Imposing the German Way across the Globe [IroniesToo]



The cover of this week’s New Statesman certainly seems to wish to alert its readers and newsstand browsers to such a possibility with this week’s edition reproduced here:

The agreed “Conclusions” to the European Council Meeting of last evening, available in pdf format from this link, make absolutely clear how the Teutonic Juggernaut has been able to merely roll over and completely disregard PM David Cameron’s pointless attempt to make an impact by removing Britain from the EU “Compact for Growth and Jobs” note this passage from the main summary:

The European Council had a comprehensive discussion on the economic and social situation and set the orientations for the economic policy of the Member States and the European Union in 2013. The focus should be on the implementation of decisions taken, in particular as regards the Compact for Growth and Jobs.

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One in four Germans would back anti-euro party [Reuters]


German Chancellor Angela Merkel answers questions from reporters after a meeting with representatives of the German Economic Associations at the International Trade Fair in Munich March 8, 2013. REUTERS/Michaela Rehle

BERLIN | Mon Mar 11, 2013 4:42am EDT

(Reuters) – One in four Germans would be ready to vote in September’s federal election for a party that wants to quit the euro, according to an opinion poll published on Monday that highlights German unease over the costs of the euro zone crisis.

Germany’s mainstream parties remain solidly pro-euro despite grumbling over bailouts of countries such as Greece. A German taboo on nationalism, rooted in atonement for the crimes of the Nazi era, has helped to muffle eurosceptic voices.

But the poll conducted by TNS-Emnid for the weekly Focus magazine showed 26 percent of Germans would consider backing a party that wanted to take Germany out of the euro and as many as four in 10 Germans in the 40-49 age bracket would do so.

“This suggests there may be potential here for a new protest party,” Emnid chief Klaus Peter Schoeppner told Focus.

The survey canvassed the views of a representative sample of 1,007 people on March 6-7.

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Happy New Year Germany: Greece Needs A New Bailout [Zerohedge]

When it comes to the main sovereign story of 2011 and 2012, namely the endless bailout of Greece, now in its third iteration, the conventional wisdom is that courtesy of the near elimination of the country’s private sovereign debt and the fact that its official foreign debt held by benevolent taxpayer funded globalist powers (IMF, ECB, EFSF) has been mostly converted into a zero-coupon, perpetual piece of paper, the country is fine. After all it has no debt interest expense to finance, and the only shortfall it has to plug is that created by its primary budget deficit (which as we showed earlier is “improving” on a year over year basis not because the economy is improving, but because the Greek government is simply refusing to pay its bills). So there is nothing more to do but sit back and wait while the economy slowly recovers, the unprecedented internal imbalance with Germany is gradually aligned, are the unemployment rate drops, (while hoping that the population does not die out first) right? Wrong.



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German man locked up over HVB bank allegations may have been telling truth [Guardian]

Horst Seehofer

Horst Seehofer, the prime minister of Bavaria, has called for Gustl Mollath’s case to be reopened. Photograph: Pawel Kopczynski/Reuters

A German man committed to a high-security psychiatric hospital after being accused of fabricating a story of money-laundering activities at a major bank is to have his case reviewed after evidence has emerged proving the validity of his claims.

In a plot worthy of a crime blockbuster, Gustl Mollath, 56, was submitted to the secure unit of a psychiatric hospital seven years ago after court experts diagnosed him with paranoid personality disorder following his claims that staff at the Hypo Vereinsbank (HVB) – including his wife, then an assets consultant at HVB – had been illegally smuggling large sums of money into Switzerland.

Mollath was tried in 2006 after his ex-wife accused him of causing her physical harm. He denied the charges, claiming she was trying to sully his name in the light of the evidence he allegedly had against her. He was admitted to the clinic, where he has remained against his will ever since.

But recent evidence brought to the attention of state prosecutors shows that money-laundering activities were indeed practiced over several years by members of staff at the Munich-based bank, the sixth-largest private financial institute in Germany, as detailed in an internal audit report carried out by the bank in 2003. The report, which has now been posted online, detailed illegal activities including money-laundering and aiding tax evasion. A number of employees, including Mollath’s wife, were subsequently sacked following the bank’s investigation.

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The Nightmare German Inflation [usagold]

If history teaches anything, it is that government cannot be trusted to manage money. When currency is not redeemable in gold, its value depends entirely on the judgment and the conscience of the politicians. (That is the situation in this country today.)

Especially in an economic crisis or a war, the pressure to inflate becomes overwhelming. Any alternative may seem politically disastrous. Whether it be the Roman emperors repeatedly debasing their coinage, the French revolutionary government printing a flood of assignats, John Law flooding France with debased money, or the Continental Congress issuing money until it was literally “not worth a Continental,” the story is similar. A government in financial straits finds its easiest recourse is to issue more and more money until the money loses its value. The entire process is accompanied by a barrage of explanations, propaganda and new regulations which hide the true situation from the eyes of most

german national currency
German national currency (1920s)

people until they have lost all their savings. In World War I, Germany — like other governments — borrowed heavily to pay its war costs. This led to inflation, but not much more than in the U.S. during the same period. After the war there was a period of stability, but then the inflation resumed. By 1923, the wildest inflation in history was raging. Often prices doubled in a few hours. A wild stampede developed to buy goods and get rid of money. By late 1923 it took 200 billion marks buy a loaf of bread.







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‘Nazis out!’ Greek protesters attack conference, throw coffee at German diplomat

Dozens of Greek activists protesting austerity policies broke into a conference and clashed with police in a protest against a German government official.

Law enforcement officers used truncheons and teargas to disperse some 250 activists in the northern city of Thessaloniki, where a meeting of Greek and German mayors was taking place.

Riot police formed a shield around German Consul Wolfgang Hoelscher-Obermaier, who was attending the event, after some of the protesters stormed into the conference center complex. The intruders were trying to pelt the diplomat with bottles of water and coffee.

The protestors changed “Nazis out” and “This will not pass”, while holding mock gravestones and banners proclaiming “Fight until the end!”

A protester holds a plackard of  German Chancellor Angela Merkel featuring a Hitler moustache near the Greek parliament in Athens during a demonstration against the vist of the German Chancellor Angela Merkel on October 9, 2012. (AFP Photo / Louisa Gouliamaki)

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Germany’s Fear And Desperation Leak Out [TestosteronePit]

A hullabaloo erupted between France and Germany that both governments are trying to silence to death. According to unnamed sources of Zeit Online and Reuters, German Finance Minister Wolfgang Schäuble broached an unprecedented topic with the members of Germany’s Council of Economic Experts on Wednesday when they presented their Annual Report. In its 49-year history of advising German governments, the Council has never delved into policy proposals for other countries. And yet, Schäuble asked them: Could they produce a reform concept for the troubledFrench economy?

The French, who are currently engaged in national soul-searching and navel-gazing to halt their declining “competitiveness,” were not amused. The office of President Francois Hollande wrapped itself in silence. Prime Minister Jean-Marc Ayrault brushed it off. The German Ministry of Finance declined to comment on “unofficial discussions.” Council Chairman Wolfgang Franz backpedalled: “That’s largely misinformation,” he said. “An order for a Special Report is not even in the most distant sight.” He figured that the French government “wouldn’t tolerate something like that.”

Nevertheless, he said, the government is highly interested in reform ideas that would make the monetary union more stable. And it is in this context that the Council would “think about France” in December. After which they would talk again with Schäuble, he said.

But the Council is already “increasingly worried” about the economic developments in France, admitted Council member Lars Feld when he presented the Annual Report to Schäuble. “The largest problem isn’t Greece anymore, or Spain or Italy, but France because France has done nothing to rebuild its competitiveness and is even heading in the opposite direction.” He didn’t mince words. “France needs labor market reforms,” he said. “It is the country among Eurozone countries that works the least each year; so how do you expect any results from that?”


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Angst returns on German recession fears and US fiscal cliff [Telegraph]

Mario Draghi, the European Central Bank’s president, warned that Germany is no longer insulated from the slump in southern Europe. “The latest data suggest that these developments are now starting to affect the German economy,” he said, triggering an immediate sell-off on Europe’s bourses and pushing the euro down to almost $1.27 against the dollar.

Germany’s industrial output dropped 1.8pc in September and orders fell 3.3pc, far worse than expected. Spanish industrial output fell 7pc. Annalisa Piazza from Newedge said it was a shocking upset and implies that Germany may be in recession already.

Flight to safety pushed down yields on two-year German debt to -0.06pc, nearing the all-time low seen during the last eurozone debt spasm in July. Yields on 10-year US Treasuries fell 11 basis points to 1.63pc.

The jitters came as American voters delivere split government yet again, with the Republicans still in charge of the House of Representatives and the Democrats still shy of a 60-seat super-majority in the Senate.

Alan Greenspan, ex-chairman of the US Federal Reserve, said it is unclear whether President Barack Obama can reach a deal with Congress to head off the “fiscal cliff” in the few working days before recess in mid December. Unless the two sides agree there will be automatic tax rises and spending cuts worth $600bn or 4pc GDP at the end of the year.

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With this week’s reports that Germany repatriated 1,000 tons of its gold reserves from the Bank of England between 2000-01, and is repatriating 150 tons of its gold reserves from the NY Fed over the next 3 yearsclearly the awake participants have realized the music stopped long ago, and are grabbing their physical gold chairs. 

It is now inevitable that an avalanche of central banks, hedge funds, and wealthy investors worldwide will begin to emulate Venezuela and Germany and request physical delivery of their unallocated (rehypothecated) ‘gold’.  

In an amazingly weak and futile attempt to stem the inevitable onslaught of delivery and repatriation requests, CNBC’s senior editor John Carney has released an editorial claiming that it matters not whether the gold held at the NY Fed and the BOE is filled with tungsten, has been leased or swapped, or that it even exists- all that matters is the Fed’s bookkeeping ledger that states the gold is there. 


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7,000 police to protect Angela Merkel during Athens visit [Telegraph]

Ms Merkel is due to land in Greece tomorrow morning for talks with her counterpart Antonis Samaras and president Carolos Papoulias. But she is likely to face angry protests in a country where many feel their already-struggling economy has been dealt further harm by austerity measures demanded in return for a bail-out.

Greece is in its fifth year of recession and unemployment has soared to 25pc. The country is currently in negotiations with the troika (representatives from the IMF, European Commission and ECB) over whether it has made enough progress implementing cuts and tax hikes to release its next €11.5bn tranche of bail-out cash, without which it faces bankruptcy by November.

Alexis Tsipras, who leads the opposition Syriza party in Greece, said: “She does not come to support Greece, which her policies have brought to the brink. She comes to save the corrupt, disgraced and servile political system. We will give her the welcome she deserves.”

Around 7,000 police will be on patrol on the streets of Athens, backed up by rooftop snipers, water cannon and a helicopter, while 300 members of the coastguard have also been drafted-in to bolster the security operation.

As well as the large police presence, all large gatherings and rallies have been banned in large parts of Athens (shown in the map below) from 9am to 10pm to “preserve the peace”.



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Germany Eyes Gold Standard [nysun]

It would be too much to say that the government of Free Germany, as we are still wont to call it, is taking steps toward the gold standard. After all, no committee beckons in the Bundestag. The government is entangled with Spain and Greece and the scrip known as the Euro. The newspapers are mum. It would not be too much, though, to say that the latest report from the Deutsche Bank, the country’s leading private bank, is a newsworthy document, even if it will slide past up the bien pensant salons of Europe.

Deutsche Bank’s report is “Gold: Adjusting for Zero.” It reckons we’re in a situation that is “Zero for growth, yield, velocity and confidence.” It says: “We believe there are nearly zero real options available to global policy-makers. The world needs growth and is willing to go to extraordinary lengths to get it.” It forecasts bluntly that the value of the dollar will plummet in the first half of 2013 to less than a 2,000th of an ounce of gold. It reckons “the growth in supply of fiat currencies such as the USD will remain an important driver.”

That’s just for openers. The report then goes on to assert that gold is misunderstood and doesn’t really belong in the basket of “commodities” used by so many economists. Gold is money, according to the Deutsche Bank. Says it: “We would go further however, and argue that gold could be characterised as ‘good’ money as opposed to ‘bad’ money which would be represented by many of today’s fiat currencies.” It refers to Gresham’s Law and suggests “the undervalued money (good) will leave the country or disappear from circulation into hoards, while the overvalued money (bad) will flood into circulation.”


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Europe’s most powerful countries call for elected EU president [Telegraph]

In a document released on Tuesday after a meeting between 11 foreign ministers in Warsaw, the bloc, which includes all the largest Europeancountries outside Britain, charted a vision for the “future of Europe”.

As well as calling for a single, elected head of state for Europe, the bloc demanded a new defence policy, under the control of a new pan-EUforeign ministry commanded by Baroness Ashton, which “could eventually involve a European army”.

In order to “prevent one single member state from being able to obstruct initiatives”, a reference to British opposition to a European army, the German-led grouping demanded an end to existing national vetoes over foreign and defence policy.

This would give the EU the power to impose a decision on Britain if it is supported by a majority of other countries.

The plan, which has the backing of Germany, France, Italy, Spain, Poland, Holland, Austria, Belgium, Denmark, Luxembourg and Portugal the plan, is likely to fuel calls for a British referendum on membership of the European Union.


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Monetary Schizophrenia In Germany [Testosteronepit]

A pact with the devil—that’s now the official metaphor for the “unlimited” bond purchases that the European Central Bank has promised in order to bail out the holders of decomposing Eurozone debt. Bundesbank President Jens Weidmann himself referred on Tuesday to Goethe’s Faust, a play based on the ancient tale of a scholar who sells his soul in exchange for knowledge and pleasure. Part Two of that play—and it ends tragically—sketched “the core problem of today’s paper money-based monetary policy,” Weidmann said, and the “potentially dangerous correlation of paper money creation, state financing, and inflation.”

But it’s too late. Germany has cracked in two—and part of it has eagerly embraced that pact with the devil. The ZEW Indicator, which measures investor sentiment,jumped by 7.3 points, the first increase after four months of sharp declines. And the ECB’s promise? It “contributed to the improvement,” said the press release. Even German investors love all that money sloshing through the system—look at the stock market!

Yet there is the other side: Germans in the real economy. They’re losing faith in the euro, the bailouts, and the ECB: 65% now feel that they’re worse off under the euro than they would have been under the Deutsche mark. A trend that isn’t expected to turn around anytime soon.

And both sides clashed. Over the weekend, Finance Minister Wolfgang Schäuble, who supported the ECB plan, raked Weidmann over the coals for “semi-publically” debating his opposition to it. Until that moment, Weidmann appeared to have the government’s lukewarm backing. But that has evaporated. Chancellor Angela Merkel then had an opportunity to back Weidmann but ostentatiously didn’t. She allowed merely that his comments would be welcome—reducing him from an important advisor in the government’s financial decisions, the traditional role of the Bundesbank, to a pesky commentator.

And comment he did—at Tuesday’s Goethe Symposium in Frankfurt. “Today’s money isn’t covered by any tangible assets. Banknotes are printed paper; mavens among you know that in the case of the euro, it’s actually cotton.” Central banks “had been created in the past to give regents free access to seemingly unlimited financial means,” he said. With catastrophic consequences. Fly in the ointment: he failed to point out that it’s now banks, not “regents,” that luxuriate in “free access to seemingly unlimited financial means.” Nevertheless, the independence of central banks is important “to prevent state appropriation of monetary policy.”


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Debt crisis: central bank action is work of the devil, says Germany’s Jens Weidmann [Telegraph]

Jens Weidmann said that efforts by central banks to pump money into the economy reminded him of the scene in Faust, when the devil Mephistopheles, “disguised as a fool”, convinces an emperor to issue large amounts of paper money. In Goethe’s classic, the money printing solves the kingdom’s financial problems but the tale ends badly with rampant inflation.

Without specifically mentioning Mario Draghi’s bond-buying programme, he said: “If a central bank can potentially create unlimited money from nothing, how can it ensure that money is sufficiently scarce to retain its value?” He added: “Yes, this temptation certainly exists, and many in monetary history have succumbed to it,” Mr Weidmann warned.

Although the remarks were in context – Frankfurt is currently marking the 180th anniversary of the death of Goethe – they defy calls by leaders for Mr Weidmann to tone down his criticism of the ECB, particularly at a febrile moment in the crisis. The launch by Mr Draghi of an unlimited bond-buying programme has boosted both confidence and markets.

Spanish and Italian borrowing costs dropped marginally on Tuesday. The yield on Spain’s benchmark 10-year bonds dropped to 5.8pc from6pc earlier in the week; equivalent Italian debt hovered around 5pc.

But pressure continued to mount on Spain to officially request a bail-out from Brussels to stabilise its economy and the rest of the eurozone. In an interview, Soraya Saenz de Santamaria, Spain’s deputy prime minister, said Madrid was still considering the implications of help from Brussels. She added that Europe must recognise the sacrifices and reforms Spain is carrying out.

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Gap Between Rich and Poor Grows in Germany [SpiegelOnline]

Düsseldorf's luxury Königsallee shopping boulevard: Wealth among Germany's richest grew by €1.4 trillion between 2007 and 2012. Zoom


More than half of Germany’s privately-owned assets are held by the country’s richest 10 percent. Meanwhile, less than one percent is owned by the bottom 50 percent of households, according to a new German government report on the growing gap between rich and poor.


The gap between the rich and poor continues to grow in Germany. A report commissioned by the German government on poverty and wealth in the country that has been obtained by the Süddeutsche Zeitung and has been presented to members of Chancellor Angela Merkel’s cabinet indicates that private net assets — including property, financial investments, land for building or pension entitlements has risen sharply, despite the economic crisis. Between 2007 and 2012, the sum increased by €1.4 trillion ($1.83 trillion).


The upper 10 percent of German households also possess more than half of the country’s entire wealth, and that share continues to grow. Official figures show that figure was only 45 percent in 1998. By 2008, however, 53 percent of net wealth had come into the hands of the top 10 percent. The lower half of Germany’s households possess only 1 percent of the country’s net total assets, the report states.


There are also major discrepancies in the development of wages. Within the “upper segment of Germany, these have risen positively,” the report states, according to the Süddeutsche. However, the lower 40 percent of full-time employees actually suffered a decline in wages once inflation was factored in. “That type of wage development violates the sense of justice of the population,” the authors warn.

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Germany’s constitutional court won’t delay bailout fund ruling [Reuters]

Germany’s Constitutional Court said on Tuesday it would not postpone its long-awaited ruling on the legality of the euro zone’s bailout fund, despite a last-minute legal challenge by a eurosceptic lawmaker.

The court said it would go ahead with Wednesday’s ruling on the legality of the European Stability Mechanism (ESM) and the fiscal compact for budget discipline, whose implementation has been delayed for months by the German judges.

The Constitutional Court issued a brief statement saying the ruling at 10 a.m. (0800 GMT) on Wednesday “will go ahead as scheduled”, meaning conservative lawmaker Peter Gauweiler’s last-minute challenge would not cause further delays.

The court in Karlsruhe did not go into the merits of his complaint, lodged at the weekend after the European Central Bank announced its plans for unlimited purchases of bonds of crisis-hit euro states to reduce their borrowing costs.

He argues that Germany should not ratify the ESM until the ECB rows back on the bond-buying plan which he sees as a threat to the German budget. The constitutional court should therefore possibly postpone its decision on the fund, he said.

German legal experts believe the court will approve the new permanent bailout fund and the budget deal, while possibly imposing tough conditions limiting Berlin’s flexibility on future rescues.

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Why Merkel Wants To Keep Greece in Euro Zone [SpiegelOnline]

By Konstantin von Hammerstein, Christian Reiermann and Christoph Schult

Officers from Greece's police, fire brigade and coast guard stage a symbolic hanging in front of the Greek Parliament in Athens on Sept. 6. to protest against austerity policies.


Officers from Greece’s police, fire brigade and coast guard stage a symbolic hanging in front of the Greek Parliament in Athens on Sept. 6. to protest against austerity policies.

Angela Merkel has made a surprising U-turn in her policy on Greece. The German chancellor now wants to stop Athens from leaving the euro zone at all costs — even if it means massaging the figures in the upcoming troika report. For the German leader, it is essential to avoid the consequences of a Grexit before national elections next year.


Mantras are short, formulaic phrases that are repeated over and over for meditative purposes. They can be spoken, sung, whispered, recited mentally or even written down and eaten.


The German chancellor has recently opted for the spoken variety, which is the conventional form. Angela Merkel’s mantra consists of a short German sentence. It translates as: “We are waiting for the troika report.” She repeats it whenever the opportunity arises — such as two weeks ago, when Greek Prime Minister Antonis Samaras visited Berlin.


One doesn’t need to be a rocket scientist to see through Merkel’s maneuver: The chancellor wants to buy time. She hopes to calm the general public and the notoriously nervous financial markets through meditative repetition — and ultimately create the impression that it actually matters what the troika finds out during its mission to Greece.

But it doesn’t. In reality, Merkel has already made up her mind. After long hesitation, she has sided with French President François Hollande and the European Commission. The report from the troika — which consists of the European Commission, the International Monetary Fund (IMF) and the European Central Bank (ECB) and which departed on its fact-finding tour last week — will undoubtedly conclude that Greece can remain in the euro zone.

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Greek Finance Ministry Calculating German War Reparations Bill [Bloomberg]

Greece’s Finance Ministry will calculate the country’s claim for World War II reparations against Germany, Deputy Finance Minister Christos Staikouras said.

The General Accounting Office will make the calculation for the first time, Staikouras said today in response to a question from a lawmaker from the Independent Greeks party. The ministry has begun collecting archival material to be examined by a group of experts, he said.

“The German reparations are a particularly complex legal issue and subject to study and settlement at an international level in accordance with the rules of international law,” Staikouras said. “The case is still outstanding, and as a country we reserve the right and the possibility to manage it to a satisfactory conclusion.”

Some Greek politicians have evoked memories of the country’s Nazi occupation during World War II since the start of the country’s debt crisis. During the country’s election campaigns in May and June Independent Greeks demanded Germany pay reparations.

Greece has in the past decade had to juggle claims on war reparations from Germany with close bilateral relations between the countries. The claims include compensation for loans the country was forced to make to Germany during the Nazi occupation.


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A Comment to Soros’ article: Germans are not like ‘latiners’

This is a comment and a response to Soros’ article on by Daniel Gomes. I think it provides an interesting view.

Now lets take a look at budget deficit and public debt until 2009 when the world’s economy was cratered with the help of U.S and German banks and virtually every country in the world was forced to in-debt itself with social protection costs, lost tax revenues and stimulating an economy on the verge of the abyss:

1. Public debt:,10,12,24&y=geo&unit=0&language=en&pcode=tsieb090&plugin=0

2. Budget deficit:,10,12,14,24&y=geo&unit=0&language=en&pcode=tsieb080&plugin=0

And even real GDP growth:,13,15,25&y=geo&language=en&pcode=tec00115&plugin=0

Germany and the ultimate Euro bailout

Now despite the massive wave of amnesia that took over the world, the German financial system was on the verge of collapsing back in 2008 for its lead role in the irresponsible U.S sub-prime speculation!

Yes indeed Germans are not like ‘latiners’ because the southern European financial systems behaved quite responsibly throughout the past 10 years and did not engage in destroying the economy of other countries.

And arrogant Germans still dare to talk about the property bubble in Spain with facts like this:

But again you are right, Germans are not like “latiners” as then have direct access to ECB and Fed’s moneys.. or better yet, EU and U.S. tax payers.

Because what the facts show is, German sucked trillions of Euros from both Fed and ECB under the table forcing latiners and others to socialise german debt

So you are right.. latiners had no access to euro and u.s. citizens pockets like Germans did.

Here’s the evidence:

1 FED purchase of toxic assets

2. FED ultra-cheap credit lines against worthless collateral:

Unfortunately the ECB is only accountable to the fuehrer but as shown here, it is was also active engaged in taking toxic sub-prime collateral out of Germans hands for several years:

And the irony of all this, is that the only differentiating factor in recent years between German and other economies is simply that German manged to take advantage of the China financial stimulus like no other country..

yes the same stimulus which root cause was the collapse of the economy caused by banks like Deutsche bank.. take that for moral hazard.


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Why Germany Should Lead or Leave [George Soros]

NEW YORK – Europe has been in a financial crisis since 2007. When the bankruptcy of Lehman Brothers endangered the credit of financial institutions, private credit was replaced by the credit of the state, revealing an unrecognized flaw in the euro. By transferring their right to print money to the European Central Bank (ECB), member countries exposed themselves to the risk of default, like Third World countries heavily indebted in a foreign currency. Commercial banks loaded with weaker countries’ government bonds became potentially insolvent.


This illustration is by Paul Lachine and comes from <a href=""></a>, and is the property of the NewsArt organization and of its artist. Reproducing this image is a violation of copyright law.
Illustration by Paul Lachine


There is a parallel between the ongoing euro crisis and the international banking crisis of 1982. Back then, the International Monetary Fund saved the global banking system by lending just enough money to heavily indebted countries; default was avoided, but at the cost of a lasting depression. Latin America suffered a lost decade.

Germany is playing the same role today as the IMF did then. The setting differs, but the effect is the same. Creditors are shifting the entire burden of adjustment on to the debtor countries and avoiding their own responsibility.

The euro crisis is a complex mixture of banking and sovereign-debt problems, as well as divergences in economic performance that have given rise to balance-of-payments imbalances within the eurozone. The authorities did not understand the complexity of the crisis, let alone see a solution. So they tried to buy time.

Usually, that works. Financial panics subside, and the authorities realize a profit on their intervention. But not this time, because the financial problems were combined with a process of political disintegration.

When the European Union was created, it was the embodiment of an open society – a voluntary association of equal states that surrendered part of their sovereignty for the common good. The euro crisis is now turning the EU into something fundamentally different, dividing member countries into two classes – creditors and debtors – with the creditors in charge.

As the strongest creditor country, Germany has emerged as the hegemon. Debtor countries pay substantial risk premiums for financing their government debt. This is reflected in their cost of financing in general. To make matters worse, the Bundesbank remains committed to an outmoded monetary doctrine rooted in Germany’s traumatic experience with inflation. As a result, it recognizes only inflation as a threat to stability, and ignores deflation, which is the real threat today. Moreover, Germany’s insistence on austerity for debtor countries can easily become counterproductive by increasing the debt ratio as GDP falls.

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Net Asset Value Premiums of Certain Precious Metal Trusts and Funds [jessescrossroadscafe]

Mario Draghi pledged the ECB to ‘unlimited’ purchases of short term sovereign debt for any Eurozone country that requested such help, any objection from Germany notwithstanding apparently. There will be a court ruling in Germany over such matters on 12 September.

They are expected to rule in favor of this action because the purchase of troubled sovereign bonds will be done in the secondary market, rather than directly. This also provides a nice opportunity for the banks to ‘front-run’ the ECB.

I am wondering what if any ‘conditions’ a country might be expected to meet should they ask Draghi and the ECB for ‘help.’ That may be an overlooked detail.

The ECB has pledged to ‘sterilize’ any such market actions so that they will not provoke inflation. The purchasing will be done on the short end of the curve, 3 years and in, and the actions may serve to drive more private buying at the longer ends in search of positive yields. In some sense Draghi is just catching up to Bernanke.

But at the end of the day, this is monetization of sovereign debt for the sake of propping up a zombie banking system and failed political union.

I should add here a parenthetical remark, that the same dynamics that caused the faux union in Europe to fail under the policy strains of a single currency would happen on a much larger scale should the world adopt a single currency regime or a harder peg to the dollar.

One cannot have a single currency and monetary policy without a fully integrated political union, or a set of artificial barriers and supports that emulate transfer payments. One size rarely fits all.

As the economic health of a country ebbs and flows, this should be reflected in the strength and weakness of their national currency in a ‘freely traded’ marketplace. The only way to counteract this is by trade barriers and subsidies, or outright transfer payments.

This is a lesson that must be learned, or rather re-learned again, by the world apparently.



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The German Economy Tanks, The ECB Throws Gasoline On The Fire, And Eurozone Bailouts Enter Phantasy Land [Testosteronepit]

Slovenia joined the Eurozone in 2007, went on a borrowing binge that blind bond buyers eagerly made possible, dousing some of its two million people with riches, creating a real estate bubble that has since burst, and driving up its external debt by 110%. And in October, it may go bankrupt, admitted Prime Minister Janez Jansa. Because borrowing binges can last only so long if you can’t print your own money. The sixth Eurozone country, of seventeen, to need a bailout. But it’s just a speck, compared to Spain, which will strain the bailout funds, and Italy, which is too large to get bailed out. The other option is the European Central Bank. Its printing press—the one it is not supposed to have—could easily bail out the once blind but now seeing bondholders. As in all bailouts, workers and taxpayers would get a haircut. And in Germany, the debate itself may tear up the Eurozone—just as its economy is tanking.

New car sales in Germany had been holding up well through June—a miracle in face of the fiasco playing out in the Eurozone’s auto industry. But they caved in July; and instead of miraculously recovering in August, they caved again: down 4.7% from August 2011 and down 8.6% from July. Ominously, sales of medium-heavy and heavy trucks, a thermometer of the business investment climate, fell off a cliff: -18.8% for trucks over 12 metric tons, -15.1% for trucks over 20 tons, and -9.4% for tractors (now down 5% for the year!).

Retail sales, which had been on a roll through May, stalled in June, and skidded in July. Early indications are even worse for August: retailers’ negative sentimentworsened for the fourth month in a row. They suffered from a nasty margin squeeze, given the dual pressures of wholesale price inflation that “increased sharply,” and heavy discounting, as Germans struggle to make ends meet [read....  The “Pauperization of Europe”].

And manufacturing, the vaunted engine of the German economy, after a rout in July, was hit by another “deterioration in business conditions” in August. It recorded the fifth month in a row of job losses. And export orders plummeted at the “steepest rate since April 2009.”


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China, Germany plan to settle more trade in yuan, euros [Reuters]

Germany and China plan to conduct an increasing amount of their trade in euros and yuan, the two nations said in a joint statement after talks between Chancellor Angela Merkel and Chinese Premier Wen Jiabao in Beijing on Thursday.

“Both sides intend to support financial institutions and companies of both countries in the use of the renminbi and euro in bilateral trade and investments,” said the text of the statement.

It also said that both parties welcomed investments in China’s interbank bond market by German banks and supported the settlement of business in the yuan by German and Chinese banks and the issuance of yuan-denominated financial products in Germany.

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Merkel asks Italy to delay bailout request: report [Marketwatch]

By Barbara Kollmeyer

MADRID (MarketWatch) — German Chancellor Angela Merkel has asked Italian Prime Minister Mario Monti to hold off on a request for a bailout, according to a report in Spanish daily El Mundo on Friday. Merkel reportedly made the request to Monti at their meeting in Berlin on Wednesday, and the newspaper said she would make the same request of Spanish Prime Minister Mariano Rajoy when they meet next Thursday. The efforts by Merkel are reportedly aimed at calming an internal crisis at the Bundesbank, whose central bank chief, Jens Weidmann, is strongly opposed to any action by the European Central Bank to buy Spanish or Italian government bonds. German newspaper Bild reported in its online edition on Friday that Weidmann has been considering his resignation in recent weeks.


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China Is Going To Save Us – Again [ActingMan]

Merkel Meets Wen

Mrs. Merkel has just visited China, a big delegation in tow, for extensive talks with Wen Jiabao and his government. Germany has good reason to keep in close touch with China: it is one of its biggest export destinations these days. Since 1999 Germany’s exports to China have risen nearly ten-fold and today amount to 2.5% of its GDP. The rest of the euro area is also exporting quite a bit to China, and conversely, the  euro area is also China’s biggest customer.

Back in 2007, when Berlin invited the Dalai Lama, the relationship with Beijing chilled considerably, but that is all forgotten today. Business has become the major issue, and China is understandably worried about the crisis its main trading partner goes through.

Mrs. Merkel’s visit was the second in the past six months and it mainly served to reassure China’s leadership about the future of the euro. As Beijing sees it, Mrs. Merkel is the ‘go-to’ leader in Europe these days, a fact that has already produced some grumbling by other European leaders.

China is nowadays confronting considerable economic problems of its own and the deepening recession in euro-land obviously contributes significantly to its economic slowdown. China remains highly export dependent – a slowdown in exports is felt disproportionally throughout the production structure of its economy, much of which is geared to trade. If Europe is a stock, then China is akin to a warrant on it.


The growth of European exports to China, indexed. Germany is in the lead, but trade between China and the rest of Europe has also grown significantly – click chart for better resolution.


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