French government ministers have reacted angrily to the front cover of the latest issue of the Economist magazine’s latest front cover – which features a bundle of French baguettes with a lighted fuse, under the headline “The time-bomb at the heart of Europe“. The special report warned that the dire state of the French economy – with its high unemployment, lack of competitiveness, dying industry and high public spending – could be the next biggest threat to the eurozone, dwarfing the problems of Greece or Spain.
The magazine warned François Hollande’s reforms did not go far enough to address the country’s economic woes and if these were not resolved, France could jeopardise the future of the euro. (The Telegraph).
Find the French video below.
Guest post via Gold Silver Worlds.
We recently wrote The Case For A Higher Gold Price Based On Monetary History, which describes the analogy between the end of Bretton Woods and a potential end of the current hegemony of the US dollar as a reserve currency. Today we present another case in monetary history: Germany in the 20th century. This case is particularly interesting because it’s often cited as a prime example of hyperinflation. The key question in this case is what the root cause was of the hyperinflation and which measure(s) brought the situation back under control. Ultimately, here at GoldSilverWorlds, we are interested in understanding if therey is any link with Gold.
While researching what exactly caused Germany’s hyperinflation of 1923, we’ve found an extremely insightful paper in the scientific directory Citeseerx. The paper is entitled “Germany Monetary History in the First Half of the Twentieth Century” and is written by Robert Hetzel. The document provides an in-depth analysis of Germany’s situation before, during and after the hyperinflationary period. Below are the highlights from the paper; the full version of the document is embedded below.
The hyperinflation had its roots in the World War I. Germany, just like many other countries in the West, gave up the gold standard in 1914 in order to finance the world war. By abandoning its gold standard, a country becomes free to create theoretically unlimited amounts of money, with the only limitation the speed of the printing press. Money creation can serve short term objectives like financing a war, but there are long term effects which can be very nasty and painful mainly for the citizens, making the short term objective unworthy. The quantity of Germany’s monetary base expansion is presented in the chart below (see dotted line). The chart shows as well the rate of inflation. Source: paper page 5.
We have all heard how Germany has benefitted by being part of the EZ. The question is, what if this is not true, and Germany leaves the Euro? The conclusion via Peakprosperity, but we urge you to read the full article as well. Wow, that chart looks uncontrolled…..
In short, it has become obvious to many people from all walks of life in Germany that the euro has done them no good, and, far from reaping benefits, they are actually less wealthy as a result of it. Therefore, the brash assumption fostered by the debtor nations that Germany can and will pay is simply incorrect, even if we stick to the headline numbers. But we all know that a government budget deficit is only the tip of an iceberg. For Spain and Italy, we must also consider rapidly escalating off-balance-sheet liabilities, the financial difficulties of local governments, and central government guarantees for nationalised and other supported industries. Government liabilities can be doubled or even tripled – who knows? Our experience of Greece’s troubles has confirmed that an initial few tens of billions, which Deo volente was enough, turned out to be only the first of a series of ever-increasing demands. If Greece is to be regarded as a learning experience, Spain will certainly be impossible to support, given that she shows no sign or even any prospect of economic recovery.
If you missed his newest sharp arguments regarding the Eurozone, here is refresher via Spiegel online. George Soros, still going strong.
The fate of the euro will be decided in Germany. That’s what legendary investor George Soros writes in an essay this week published first by the New York Review of Books and later by SPIEGEL ONLINE in Germany. The 82-year-old believes that Germany either needs to be convinced or pushed to take greater action. And he argues that the country must either lead as a “benevolent hegemon” or leave the euro.
Soros, a native of Hungary, has emerged as one of the leading critics of the German government’s policies in addressing the euro crisis. In light of the dramatic developments in recent weeks, the billionaire investor has once again sharpened his arguments. (Full reading here).
Biderman on the markets.
Spain’s Prime Minister Mariano Rajoy said he is willing to consider asking for a bailout and the markets respond by buying two year Spanish debt and European stocks. Reality is that Rajoy’s statement means nothing because Spain is already de facto bankrupt. Bankrupt means that that Spanish banks, provinces and the government not repay debts. Tax collections are lower than government spending. Rajoy knows help really means that Germany would control Spain’s purse strings. Is that likely to happen? Spain will leave the Euro before that happens. More over if Spain accepts German help, would that happen anytime soon? No way that happens in less than a year. By which time Spain’s economy is in the same condition as the Midwest cornfields. (full reading here and video below.)
Could the Euro mess be saved by simply pushing CTRL ALT DELETE, rebooting the Economy and then cushioning the fall? Der Spiegel shares some of Wagenknecht’s left wing ideas.
If there is one thing that has seemed to characterize the euro crisis, it is the lack of alternatives. The common currency bailout fund, for example, had to be vastly enlarged to prevent financial markets from plunging the common currency zone into chaos. Spain had to be given billions in aid to prevent its banks from collapsing and making the situation even worse. The list of instances in which European leaders have made moves they’ve called mandatory is long.
Guest post by Peter Tchir of TF Market Advisors.
Profits not “Costs” from the Bailout. For all the talk about how much the bailouts are “costing” Germany and other countries, they have so far been very profitable.
Minimal Cash Outflows
In the early days, the countries did provide some funds. They may also have to provide the IMF with money (though the IMF also seems to be able borrow
rather than demand actual funds). Since then, the ECB and EFSF have largely provided the funds. So in spite of all the talk about the “cost” of
bailouts, the structure has allowed the money to go to Spain, Italy, Greece, Portugal, and Ireland with minimal cash out the door.
After the Second World War Germany evolved to a strong economic power and exporting nation.
Yet the debt crisis and the euro crisis both injured the giant – but how bad is the level of debt today and what damage could it cause?
Get a glance at the aftermath and the latest developments.
Must see infographics below, courtesy Ge Vestor.
With the Euro crisis having spread across Europe, Germany is now starting to feel the pain. Markets have been cheering the Spanish bank bail out lately, but what is Germany facing this autumn? From Spiegel online.
The German economy will stagnate by this fall because of the euro crisis, Hans-Werner Sinn, president of the Munich-based Ifo Institute for Economic Research, said recently. The Macroeconomic Policy Institute (IMK) sees the German economy stagnating both this year and next. “The crisis in the euro zone, the strict austerity policies and the associated recession in many EU countries” have taken hold of the German economy, says the IMK. The economists at Citigroup expect a recession in the euro zone in 2012 and 2013.