“It’s our tradition to control, like Erich Honecker and Helmut Kohl,
remember him from the Ukraine to the Rhone.
Sweet home uber alles, Lord, I’m coming home, yah.
Come on, Sugar Daddy, bring me home.”
— “Hedwig and the Angry Inch”
ANALYSIS/OPINION:
George Soros isn’t the only sugar daddy whom former beneficiaries accuse of turning tightwad when faced with roller-coaster stock markets and interminable debt debates.
German taxpayers all along were wary of becoming the only teat on the EU’s udder for the the alliance’s spendthrift southern members. There is nostalgia, too, for the once high-flying Deutschmark, which few Germans wanted exchanged in 2002 for euros. Now those feelings of unease are exploding with Germany’s vaunted economy going south — and not just for bailouts for Greece, Portugal, Ireland, and possibly Spain and Italy.
German growth collapsed to near zero over the early summer, which could take Germany, Europe and the world into recession by winter. That would mean abandoning hope that Europe’s biggest industrial engine will salvage the EU common currency.
Many of the usual suspect talking heads called all this totally unexpected. Hello! Sixty percent of the German goods in its export-led economy went to other EU countries. True, profligate Greeks, Portuguese, Spaniards and Irishmen should not have bought those Mercedes they couldn’t afford. But if they hadn’t, how would German auto plants have pumped out cars, keeping German unemployment relatively low?
The Germans, like dreamers going back to Marco Polo, turned to China (and Russia) for new markets. Trouble is, the jerry-built Chinese “world factory” is in deep doo-doo, too, cutting back on what its “communism with Chinese characteristics” leaders thought was a fool-proof, permanent formula for stability: unlimited infrastructure expansion and subsidized exports for supergrowth rates, with corruption for the elite.
But more than one little piggie didn’t go to market. Chinese inflation (or perhaps we should use new Obama administration’s gobbledy-gook, “core inflation”) is rising, particularly for crucial food stocks. (Incidentally, Chinese shortages mean huge U.S. corn purchases, lifting American prices.) And there are still Chinese who remember in 1949 the communists installed that ogre Mao mostly because of rip-roaring inflation on Shanghai’s countinghouse tables, not because of his battlefield valor.
Russia? There, increased German dependence on Russian gas, even encouraging Moscow’s government monopolies to buy into Western distribution networks, was all well and good during the halcyon days of unlimited credit and rising consumption. But now Moscow bleeds, capped by an incredible $30 billion capital outflow in the first six months of 2011. (No oligarch dares leave money lying around in St. Petersburg or Moscow lest a new Rasputin grab it.) Some 1.2 million professionals leaving in the past three years also carried part of the money out. And with diving fossil-fuel prices, the Russian economy is hanging by one energy thread. That’s why a half-million small- and medium-sized German firms in Russia, “highly leveraged” with government export credits, are sweating.
As the euro stumbles from crisis to crisis, “solutions” boil down to two proposals: full steam ahead toward economic integration, permitting a unified fiscal and monetary strategy, or refinancing bankrupt southern members using a eurobond guaranteed by the 17 members of the common currency and anybody else Brussels can seduce into signing on.
German Chancellor Angela Merkel and French President Nicolas Sarkozy stumbled back from their sacrosanct European summer holidays to try to find a solution in mid-August. But while their vague joint statement more or less endorsed the first approach, it offered not a clue how problematical negotiations could go forward as quickly as they must, especially as crumbling economies gain downward momentum.
The two leaders didn’t rule out the second solution. That’s because the last straw has been the rising cost of refinancing national bonds — more threatening even than the size and conditions of the bailouts. The Germans are more than aware that any such new credit instrument has to be backed proportionately by Europe’s largest economy. Nor is it clear from its most enthusiastic sponsors how rates would be set if they ignored/avoided the current race to the top among lenders for the highest interest rate in a rocky market.
Of course, the 500-pound gorilla in the room is the option of letting debtors drop back into their old national currencies to balance their books. But dismantling the oversold euro (pun intended) might be the death of the European Union itself.
Stay tuned: The tragicomedy is still unfolding.
c Sol Sanders, veteran foreign correspondent and analyst, writes weekly on the intersection of politics, business and economics. He can be reached at sol.sanders@cox.net.
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