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Christopher Mahoney
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I spent eight years at Bank of America in New York (1978-86) covering Wall Street, then moved to Moody's Investors Service where I worked for 22 years, covering banks, sovereigns and corporates. I chaired the Credit Policy Committee for four years. I retired in 2007 as vice chairman.
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  • Who Will Lead The Revolt Against Germany? 0 comments
    Oct 19, 2012 11:26 PM

    "Mr. Hollande has sought to reduce Germany's dominance over Europe's anti-crisis strategy, and open up Europe's debate over solutions to other voices. Since Mr. Hollande's election victory over Mr. Sarkozy in May, France has tried to play the role of a broker between Germany and southern European countries, including Italy and Spain, which are seeking more-generous European help against recession and financial-market strains."
    ---WSJ, "Summit Reveals Wider Franco-German Discord", Oct. 19, 2012

    That seems to be the main takeaway from the just-concluded EU summit: that Hollande has chosen to directly challenge Merkel's leadership of the union. I interpret this in two ways: (1) the good news is that the needy South is building a political coalition against the cold-blooded North; and (2) the bad news is that the Southern coalition appears to prefer public whining to real political action. But I hope I am mistaken about that. Maybe they are biding their time.

    Of the three Southern leaders, clearly the intellect is Monti. I think that he grasps the enormity of the problem facing Europe, including the need for reflation. But, because Italy is not yet in the direct line of fire, his strategy is to lay low and work behind the scenes. For now, he prefers to work on structural reforms to make Italy a better credit (with market access), rather than launching a frontal assault on Frankfurt and Berlin.

    Hollande seems to have the guts to take on Germany, but I am not sure that he fully comprehends the need to actually depose Germany from its leadership position in the EU and the ECB. The last sixty years of French foreign policy have focused on bringing Germany in, not on pushing her out. That would be a big step.

    Rajoy appears to me to be wholly out of his depth, but I am not really in a position to pass judgement on him yet. I agree with what he doing (demanding as much as he can get), but I doubt that he understands the urgent need to take over the governance of the ECB. He is the most radical, but he is not radical enough. Begging for a bigger IV drip will not save Spain. Only a revolution in the eurozone can do that.

    But there is hope. These three men have enormous political power in Europe, and they should be able to craft a large bloc of sympathizers out of the 17 members of the eurozone. As the next few months demonstrate that Europe is facing a future of endless zero growth, and as each of them fail to hit their fiscal targets, one hopes that they will realize that, as Mrs. Thatcher would say, there is no alternative.

    It is a shame that, aside from dear departed Sarkozy, no European leader has dared to question the baneful role of the ECB's single mandate of price stability. That is the intellectual breakthrough which is needed. It is ironic that the breakthrough occurred in the US, which is not facing zero growth, rather than in the eurozone, which is becoming a textbook example of Fisher's debt-deflation spiral.
    Europe needs to stop being afraid of the Bundestag, the Bundesbank, and the Constitutional Court. They don't rule Europe and they don't even have a veto.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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