Monday, April 30, 2012

Germany Losing the Euro War?

Just a few years ago, Germany's seeming answer to the debt laden Euro was to move it's politics East ward. The old 'trusted' foe, Russia, was being courted to begin a closer relationship in case the euro went bust and the fact that Germany needed to shore up its energy needs going forward.

Britain and France appeared to counter this with public displays of mate-ship.

Then along came Mr Francois Hollande. The likely new leader of France. He seems to have correctly called the frustration of all of Europe, except the Germans, that austerity dictated from Germany is not working. It also appears that he has surprised the Germans. Their staunch school-ma'am type of disciplined austerity, has caused much pain in the eurozone periphery since 2008. This probably to protect the years of trade-imbalance that Germany has enjoyed to the positive with the rest of Europe. Now other countries in the pact want a more even playing field and a chance to compete and grow.

If the plan by Mr Hollande, to re-negotiate the fiscal pact, comes about, then the euro, already showing remarkable strength against the USD, could be seen as a shining light amongst the BRIC countries. Perhaps the Russians and the Chinese will see a better opportunity in the euro to pound the US dollar reserve status rather than forming their own alternative to the dollar. Although they are likely to continue down that road as a secondary fall-back mechanism.

Maybe, with Hollande likely to be at the helm of France in two weeks,  the ECB will have the mandate to do 'whatever it takes' to pull the eurozone out of the debt laden quigmire of slow and negative growth. Yes, this will mean printing money and devaluation which the Germans won't like. But it may mean a chance for growth and strength if new debt is used to build infrastructure rather than just plain debt and interest repayments.

Interesting times indeed.


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