News & Analysis
Germany Stands Athwart the European Crackup Shouting 'Stop'
Bundesbank's Weidmann Says What No EU Politician Wants to Hear ... Jens Weidmann is no longer his master's voice. Almost a year into his new job as the head of Germany's Bundesbank, Weidmann, 44, has matured from Chancellor Angela Merkel's discreet right-hand man at global economic meetings into one of the few European policy makers warning that governments are failing to do what's needed to rescue the euro. The German central bank is campaigning against "indefinite expansion" of the money supply and seeking to limit losses it would face if the euro splintered. Weidmann's public criticism of measures such as the "fiscal compact" − hailed by its architects as the first step to economic union − has pitted him against Merkel and European Central Bank President Mario Draghi as they struggle to hold the 17-nation euro region together. With Europe in recession and rising Spanish bond yields threatening to reignite the debt crisis after a three-month lull, the Bundesbank's youngest-ever president says greater fiscal and monetary rectitude is the only way to win back investors' trust. – Bloomberg
Dominant Social Theme: Monetary competency is not what we need.
Free-Market Analysis: In another article today we discuss the impending dissolution of the Dutch government over the issue of EU-imposed "austerity."
There is no social consensus in Holland currently to cut the deficit back to the three percent demanded. Four or five percent is probably more in line with what's feasible, and it will take a change in Euro-policy to accomplish that.
Monetary policy may have to change because Holland is not alone. Half of Europe is rebelling against austerity demands. But the countries have no latitude to lower rates and print more money, which is what they need to do to "spread the pain."
The entire system is corrupt and ought to be eliminated. Given time, it will likely eliminate itself.
Monopoly fiat central banking doesn't work – not whether it is "public" or "private." The monopoly itself guarantees market distortions and ultimately ruin.
But leave aside the theoretical aspects. The problem the EU is facing is that the Germans – who provide the EU's engine – are not at all enamored of the idea of an "inflation tax."
The Germans are still scarred from their experiences with inflation, post-World War I. They want moderation in government printing policies.
Weidmann, mentioned in the article excerpt above, gives voice to this sentiment at the very top of the German hierarchy. Here's some more from the Bloomberg article:
"When he was appointed, the press pounced on him and cried 'Merkel's man' because he had worked for her for a few years," said Manfred Neumann, the professor of international economics at Bonn University who supervised Weidmann's 1997 doctoral thesis and says he still talks with his former student. "He has shown that he isn't."
Weidmann's arrival on the 12th floor of the Bundesbank's landmark building in Frankfurt on May 1, 2011, may have been more of a homecoming than a departure. From 2003 to 2006, he led the central bank's monetary policy and analysis division, serving under presidents Ernst Welteke and Axel Weber, one of his former professors and the man who recommended Weidmann to Merkel. He shared what he learned on his first day in charge, referring to the historic German anxiety about inflation that still stokes public mistrust of the joint currency.
"First of all, the Bundesbank stands for a culture of stability," Weidmann said during his inauguration speech. Welteke, accepting the same post 12 years earlier in the infancy of the euro, said the Bundesbank's job was to bring that culture to the rest of Europe. For Weidmann, that has often meant saying no. With Spanish government officials and French presidential candidates pressing the ECB for additional help as borrowing costs increase, his stand may be tested ...
Governments have consistently looked to the ECB to battle the debt crisis and Weidmann has consistently been the man in the way. When the crisis spread last year to Italy and Spain, the euro area's third- and fourth-largest economies, Weidmann opposed the ECB's decision to intervene in bond markets and publicly slammed a proposal to allow the region's bailout fund to borrow from the central bank.
Weidmann is a hawk's hawk when it comes to monetary looseness. For him, the tighter the better. And yet he is not entirely anti-EU. He just wants what he considers to be monetary competence.
"Obviously in the negotiations, as often in the past, things were watered down," he said on Feb. 1. "It's clear that the cornerstone for a real fiscal union hasn't been laid here."
According to the article, Weidmann expects either government to give up some sovereignty over national budgets or set stricter fiscal rules.
What we can see, then, is that Weidmann is not really anti-EU so much as pro-certain antidotes that will allow the EU to expand properly. He is part of an elite "dialectic" – engaged in the bowels of the evolving super-state, not in obstruction to it.
The article paints Weidmann as an "honest broker" telling unpalatable truths to the powers-that-be. Not so.
This is the problem for the good people of Europe. Even those who perceive that the EU is unworkable are part of its larger mechanism and are "pro" EU in the sense that they want it to work better.
Of course, Weidmann is to be commended for honesty, at any rate. Now, if he would only tell the full truth: The EU is imploding. It is an entirely unstable entity and none of the top players are being honest about the shape the PIGS banks are in or the impossibility of even the most ardent austerity.
Conclusion: Portions of the EU already seem in default.
Posted by Abu Aardvark on 04/23/12 04:54 PM
DB: "Weidmann is to be commended for honesty, at any rate. Now, if he would only tell the full truth"
I'm not buying much of this limited hangout stuff. After watching the German picture from up close for quite some time now, this 'Bundesbank hawk' stuff looks like damage control to me - more than ever, actually.
That postwar German central banking was somewhat 'hawkish' is a successfully implemented public myth. The alleged 'stability' of the Deutsche Mark was a meme that was harped on at an almost daily basis due the the broadly burnt in horrors of Weimar hyperinflation.
In marked contrast to the prevalent propaganda, the Deutsche Mark lost more than 75% of it's buying power from 1948 to 2002 due to credit expansion. This was explained away for decades, however, by the 'experts' (i.e. central banking gatekepers) as a consequence of 'too high wage agreements' and subsequent 'wage-price spirals'. Ah, and due to evil speculators, of course.
Now, very late, central banking, the EU, ECB, EU Commission etc, are coming increasingly under fire in supposedly conservative German newspapers - in particular at the flagship newspaper of the otherwise staunch US/Israel supportive Axel Springer publishing group, 'Die Welt' and certain other outfits like 'Wirtschaftswoche', 'Handelsblatt', et al.
Click to view link
See, for example: 'Inflation Destroys 13 Billion Euro Annually'
Click to view link
If You Want To Control The Dissent, Lead The Dissent ...
Posted by Bischoff on 04/23/12 05:58 PM
"Of course, Weidmann is to be commended for honesty, at any rate. Now, if he would only tell the full truth: The EU is imploding. It is an entirely unstable entity."
What truth is there to tell... ??? The EU is an economic unit using a common currency. They are however not a political union. Each EU country runs its own central bank. They agreed to a common currency under the Maastricht Treaty which can be compared with the 1913 Federal Reserve Act.
However, the big difference between Maastricht and the 1913 FRA is that Maastricht involves central bank de-monetized currency with negative value, while the 1913 FRA involved RBD currency with positive value.
Jens Weidmann and Axel Weber understand fully the consequences of the demonitization of the Reichsmark started in 1909 which led to hyperinflation during the 1920s. They also understand the creation of the Rentenmark tied to the gold standard with which Hjilmar (Horace) Schacht as Finanzminister of the Weimar Republic saved Germany economically by the early 1930s.
When after WW II, the Finanzminister of the new Bundesrepublik, Ludwig Erhardt in 1949 wanted to connect the new Deutsche Mark to the gold standard, the Americans catagorically nixed the idea.
Consequently, the Germans incorporated a very strict currency creation law into their constitution which limited the Bundesbank in its creation of DM currency. This very strict control over government deficits to be monetized made the DM one of the strongest currencies in the world.
It is the budget deficit control requirement, set forth in the Maastricht Treaty, which the Germans want adhered to by the other EU countries.
Germans are very much upset that the ECB, which should be bound by the Maastricht Treaty to create EURO currency, is constantly being bombarded to create additional EUROs against the restrictions of the Maastricht Treaty. Angela Merkel has played that game to some extent, in order to keep at least the ratio between the different countries' EURO currency.
However, it seems that Jens Weidmann is not seeing it Merkel's way. I doubt very much that Angela Merkel disagrees with him, though she will not say so publicly.
The attempt to make EURO denominated government bonds of the different EU countries obligations of the entire EU economic community isn't going to succeed. The Germans would rather go back to the old DM.
So, if Goldman/Sachs hasn't sold short all of their Greek bonds they tried to peddled to their clients, then good luck to them. The Germans are not going to bail out G/S. Betting on the stupidity of the Germans to fall in line was the downfall of Corzine. Better luck to the next guy that tries.
As to telling the truth about this, why would Weidmann have to say anything... ??? The average guy would not understand. The Euro politicians involved in this monetary mess know the truth already.
Posted by Justin on 04/23/12 08:44 PM
"The German central bank is campaigning against "indefinite expansion" of the money supply and seeking to limit losses it would face if the euro splintered."
Maybe Weidmann is doing that, but what he isn't mentioning is that the Bundesbank is already eyeballs deep in junk, including their 'Target 2' credits to other Euro central banks. Lending against more junk when you're already broke doesn't make you broker.
No, this Bloomberg article is just another puff piece promoting the quantity theory of money, that only if central banks stop printing more money then the worthless assets that match their existing liabilities, will somehow not be worthless. That it is the quantity of 'money' that determines its value.