Germany Stands Athwart the European Crackup Shouting 'Stop'
By Staff News & Analysis - April 23, 2012

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.

After Thoughts

Portions of the EU already seem in default.

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