The Germans have given up on two of the most German aspects of being German. It’s very embarrassing. And neither surrender bodes well for the rest of Europe this time around.
The first blunder was a change to an odd quirk regarding the German defence forces. But it’s a quirk learned from experience: ‘After World War II the new constitution ruled that soldiers could not be deployed with guns at the ready on German soil…’ Any exceptions? Not until now.
It probably seems a bit odd that the army couldn’t do anything but practice and prance around on parade grounds inside Germany. On foreign soil, it’s bombs away. But inside Germany, they could only help out during natural disasters (unarmed).
This bizarre restriction is perfectly in line with the idea that the people are the ones the army is protecting, not the politicians. To be specific, it’s ordinary Germans that the army is protecting from the blundering politicians, domestic and foreign, and their propensity to start a war.
But now, all that has changed. The courts have come up with some exceptions to the rule. Those exceptions have something to do with terrorism. That’s the global excuse for just about everything these days. Never mind the fact that the eurozone crisis is going on and the rest of Europe is seeing riots.
We found out about the change to the interpretation of the constitution, not from the German media, but from the BBC! The good news is that German fighter pilots still can’t shoot down hijacked planes, something the court specifically mentioned…
Anyway, you probably don’t care about the kind of change that might matter a huge amount many years from now, when the Germans get grandiose ideas again. We probably shouldn’t make the joke about ‘getting back Poland’ anymore now that the military is no longer all tip and no iceberg.
You will care about the developments over at the European Central Bank, though. Because the Eurozone crisis has been keeping stock markets on edge for…far too long. Anyway, the story over there is about to take on a historical flavour.
Jörg Asmussen, known henceforth as the villainous traitor, has let the fox into the henhouse by opening the floodgates and declaring monetary martial law. Yes, the villainous traitor, ‘Germany’s director at the European Central Bank has thrown his weight behind mass purchases of Spanish and Italian debt to prevent the disintegration of the euro, marking a crucial turning point in the eurozone debt crisis.’
This is the German equivalent of the Australian Cricket Board’s press secretary surrendering the Ashes by forfeit. Villainous traitor indeed!
German primary school children can tell you, ‘Geld vermehrung ist Geld entwaertung.’ ‘Money increasing is money devaluing.’ And yet, Jörg ‘Weimar’ Asmussen reckons the money supply should be increased to stop the euro’s disintegration. What kind of Italian logic is this? If you create money, its value disintegrates, not the other way around. Jörg’s new middle name is ‘Weimar’ because the last time the Germans tried money printing it was called the Weimar Republic and saw hyperinflation.
Once again, it’s the British media who brought us news of the defeat on the monetary front. It was the last front the Germans still held.
But the villainous traitor may have gone rogue. Germany’s central bank still isn’t a fan of money printing. Where this leaves the ECB isn’t clear. The Germans don’t have a veto, but they do hold some influence, even if their representative at the ECB has committed monetary sedition.
It looks like the villainous traitor is using just the kind of logic we warned you about recently to justify his villainous treachery:
‘Mr Asmussen told the Frankfurter Rundschau that the surge in Club Med bond yields over recent months “reflects fears about the reversibility of the euro, and thus a currency exchange risk” rather than bad economic policies in struggling states.
‘The choice of wording is crucial. If it can be shown that the ECB is acting to avert EMU break-up – known as “convertibility risk” – bond purchases would no longer be deemed a bail-out for Italy and Spain.’
In other words, the bailout of Italy and Spain isn’t a bailout of Italy and Spain. It’s just a bailout of the euro. And the ECB is allowed to save its own currency, otherwise all those ECB central bankers would be out of a job.
Hopefully, the Germans will kick up enough of a stink that the politicians will be forced to go ahead with the referendum on the euro they’ve been pondering. If not, enter the newly empowered German military, requested by parliament to suppress the monetary terrorists calling for the Deutschmark. The question is whether it will be the parliament in Berlin or Brussels that makes the request.
One thing the central banks have forgotten is that money moves. Pumping money into unproductive Spain and Italy to bail them out is like pumping water from one side of the Panama Canal to the other in an attempt to reverse climate change. The logic of the action and the desired result both don’t make sense.
But if they pump hard enough, something will happen. It probably won’t be good though. The economist Anders Aslund points out that the previous three European monetary unions all ended the same way — hyperinflation. So far, the ECB money printing has given us a German and Swiss housing bubble, as we told Money Morning readers about last week.
For now, expect some sort of stagflation — inflation and stagnation — in Europe. It’s the politics that’s going to be volatile. Borders still separate the states of the Eurozone. Will the Greeks, Spaniards and Italians put up with economic misery while the ECB’s stimulus efforts pump up German asset prices? The real question is, for how long?
Chances are, there’s a prowler tackle on the way anyway. That’s when a rugby player appears out of nowhere to complete a tackle which didn’t need completing. The idea is to unexpectedly pummel a player who thinks his opponents have already finished with him. Greg Canavan reckons China is lining up for a shot that will make Europe look tame. To find out more, click here.
Until next week,
The Daily Reckoning Weekend Edition
ALSO THIS WEEK in The Daily Reckoning Australia…
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Wall Street Running Out of Suckers
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