This has to be one of my favorite football chants of all time. It’s the English reminding the Germans of World War I and II and the World Cup loss all in one catchy tune. As fun as it might be to have Italy make it through to the next round of Euro2012 so we can talk about Germany versus the PIIGS, I’d prefer to see England.
Whatever faith the rest of Europe and the world had in Germany’s EU leadership had, most of it is gone. After two years of driving the process, Europe is starting to turn on Germany. France no longer goes along with every decision Germany makes. Their programs have done little to fix anything, and now with Europe and China both experiencing economic weakness, the pressure on Germany will increase.
This past week the ECB changed collateral provisions. The Bundesbank came out and disagreed with it. Immediately this brought out a chorus of “see the German’s still say nein”. But I think the issue is more complex than that. The Bundesbank can certainly enforce higher standards, but I don’t think it can stop the other central banks and the ECB itself from using these much more lenient collateral provisions. This may be the first time that Germany has been against something and it is getting done anyways.
Not only is Germany becoming more isolated within Europe, the rest of the world is expressing growing frustration with them. They are seen to be holding back from anything resembling a “true” rescue plan. I have my doubts that anything will really work (short of money printing, time, and actual defaults) but it is hard for Germany to stand against such pressure.
And it’s not like the German’s are squeaky clean. For all of their protests of austerity and bank health, they were one of the first to break the Maastricht treaty when it suited them. And in terms of support for the banks, the German’s consistently broke and bent every rule possible to keep the Landesbanks alive and KFW lives in its own world, and where would Commerzbank be without constant support from the German government.
This week’s European headlines will be far more important to the global economy than the results of any football match. Before, during, and after games, it will be fun to chat about the EU in terms of the games being played on the pitch, but the reality is, the real game is being played by the politicians. And in the real game, it is becoming Germany versus the world, and I think not only are they changing their attitude in order to fit in, but more decisions are being made that will bind Germany to policies they don’t actually support. The ECB and EFSF have powers granted to them by Germany (and other countries). So far those powers haven’t been used without at least the appearance of unanimous support, but last week’s ECB collateral decision is a sign that Europe is bigger than just Germany and is taking steps to change and try to put together a more comprehensive and aggressive plan.
We will see how the EU politics plays out during the course of the week. I remain convinced that the markets are underestimating how much more willing Europe is to take new, aggressive, and comprehensive steps to attempt to stabilize the situation – fixing it isn’t a possibility, but stabilizing it is.
In the meantime enjoy the game, but it is after all just a game, and next week’s actions are a lot more serious.