Biggest Question: Will Germany Adjust or Will Euro Die?
By Staff News & Analysis - May 09, 2012

Crisis escalates as insurrection breaks German control of Europe … The political dam has broken in Europe. German Chancellor Angela Merkel no longer has enough allies in the club of EU prime ministers to impose her hairshirt agenda. Her methodical plans are disintegrating on every front. For Germany it is a moment of truth. Berlin has put off hard choices since the crisis began … – UK Telegraph

Dominant Social Theme: 'Germany' will respond magnificenty to this crisis as it has before. Long live the EU.

Free-Market Analysis: Our favorite mainstream economic reporter, Ambrose Evans-Pritchard, is out with a good analysis of the current, brewing dissolution of the euro and the EU (see above). It touches on a point that we want to make much more forcefully:

What happens to the euro and the EU primarily depends on Germany now.

That's because the top elites running Europe are willing to throw any amount of money at the destabilizing Southern PIGS – but the money is not theirs but German taxpayers' money.

And Germans, despite being a docile and obedient people of late, are continually not enamoured with the idea of "bailing out" Europe – or more particularly its profligate banks.

They have made their displeasure known by continually whittling away at the power of Chancellor Angela Merkel whenever her party and allies face reelection.

The disastrous chain of events has essentially discredited the entire crisis policy imposed on Europe by Germany. Combined fiscal and monetary contraction has pushed much of southern Europe into a deflation "death spiral", pulling the rest of Europe down with a delay. Even The Netherlands is now in deep recession … The EU insistutions are slipping out of Germany's control.

The election of François Hollande in France has radically altered Europe's balance of power, and popular fury has done the rest across a string of democracies. Berlin hopes to assuage Paris with a beefed up role for the European Investment Bank and a growth compact, perhaps tacked on as an annexe to the fiscal treaty. Officals at the Kanzleramt think Mr Hollande's rhetoric was campaign hot air, and that he will switch tack like German Social Democrat Gerhard Schroder a decade ago once in office.

This may be a misjudgment, failing to catch the mood of fury in Europe. Mr Hollande was emphatic in his victory speech. "My mission is now to give Europe growth, jobs, prosperity and a future. We are not doomed to austerity," he said. They may call him "Flanby" in France after a brand of caramel pudding but his mildnesss disguises a steely side, and his Socialist base is not to be trifled with.

For Germany it is a moment of truth. Berlin has put off hard choices since the crisis began. It has refused eurobonds or budget transfers, stepping back from the Rubicon of fiscal union. Mrs Merkel has insisted on austerity and reforms alone, imposing the full burden of adjustement on the weaker states. She has brushed aside arguments the EMU's crisis is in essence a North-South imbalance in trade and capital flows that cannot be corrected in this fashion within a currency union.

Her government has ignored warnings that simultaneous contraction in the whole of southern Europe – without offseting monetary stimulus or expansion in North Europe – can only lead to a replay of the Gold Standard errors of the early 1930s. This phase of the crisis over. Now Germany itself will have to adjust.

… But of course there is no "Germany." There are the German people, and there are the pan European elites that seek world government and are using the EU as a steppingstone to realizing that state of affairs.

For 60 years, the elites that want to run the world formally have patiently built up the EU using all sorts of rhetorical tricks. At no time was it ever admitted that the primary purpose of the EU was to create a kind of Charlemagne's Empire that would serve as a building block of a new global order.

But that was the plan – evidently and obviously. And now "push has come to shove" and the elites are faced with turning an unruly political pact into a real US-style nation-state.

As we often point out, the rise of the Internet and what we call the Internet Reformation has complicated the elites' plans for world government by subterfuge. It is hard to build world government in secret when everyone can write about it and comment on it daily, hourly and even minute-by-minute.

Facts can be stubborn things. The Germans in aggregate – culturally and socially – are most frightened about continually creeping monetary and fiscal responsibilities for the rest of Europe. Rightly, they realize they cannot bail out Europe's banks.

More importantly, it seems to us that Germans are increasingly aware of the elite manipulation that is being brought to bear on them.

The "poor man" of the European continent (ironically, given their wealth), the Germans have been the chosen whipping boys for the City of London and environs. But that may be changing now as the Internet makes increasingly clear The Way the World Works.

After Thoughts

It seems Europe is indeed at a tipping point. Its coherence and further consolidation shall be secured by the Germans' willingness to back a further consolidation of the EU as a way of ensuring the credibility of the euro. Time will tell. And these are tumultuous times …

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