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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. PLEASE... More
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Capitalism and Freeedom
  • The Trap Shuts On Germany 0 comments
    Aug 5, 2012 6:34 PM

    German politicians and former European Central Bank officials sharply criticized the ECB over the weekend and pushed for Germany, as the largest contributor to the euro zone rescue effort, to have more control in the central bank's matters, after President Mario Draghi signaled that the central bank could soon start purchasing government bonds.
    "The new situation that Germany provides a growing share of the euro rescue, but has only one vote just like any other country no longer fits," Herbert Reul, a German politician and chairman of the Christian Democratic Union and Christian Social Union group within the European Parliament, told German magazine Focus on Sunday.
    After resigning from the ECB last year in opposition to its bond buying program, former executive board member Juergen Stark warned in press reports that the further bond buys by the ECB would amount to "printing money," and risk increasing inflation.
    While Germany holds 27.1% of the capital of the central bank, Executive Board Member Joerg Asmussen is the only other German on the 23-member governing council after Mr. Weidmann, who has just one vote.
    In an interview with Focus magazine, Foreign Minister Guido Westerwelle said the problem is that "the economic and demographic weight in some committees and situations is not represented accordingly."
    To strengthen the weight of the Bundesbank, Mr. Stark suggested to Focus magazine that the ECB remake its board, which today includes 23 members, to a nine-member board set up, where big member states such as Germany would receive a permanent seat and the other states would share the remaining seats.
    That would require changes to both the Maastricht Treaty and the ECB's statutes, he noted.
    --WSJ, Aug. 5th, 2012

    There is nothing more amusing than an angry (but unarmed) German: "You cannot do this because I forbid it!!!"

    Germany's in a real pickle. She thought that she had joined a prestigious country club, only to be hit with a trillion euro assessment to repair other club members' broken-down houses, and with only one vote on the board of directors.
    I certainly sympathize with the Germans. They are the schmucks who always get screwed. They've been betrayed, cheated and swindled by France for two centuries, and now they find out that it's just beginning. An analogy would be if the Canadian taxpayer were told that he had to bailout the U.S. in the name of "North American solidarity".

    The Germans have unwittingly checked into the Hotel California.

    "Relax", said the nightman,

    "We are programmed to receive.

    You can check-out any time you like,

    But you can never leave."

    What will the Germans do when they realize that they are trapped and that there will be no new treaties? It seems to me that there is nothing that they can do that isn't radical. They are powerless with respect to the ECB. They had a veto over the ESM but they chose not to exercise it; Merkel has signed the agreement, the Bundestag has passed it, and the court will approve it.

    However, this contretemps is occurring at a crucial time in German history. Today, 99.9% of German voters had nothing whatever to do with what went on during the war, and they are tired of being guilty for a crime they didn't commit. They are no more going apologize for the Nazis than I am for the atrocities of the Eighth Air Force.

    So I see younger Germans (who now include almost the entire political and economic leadership) wanting to act like a normal country with normal interests. Germany's unrequited love affair with France is over.

    Now, how Germany sees her interests and how I see them are different. They have an inflation phobia that is purely psychological. They would benefit, along with their neighbors, from 5-6% nominal GDP growth in the eurozone. The bogeyman of the ECB becoming Italian is nothing to be afraid of. Germany would lose some of its Germanness and some of its wealth, but none of its prosperity. Economic growth is much more important than having tons of gold locked in your vaults.

    But I think we know that Germany is not about to have a Damascene conversion to inflation, open-ended bailouts and a weak euro, and that she will only play ball with Europe if she feels that she is in charge. Since she is not in charge, what will she do besides getting angry?

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