Hollande's 'Growth Bloc' spells end of German hegemony in Europe
By Ambrose Evans-Pritchard 5:32PM BST 29 Apr 2012
Mr Hollande plans an EU-wide call for renegotiation of Europe’s punitive pact on his first day in the Elysée... It is worth remembering that German taxpayers have not yet bailed out anybody, whatever they may believe. Berlin has rejected all forms of debt pooling, Eurobonds, or fiscal transfers, understandably since full budgetary union would violate Germany’s constitution and eviscerate their democracy... The rescues for Greece, Ireland, and Portugal are loan packages at stiff interest, not grants...
... Germany cannot ride a perpetual trade surplus with Club Med without blowing up the system (which must balance), nor can it hope to escape the inflationary revenge of such a policy mix on its own internal economy. The advantage is a short-term illusion, a trap.
It is remarkable that Berlin has met so little resistance until now in driving through a fiscal treaty that puts all the burden of resolving EMU imbalances on the weaker states, and that almost no country wants; or in enforcing its lethal doctrine of "expansionary fiscal contraction" on economies trapped in debt-deflation; or in toppling elected leaders in Greece and Italy; or in imposing bondholder haircuts in Greece against warnings from the ECB - warnings soon realised as contagion engulfed Ireland, and now threatens to engulf Spain too, with Italy yoked in tandem, and France yoked in turn through trade and debt exposure...
... It is obvious what must be done. The contraction policies must be halted immediately. Nominal GDP growth must be restored to its trend line by monetary means. The ECB must be given treaty powers to act as a genuine lender of last resort, able to intervene with sufficient force to take all risk of sovereign default off the table in Spain and Italy.
The Latin Bloc might politely tell Berlin: acquiesce in the new landscape, or expect Latin Europe to take matters into its own hands and bring about the fiscal, monetary, and exchange conditions needed to safeguard its societies - entailing a very nasty shock for German banks and exporters...
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