STAFF NEWS & ANALYSIS
Germany's Step Back Shuffle?
By Staff News & Analysis - May 27, 2013

Austerity About-Face: German Government to Gamble on Stimulus … With the euro crisis refusing to relent, the German government is backing away from its austerity mandates and planning to spend billions to stimulate ailing economies in Southern European. But can the program succeed? Wolfgang Schäuble sounded almost like a new convert extolling the wonders of heaven as he raved about his latest conclusions on the subject of saving the euro. "We need more investment, and we need more programs," the German finance minister announced after a meeting with Vitor Gaspar, his Portuguese counterpart. – Der Spiegel

Dominant Social Theme: With implacable rigor we insist we will never change. You will do as we tell you to do, and once we say it, let it be so …

Free-Market Analysis: As we have pointed out in this issue's lead article, the "implacable rigor" of the world's globalist leaders is beginning to wilt. Those wielding Money Power seem suddenly amenable to compromise.

Are they in the midst of the first baby-steps toward a consolidated stride backwards, as we have long predicted? Perhaps so.

We don't take it at face value, of course. What has been instructive about watching all of this unfold is that the underlying drive toward control of the many by a few (globalists) remains undiminished. But we think we see signs, as we've predicted, that a small step back is in the making and maybe over time this will expand.

The latest news comes out of Germany where top politicos are having a rethink regarding so-called "austerity" – which in our view was just a way of intimidating the masses. But we think, as predicted, the pushback of Europe's tribes is making the IMF's third-world oriented intimidation techniques somewhat questionable. Here's more:

The role he was slipping into last Wednesday was new for Schäuble. The man who had persistently maintained his image as an austerity commissioner is suddenly a champion of growth. If Germany couldn't manage to trigger an economic recovery, "our success story would not be complete," he said. And as if to convince even the die-hard skeptics, he added: "The German government is always prepared to help."

After three years of crisis policy, it was an impression shared by very few people in countries like Portugal, Spain and Greece. They are more likely to associate Schäuble and his boss, Chancellor Angela Merkel, with austerity mandates ushering in hardship, deprivation and unemployment.

But a new way of thinking has recently taken hold in the German capital. In light of record new unemployment figures among young people, even the intransigent Germans now realize that action is needed. "If we don't act now, we risk losing an entire generation in Southern Europe," say people close to Schäuble.

Berlin is making an about-face, even though it aims to stick to its current austerity policy. The German government has stressed budget consolidation and structural reform since 2010, when Greece was on the verge of bankruptcy. Berlin has been arguing that this is the only way to instill confidence among investors in the battered debt-ridden countries and help their ailing economies recover.

But now, several rounds of cuts later, the politicians who had set out to save the euro must now look on as the economies of ailing Southern European countries are once again slumping while unemployment is on the rise.

To come to grips with the problem, Merkel and Schäuble are willing to abandon ironclad tenets of their current bailout philosophy. In the future, they intend to provide direct assistance to select crisis-ridden countries instead of waiting for other countries to join in or for the European Commission to take the lead. To do so, they are even willing to send more money from Germany to the troubled regions and incorporate new guarantees into the federal budget. "We want to show that we're not just the world's best savers," says a Schäuble confidant.

Worries about Image and Elections

The government's change of heart isn't just a sign of selflessness and compassion. More than ever, the chancellor and the finance minister are worried that Berlin's tightfisted, heartless, austerity-obsessed image could solidify throughout Europe and do irreparable political damage. An exporting nation that sells two-thirds of its exports to other European countries cannot be unconcerned about its image abroad, they reason, especially when its government fears that constant criticism from the center-left Social Democratic Party (SPD) and the Green Party, claiming that it is acting as the gravedigger of the euro and dividing the EU, could hurt it in the upcoming election campaign.

Merkel and Schäuble hope that their initiative could help Merkel's coalition government of their center-right Christian Democratic Union (CDU), its Bavarian sister party, the Christian Social Union (CSU), and the business-friendly Free Democratic Party close its open flank. This time, instead of just acting in concert, cabinet ministers with the three coalition partners are actively cooperating.

Last Tuesday, Schäuble sent a letter to Economics Minister Philipp Rösler in which he proposed that the coalition partners act together. "I believe that we should also offer bilateral German aid," he wrote, noting that he hoped that this approach would result in "significant faster-acting support with visible and psychologically effective results within a foreseeable time period."

Schäuble needs Rösler's cooperation because the finance and economics ministries are jointly responsible for the government-owned KfW development bank. The Frankfurt-based institution is to play a key role in the German growth concept that experts from both ministries have started drafting for Spain. Spanish companies suffer from the fact that the country's banks are currently lending at only relatively high interest rates. But since it is owned by the German government, the KfW can borrow money at rates almost as low as the government itself. Under the Berlin plan, the KfW would pass on part of this benefit to the ailing Spanish economy.

Sharing the Benefits of Low Interest

This is how the plan is supposed to work: First, the KfW would issue a so-called global loan to its Spanish sister bank, the ICO. These funds would then enable the Spanish development bank to offer lower-interest loans to domestic companies. As a result, Spanish companies would be able to benefit from low interest rates available in Germany.

Under the plans, Germany could also invest in a €1.2 billion ($1.6 billion) venture capital fund that could be used to support new business activities. Madrid hopes that the program will generate a total of €3.2 billion in new investment.

The Der Spiegel article goes on to question the efficacy of the plan as being too little too late, and we do too. Spain's employment problem is a structural one affecting at least half of its youth, which remain unemployed. The real problem is the system of monopoly central bank monetary stimulation, which raises up economies and then deposits them into various circles of Hell.

What is notable about the proposed program, however, is that it emphasizes government lending to the PRIVATE sector, which is similar to what the Chinese have recently announced.

We've often proposed with others in the alternative media that policies that seem to be structured independently by independent nation-states have a greater congruence than is reported, both from a policy standpoint and a timing one.

Indeed, travel around the world and you will see how nations often advance in lockstep, though the policies being revealed are treated as singular. The latest evidence of this that we noted has to do with "gay rights" and gay marriage. In Europe, South America and, of course, the US this "burning issue" has come to the fore and stayed there, with many nations acting suddenly and positively on matter.

Always we note that policies seem coordinated even if this larger observation is one that merely codifies a coincidence.

In any event, it seems the market is one again in vogue and those that would evince dictatorial rigor are having second thoughts, on the surface anyway.

After Thoughts

This obviously has investment implications as well. Shall we be thankful for small blessings?

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