation.

The question being asked yesterday was “who replaces her?” She’s been inordinately successful ensuring all upcoming potential political rivals were snuffed out, but one name I heard from two good sources is Jens Spahn. If you’ve never heard about him (and since he’s a German politician you probably haven’t), this lays out where he’s coming from.

Clearly I have no right to speculate on what happens in German politics when UK politics is such a mess. However, I am indebted to my colleague Steve Previs for pointing out the similarities between the UK and Germany.

Spot the difference and who said what: “No deal is better than a bad deal” and “No coalition is better than a bad coalition”.

Of course, Brexit is the second wobbly Jenga block. May is looking likely to up her divorce offer – which will further destabilise her own position but might force recalcitrant Europeans to notice. I doubt it. They are currently looking to the East.. not the West. Ahead of tomorrow’s UK budget, there is some interesting stuff in the papers about how European budget spending will have to be slashed post-Brexit. The pain will be felt across the European soft-underbelly! 

But the wobbliest Jenga Block might remain the European financial system – and I don’t mean moving the EBA to Paris. (Good luck to them. After all, the French government would never ever be overly cosy with banks… would it..?

The latest wizard wheeze from the ECB is a real sweetie… according to a discussion paper published by the ECB last week on revision the Union’s crisis management framework; if a bank looks wobbly, then: “covered deposits and claims under investor compensation” should be replaced by “discretionary exemptions”.

Crashing minor chords.

The issue of German liability for the new European deposit insurance scheme (EDIS) was one of the issues that caused the coalition talks to fail: no Germans politician wants associated with policies that would mean paying the liabilities of Italian banks! 

It might be even more confusing. Has the ECB just turned the basis of finance on its topsy-turvy head - again? If you’ve been buying covered bonds issued by undercapitalised, over-NPL’d European banks – then worry. By putting “covered deposits” in the firing line, covered bonds lose secured status and look subject to the same bail-in **** and all the other uncertainty the ECB leaves in its wake. Pfanbriefe anyone? Suckers! 

And getting rid of depositor credit insurance? What a marvellous idea. It certainly fits with the European dream.. You know the one: how Europe would work much better if there just weren’t any pesky complaining citizens to worry about. Why not just Europeanise the whole European banking sector, take everyone’s money and give it to French farmers and Brussels Eurocrats?

It would be much simpler.

Of course it’s all about the Germans refusing to bail out feckless foreign types.. (Of course it is.. everything in Europe is about the Germans..) It’s a carrot and stick approach to solving the Italian bank conundrum – if they reduce NPLs, then the ECB will graciously bail depositors via the EDIS. Otherwise, the Germans aren’t going to give them access. 

The ECB knows best. (Which is to do what the Germans tell it to do…)


Haus-Targaryen Linus2011 Tue, 11/21/2017 - 07:04 Permalink

I legitimately don't understand why people are freaking out over dysfunctional German "politics". Let me make this as simple as I can for everyone so as to not confuse you:1) The overwhelming majority of German "laws" actually find their genesis in Brussels, not in Berlin. 2) The German Left Party, Green Party, Labor/Democratic Party, Conservative/Republican Party and Libertarian Party all are pro "Deeper EU integration"3) These parties amassed some 85% of all votes cast in the previous "election"4) Thus, it doesn't matter what group of parties "runs" the German "government" ... the result will be the same:More EU, more "refugees", more "solidarity" and further decreasing standards of living. Its a dog and pony show.  

In reply to by Linus2011

nmewn Tue, 11/21/2017 - 06:22 Permalink

"...discretionary exemptions..."lol...just makes you wanna go out into the backyard, dig up the ole coffee can and then RUN (don't walk) down to the local branch of First Euro Trust & Savings to open an account doesn't it? ;-)

Calculus99 Tue, 11/21/2017 - 06:46 Permalink

Banks get in trouble, get given billions. Savers who deposit their hard earned in a bank that gets into trouble look like they'll get fuck all minus admin costs.The EU working hard for you... 

Truly Inspiration Tue, 11/21/2017 - 06:47 Permalink

....The CDU’s disastrous shift left has opened the door for the extreme right....What a bullshit - you just have to be far enough to the left to see everyone being extreme right.The extreme rights are nothing more than people who are afraid that Europe ends like we had in the beginning of the last century; it's history repeating what you see today. By the way the program of the so called "extreme right" parties is an exact copy of the program of the CDU in 2002!!!!!!

Ace006 Truly Inspiration Tue, 11/21/2017 - 08:09 Permalink

Well said. A normal person should be ashamed to use the term"extreme right." The political spectrum that matters is totalitarians, concentration camps, secret police, political murder, massive state theft and incompetence, thought control, and bicycle locks on the left and free thought, free people,  rule of law, and free enterprise on tthe right. But that's religiously inverted by the toads. Gutmenschen inhabit the left side and people who want only to preserve their nation, communities, heritage, race, and families are "extreme right."  Which us to say "Nazis."This is state of the art politics and journalism today. Toadocracy.

In reply to by Truly Inspiration

joak Tue, 11/21/2017 - 06:48 Permalink

Go and read the original document, point 5.3. GoldCore started spreading the fake news saying BCE wants to end covered deposit (by conveniently wiping the first sentence of the excrept hereunder...), while they just stated they want to end their exemption from moratorium, which is completetly different : "An effective pre-resolution moratorium needs to have the broadest possible scope in order to allow for a timely reaction to liquidity outflows. The general exception for covered deposits and claims under investor compensation schemes should be replaced by limited discretionary exemptions to be granted by the competent authority in order to retain a degree of flexibility."And BTW this is exactly what happened in Cyprus, so nothing new. Link : https://www.bankingsupervision.europa.eu/ecb/legal/pdf/en_con_2017_47_f…

css1971 Tue, 11/21/2017 - 07:05 Permalink

CDU are borderline commies these days.Career politicians don't give a shit what their published policies are as long as they gain power

yogibear Tue, 11/21/2017 - 07:20 Permalink

It's a coordinated effort by the BOJ, ECB and the Federal Resereve  to just keep dishing out liquidity.They are well aware that sound economic principles are gone.Rates can never normalize again. Since 2008 it's been economics on life support.

Money_for_Nothing yogibear Tue, 11/21/2017 - 08:51 Permalink

The US needs 10% inflation or more. To do that wages and welfare-payments (including social security) have to rise significantly. To do that the US has to be walled off from the rest of the world.

GDP 1 Quadrillion
deficit 26 Trillion
taxes collected 200 Trillion
total debt 288 Trillion

The above is a lower bound (best case).
inflation = 10% GDP growth = 13%

In reply to by yogibear

luckylongshot Tue, 11/21/2017 - 07:22 Permalink

The big picture here is that what we are seeing is the emergence of a new Soviet Union of Europe. The original was created by a Rothschild, Rockefeller funded coup in Russia which overthrew a democratically elected government and resulted in Stalin. Now that the Rothschilds have been thrown out of  Russia they are working hard to establish full control over the EU and have largely succeeded. What comes next for the people of the EU will not be pretty. All private wealth as well as many children will disappear into the hands of the satanic cabal as they cement their tyranny in place. Worrying about who in the EU is the wobbliest is a little like worrying about the chair layout on the deck of the Titanic. 

luckylongshot BarkingCat Tue, 11/21/2017 - 08:35 Permalink

You need to check your history. What you will discover is that the monarchy was replaced by a democratic government headed by Kerensky early in 1917. The Cabal did not like this and so financed the October revolution which replaced the democratically elected Kerensky government as the monarchy had already left power.

In reply to by BarkingCat

Grandad Grumps Tue, 11/21/2017 - 07:26 Permalink

Because Germans know best?

Why does Germany do well when other European countries struggle? Is it because they have been over-run by tall white aliens with superior intelligence?

Obviously Merkel is not a tall white alien... well at least she is not tall.

Willard J Clinton Tue, 11/21/2017 - 07:31 Permalink

From the NYT article linked in the piece re Jens Spahn:"...To understand where German conservatism may be headed, look at Jens Spahn. A Christian Democrat in the Bundestag, Mr. Spahn is not a nationalist, but he believes that a certain dose of nationalism could have healing powers — healing for both public insecurities and his own party’s misery. He is young, eloquent and ambitious, and an openly gay resident of Berlin. Political insiders consider him a potential successor to Ms. Merkel as the head of the Christian Democrats, if not as chancellor. He is too smart to indulge in the blunt copying of Alternative for Germany slogans that others in his party have taken to after the election. ..."Why, Nostradamus could not have predicted that TPTB would be promoting  this to be their mouthpiece in Germany.....

Batman11 Tue, 11/21/2017 - 08:14 Permalink

The comedy of errors that is the Euro-zone.Angela Merkel was insistent that “Every country must clean up its own sh*t” in a meeting in Paris on 4th Oct 2008.This is where the problems started.Well, this is where they really got going.The Euro-zone had been doing fiscal transfers from the start, via loans from the North to the South. When the money is loaned you end up paying more back, the principal plus the interest. It’s never going to work in the long term and it doesn’t.After 2008, the North stops lending to the South and the flow of money reverses and it all falls over. Trichet, at the ECB, just makes things worse until Mario flies in to save the day, but the damage has already been done.Mark Blythe looks back at the data:https://www.youtube.com/watch?v=B6vV8_uQmxs&feature=em-subs_digest-vrecs   

rotlicht Tue, 11/21/2017 - 08:22 Permalink

"The CDU’s disastrous shift left has opened the door for the extreme right, and has fractured her own support."Extreme right???? AfD is what the CDU was 12  years ago, nobody called them extreme right...ridiculous!

slipreedip Tue, 11/21/2017 - 08:56 Permalink

There is nothing NEW about the threat that will bring down Europe.Its already brought it down.Its migrants and refugees. Its exactly the same as its ever been.Brexit, happened as a direct result of the broader publics perception that their country was no longer their own.Catalonia is the same, ( albeit to the rest of the world far more homogenous).Germany,Greece,France,Hungary.They all have issues with refugees and immigration. The inflection point for people voting for a strong nationalist leader stems from this problem.Its how tyrants are always elected. To restore the good old days.People dont change.

NEOSERF Tue, 11/21/2017 - 09:13 Permalink

Once Germans truly start to feel their EU-ness in their wallets as they have to subsidize the rest of their lazy brethren in the EU, the protests will hit the streets.  These are the things that start wars.

UnschooledAust… Tue, 11/21/2017 - 12:46 Permalink

"The CDU’s disastrous shift left has opened the door for the extreme right, and has fractured her own support."Are you shitting me? AfD is "extreme right"? Well, if you are a cultural marxist...."...but one name I heard from two good sources is Jens Spahn."Just another one of Merkel's court jesters....

ukipboy Tue, 11/21/2017 - 23:01 Permalink

Italy will bring down the whole corrupt crumbling edifice of the EU. Italian banks are insolvent. They have about 350 billion euro in bad loans. More Italians are taking to the streets to protest uncontrolled immigration (invasion of their country). Support for 5 Star and Berlusconi is soaring. (In recent elections in Sicily, the sitting socialist government polled about 17% and were kicked out). The coming general election in early 2018 will bring a Eurosceptic government to Italy and a defeat for the Socialists of Matteo Renzi. If Mutti Merkel is down and out in Germany, there will be nothing to save the failing structure of the EU.It could not have happened to a nicer bunch of Euro fascists.