In an interview making the rounds this morning, which appeared in German "for the people" daily Bild, one of the German Council of Economic Experts, Beatrice Weder di Mauro, who is one of five economic advisors to Angela Merkel, put it in no uncertain terms (Bild readers don't like the kind of "political talk" other politicians are best known for) that while a breakup of the Eurozone in 2012 would be "bad for everyone involved" it can not be completely excluded. She also warned that unless the financial crisis is intercepted quickly, it can lead to a recession in Germany, with the economy contracting 0.5%, and leading to an increase in unemployment. Finally, she made it all too clear how Germany plans to deal with the PIIGS laggards: "Over-indebted euro-zone nations must submit to a long-term insolvency rule." Now granted this was google translated, but somehow we believe it captures the essence of the underlying thought quite succinctly. In other words, Germany is once again toying with the "expulsion" nuclear option, the same one that according to UBS analysts as recently as a few weeks back, would make precious metals, tinned goods and small caliber weapons the best investment option. How this will impact the EURUSD on this day when the currency is already at a near 2011 low is unclear, but will hardly be favorable.
Who is to blame for the crisis €?
Beatrice Weder di Mauro: "Some countries have taken part and individuals over the years too much debt. The banking crisis has also driven the national debt jumped into the air. Now the fear is great that they can not repay the debt. "
Why was there no warnings?
Weder di Mauro: "Because the consequences of debt and making the real estate and banking crisis have been underestimated."
Will the € break up in 2012?
Weder di Mauro: "That would be bad for everyone involved - but not completely excluded. The policy has been trying for almost two years to contain the crisis and to draw fire walls. However, these walls are not rich yet. "
Why not? What's wrong?
Weder di Mauro, "The politics, the crisis initially underestimated and too little done. Now they sometimes can not act as fast as they want. This is a problem, because the markets are nervous and impatient. "
What do you suggest?
Neither Mauro: "We need a triad: Over-indebted euro-zone nations must submit to a long-term insolvency rule. The others must undertake to reduce debt and stabilize the government budgets. With a debt settlement pact may fall in the debt ratios below 60 percent throughout 20 years. This requires that the short-term interest rates are pushed through mutual guarantees to a realistic level. "
How much will the crisis cost the taxpayer?
Weder di Mauro: "If we succeed with a debt settlement pact to stick together to stabilize the euro and durable, no significant losses are expected. Failing that, consequences and costs are incalculable. "
Can choke off our economic crisis, the euro, destroy jobs?
Neither Mauro: "Not if we get the crisis under control quickly now. Then the German economy in 2012 is expected to grow by around 0.4 percent. But the crisis should lead to zero growth in world trade, a contraction of the economy by 0.5 percent is possible. Then, jobs were in jeopardy. "
Is there threat of an inflation monster?
Weder di Mauro, "No. The general economic slowdown provides short-term rather stable prices. "