It’s a mess on the side of German law makers. The German Parliament and the German Constitutional Court are back-to-back regarding the monetary policy of the European Central Bank. While the Court of Karlsruhe wants the ECB to stop buying the debt of the Member States of the Euro Zone, the Bundestag has dubbed the money press. Bitcoin jubilee… Why such a turnaround? Because the Teutons are profiting from the Euro and preventing the ECB from keeping rates low would shatter the single currency …
“The ECB is not the master of the universe”
That’s what said Peter huber, judge of the highest German court, after the latter has suffered a barrage on the part of European institutions that have not tasted that the ECB is respondent to justify its debt purchases.
In question, a judgment given on 05 May in which the judges argue that the debt purchases are not ” proportionate ” The governors of the ECB quickly responded to this affront to his royal “ independence “By announcing buy for 600 billion additional debt. Atmosphere…
Since then, German deputies have decided in favor of the ECB. A decision shared by Olaf Sholz, the German Minister of Finance.
Case closed for the Court of Karlsruhe which reserves the right, however, to return to the charge. Uwe Kamann, a former member of the AfD party, has already announced his intention to appeal, said the German newspaper die Welt. The ECB’s reprieve is therefore only temporary …
But the main thing is there for now: the Court will not ban the Bundesbank, the German Central Bank, participate in debt purchases (Quantitative Easing for friends) orchestrated by Frankfurt.
Why did the Bundestag drop its Constitutional Court?
The answer is not evident. Behind this decision hides a great geopolitical and monetary game which has its roots in the single currency. No need to beat around the bush: The ECB keeps the billboard to fill the gaps in a monetary union that is taking on water from all sides. This is what we will demonstrate in this article.
The adoption of the euro was a serious mistake because its exchange rate mainly reflects the economic power of the France-Germany core. German high-end export industry copes perfectly with a strong euro. But this is not the case for a country which mainly exports products to low added value like Greece.
The strong euro goes like a glove to Germany because the Mercedes will sell for both 45,000 dollars and 55,000 dollars. On the other hand, a such price difference on olive oil will necessarily lead to Greek exports which will face fierce competition on the international market.
In other words, asking all European countries to use the euro is the same as equipping all runners on a basketball team with tennis shoes. wearing the same size. There are some who will have blisters …
The Greek patient
The euro area is a system of communicating vessels. When Germany Gains Trade Surpluses, Other Countries Like Greece Post necessarily a trade deficit.
Put another way, Germany is slowly destroying the industries of its “partners”. Since 2000, employment in the industrial sector has declined by 27% in France while it remained stable in Germany …
How do you want Greece, or Portugal, to be on par with the German economy, which is backed by a population of 83 million inhabitants. The Greeks are just 10 million. It’s David against Goliath.
Once in the Euro Zone, Greece had no choice.
1 / Let unemployment increase and / or lower wages. This is called an internal devaluation. But the Greeks are not Chinese …
2 / Let the debt go to finance this balance of trade which it was written that it would become deficit in this single market dominated head and shoulders by Germany.
This is probably not what we had promised to Greek citizens when adopting the euro …
The collapse of the Greek economy is the result of the absence of an exchange rate.
You have to understand that the rationale for an exchange rate between two currencies is to force the country with a trade deficit to naturally take the necessary decisions to adjust its economy. If country A has a recurring trade deficit with neighbor B, its currency will quickly and sharply depreciate against that of B. It then becomes far too expensive for A to import. He has to react.
The exchange rate prevents that imbalances do not persist too long!
Debt to make up for the absence of an exchange rate
In the context of the euro area, a country like Greece has been able to run a chronic trade deficit without suffering from a depreciation of its currency. But like everything is paid for in one way or another, this deficit trade balance ended up forcing Greek banks to borrow from banks in northern countries from Europe.
A vicious circle then started because, in addition to the money spent to pay for imports (from Germany), debt interest also started to leave the Greek economic circuit. And the money available in an economy that was ultimately nothing but the balance resulting from inflows and outflows, the Greek economy found itself asphyxiated and taxes ceased to flow into the coffers.
The Greek ordeal started when the rating agencies (Standard & Poor’s, Moody) downgrade its debt rating. At the time, it was necessary to divert the attention of Wall Street which had just exploded (subprime crisis). This degradation caused a very strong higher borrowing rates to which Greece was rolling its debt. The Greek world then changed.
Indeed, do roll your debt at the rate of 7% instead of 1% quickly becomes unmanageable. The Greek 10-year borrowing rate even went up to 30 % at the height of the crisis … (17% for Portugal, 7% for Italy …) Or how strangle a country to him confiscate sovereignty…
Why did you lend Greece so much money?
Why have foreign banks agreed to complete the Danaïdes barrel as long as ? And at rates almost similar than those from Germany, knowing full well that it was not sustainable?
This is a good question since with the introduction of the euro, and in the absence of the exchange rate valve, it was the role of the banks to police by gradually turning off the liquidity tap to encourage Greece to make the necessary reforms.
In one imaginary world, maybe … But it is to forget that the reason for being of the banker is to collect interests. It’s stronger than him… German and French banks lent to Greece, betting that it would automatically benefit from the solidarity of other countries. Rightly so since that is what happened …
In short, let us return now to the reason which pushed the Bundestag to support the ECB against its own Constitutional Court.
We just explained that the Germans have a trade balance chronically surplus vis-à-vis the rest of the euro area. As a result, German banks have become over time creditors from other euro area banks. Therefore, the higher the rates, the more the German banks make a profit. Logic.
However, the ECB, thanks to Quantitative Easing and the interest rates on deposits (negative), manages to keep borrowing rates low across the eurozone, to the chagrin of German banks… CQFD
What if the ECB stopped keeping rates at the floor?
The Euro Zone would simply explode. With the consequences:
- Default many countries on their debt
- Slow-down marked German exports to the countries of the South (collapse of the German economy)
- Return to Mark whose much higher exchange rate would weigh slightly more on German exports
It’s a risky bet… It’s probably wiser for the Germans not to be the slayers of European “unity” …
The next step for the ECB will most likely be to clear the debts it has bought back. This is especially what Germany fears but what Bitcoin expects firmly … Indeed, Bitcoin feeds on the billboard … And let’s not forget that Italy very clearly threatens to slam the has been wearing for some time now …
Child of Satoshi, the alchemist who turned a cryptographic algorithm into gold.
I’m talking about monetary geopolitics, not shitcoins.