Are the Germans in denial about the Euro? According to this must read Der Spiegel article, no.
- Investment experts at Deutsche Bank now feel that a collapse of the common currency is "a very likely scenario."
- German companies are preparing themselves for the possibility that their business contacts in Madrid and Barcelona could soon be paying with pesetas again.
- According to Credit Suisse, the market leader in Europe's largest economy [Deutsche Bank] ..., would face such heavy loses that it would suffer a capital shortfall of €35 billion.
- IT systems are being prepared for a Europe with multiple currencies.
- Economists with the Dutch bank ING have calculated that in the first two years following a collapse, the countries in the euro zone would lose 12 percent of their economic output... It would make the recession that followed the bankruptcy of investment bank Lehmann Brothers seem like a minor industrial accident by comparison.
- The German Finance Ministry's prognosis is even grimmer than that of the ING experts. According to their scenarios, in the first year following a euro collapse, the German economy would shrink by up to 10 percent and the ranks of the unemployed would swell to more than 5 million people. The officials were so horrified by their conclusions that they kept all of their analyses under lock and key, for fear that the costs of rescuing the euro could spin out of control.
- According to a scenario by the major Swiss bank UBS, if the financial risks resulting from the decline in exports, the necessary bank bailouts and the company bankruptcies are added together, the total cost to the German economy could amount to a quarter of Germany's gross domestic product -- well over €500 billion.
- Through this internal payment system in the euro zone, the Bundesbank has accumulated about €700 billion in claims against the central banks of countries like Greece, Spain and Italy. This is more than five times the Bundesbank's own capital.
Given these prominent German and Dutch prognostications, how could German leaders allow the Euro to fail? After all, they must know this information. I think that is explained earlier in the article...
- They [Southern Europe] would prefer to have the money without conditions. But the German government is unwilling to accept this, which puts Europe at its next impasse. Furthermore, the rescue strategists' resources are limited.
- But now even the ECB has largely exhausted its resources. It has already bought up so much of the sovereign debt of ailing countries that any additional shopping spree threatens to backfire, causing interest rates to explode instead of fall.
- The question is whether the economy in Southern Europe will recover before the euro rescuers' tools are exhausted, or whether it will be too late by the time the recovery arrives.
- It's a question of growth and the economy, but also of character. How willing are the Spaniards and Italians to accept reforms and hardship, and how willing, on the other hand, are the donor countries of the north to provide assistance and make sacrifices?
I would dispute some of these points, but what I think doesn't matter. Based on this, it sounds like German leaders have already accepted that the Euro will break apart. But the date of failure sounds distantly dependent on future periphery economic performance and political reforms, and has nothing to do with German decisions.
I too, think the break-up of the Euro (if not in name, then significantly in composition) is inevitable. But preparations must be made immediately for an orderly and amicable division. I don't hear any of this, only defiance and a bunker mentality (no double entendre intended).
If Germany has already accepted the break-up of the Euro, then at this Thursday's summit Germany will offer disingenuous solutions, which will be both impossible politically and inappropriate for the immediate market problems. The purpose will be to give the appearance of German support for the currency union, while in fact having confidence that it is doomed. This strategy will enrage other participants, and probably not just Southern Europe. And it will frighten markets whose hopes hang from increasingly dubious expectations of government and central bank rescue.
The begining of the Euro's end could be within a week. And that photo of Draghi being presented with a Prussian spiked helmet will go down in infamy.