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Bazookas Galore, Irrelevant Court Rulings, And What’s Next After Europe’s ‘Essential Day’
"This is Europe's moment. Our willingness to act must live up to the challenges we are all facing", European Commission President Ursula von der Leyen declared on Wednesday, in a press release unveiling the details of a planned recovery fund for virus-ravaged Europe.
The name of the plan: "Next Generation EU".
Von der Leyen called it "an ambitious answer", and you'd be hard pressed to argue with her. As noted when the details first leaked, the total package is worth €750 billion.
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Another dose of Hopium to soothe a jittery Mr. Market. Clever politics on Merkel’s part. Gets to have her Hamiltonian moment knowing full well it will never come to pass in any form close to what has been presented today.
The fact is the USA is no longer a reliable partner. Joint Military budget should come shortly. Germany will re-arm in a real fashion. Germany needs the Euro and some members will balk at being trapped in a debt depression. China is shopping Europe and controlling political spin. Far more than equities afoot.
How would returning to the Mark be a problem for Germany? In fact how wouldn’t abandoning the Euro, which is more a political device, than an economically useful instrument not be economically better for everyone in the long run especially PIGS? As for Germany re-arming that costs money, real money especially if Germany were to suddenly undertake military planning outside the framework of NATO –their entire military infrastructure would have to be uprooted and replaced –not likely in the current economic (and demographic) environment.
“How would returning to the Mark be a problem for Germany?” Errr…. The currency appreciation that would accompany such a move would make Germany’s export industry painfully less competitive overnight. 21 years worth of gradual appreciation would take place in one hit and that is assuming there is no over-shooting.
That’s a fair point but after the initial shock, which I cannot imagine being more consequential than the US pulling out of Bretton Woods or Volcker’s interest rate hikes in the early 80s, there would seem to be an upside –capital flows for instance. On the flipside there would also be near term pain for PIGS, inflation, capital flight, defaults etc. . .but are CB’s chronic emergency measures going to forever stave off what we once thought of as a “Day of Reckoning” –or do we believe that it too can be refinanced just like everything else?
German does very well by the Euro, better than the Mark. No thank you for your advice.
This is another demonstration that timing is everything. The ‘genius’ of the Franco-German proposal is to tie the recovery stimulus to the MFF which is currently negotiated. This ensures that any disagreement will be ironed out before the end of the year. New budget kicks in on 1 January 2021.