Why France, Italy and the US press Germany to accept a cheaper euro and pay for Greece

Discussion between Wolfgang Schäuble, German Federal Minister for Finance, on the left, and Pierre Moscovici, Member of the European Commission in charge of Economic and Financial Affairs, Taxation and Customs. They both participate in the meetings of Eurogroup, the key decision-making body in the Eurozone. These two men are by far the most influential persons in the euro area. (EC Audiovisual Services).

Discussion between Wolfgang Schäuble, German Federal Minister for Finance, on the left, and Pierre Moscovici, Member of the European Commission in charge of Economic and Financial Affairs, Taxation and Customs. They both participate in the meetings of Eurogroup, the key decision-making body in the Eurozone. These two men are by far the most influential persons in the euro area. (EC Audiovisual Services).

Since last March the European Central Bank has being pumping at least €60 billion a month into Eurozone’s financial system, under its ‘expanded asset purchase program’, aimed at reviving the stagnating price level and energizing the sleepy real economy. The objective is to bring inflation close to 2%; the target rate set by ECB’s monetary policy objectives. Unfortunately, Eurostat, the EU statistical service, announced last Friday that according to its flash estimate, the July inflation rate was stuck at 0.2% as in June, marking an unwanted fall after the 0.3% in May.

It probably may be rather early to judge the new extraordinary ECB monetary strategy planned to pump €1.14 trillion into the economy in monthly installments until September 2016. Yet, this €1.14tn may be too little too late compared to what the US central bank did as from 2008. At that time, right after the severest financial crisis broke out in the western economic volume, the Fed started pumping trillions of dollars into the American financial system. Until November 2004 the US central bank had spent $4.5tn and actually managed to bring the largest economy of the world out of the danger zone, helping it to regain a sustainable growth path.

The ECB blocked by Germany

All along those seven years after 2008 and until January 2015, the ECB, blocked by Germany, remained motionless despite the fact that the European banking system was and still is in a much worse position than its US counterpart. It was right from the beginning that Berlin blocked a generous quantitative easing program. Such a policy would have had as target to drag inflation away from the dangerous zero zone and help the real economy restart. In such a case the other major effect would have been a fall of the foreign value of the euro. Judging facts in retrospect, Germany is seen as wanting to block that and keep the euro/dollar parity at the high levels of 1.40 . But why? Let’s dig in on that.

Berlin’s idea was to greatly increase the dollar value of the German euro reserves, estimated at more than one trillion. Obviously, Berlin strived to acquire more assets abroad by spending fewer euro. Who wouldn’t have longed for a gift of some hundreds of dollar billions? Under this policy of expensive euro though, Germany condemned the other major Euro area countries like France and Italy to an expensive euro and economic recession. Germany itself had a lot to gain from the highly priced euro. With an expensive euro she may cheaply acquire foreign assets using her euro reserves, while her exports enjoy a very low price elasticity. The German industrialists have stated that their exports have nothing to fear from a euro/dollar parity of up to 1.40 .

Why inflation matters

Coming back to the July developments, the inflation rate remained as in June, in a region dangerously close to zero. Economists had hoped that the May rise of the consumer price index to 0.3% could have marked an irreversible turn to the better, up from the straight zero in April and the negative showings in March and February. Unfortunately, this didn’t turn out to be so. All along the past seven deflationary years Germany has had been loudly arguing that there is nothing wrong with the zero or even negative inflation rates. Under such selfish economic thinking it’s not a surprise that the ECB has been chained to inaction and blocked from supporting the real economy, with big money injections as the Fed did. Facts show that the expensive euro has been Germany’s main goal, no matter how much harm this may do to the rest of Eurozone countries.

Yet the euro fell

However, despite the fact that the Eurozone inflation oscillates close to the zero area, the euro has lately lost a good part of its value vis-à-vis the dollar falling below the 1.1 benchmark parity. Why? The answer is obviously Greece. Again the German economic elite, represented authentically by the Federal Minister of Finance Wolfgang Schauble, went nuts with Athens, and did and still does whatever they can to push the Greeks out of Eurozone. In this way they hope that the euro will regain the 1.40 level with the dollar. Obviously, Berlin becomes crazy with whatever may depress the foreign value of the euro, be it a generous aid program to Greece or a wholesale quantitative easing, much higher than the €1.14bn the ECB is currently applying.

It seems though that all good things have an end. This time France and Italy supported strongly by the US have cornered Germany to agree and keep Greece in the Eurozone and on top of that write off a good part of the Greek debt. The Americans don’t mind much if the euro is cheap compared with the dollar. They are afraid of the Germans only in the case when the Teutons armed with an expensive euro can start buying vast amounts of US assets very cheaply.

Then came Greece

As things stand now Greece is to stay in Eurozone, and consequently the euro/dollar parity will remain at lower levels. On top of that, if in a few months ECB’s €1.14tn quantitative easing program proves insufficient to revive the euro area economy the ECB may consider increasing it and further suppressing the foreign value of the euro. France, Italy, Spain and more euro area countries supported strongly by the US have every reason to see the Eurozone economy start growing again and this can be done easier with a cheaper euro. The Americans are not anxious about their trade deficits. All they care for is that the dollar remains the king of the world and the only reserve currency. The US actually ‘owns’ now the largest part of the Middle East together with its oil deposits and their new-found allies, the Kurds, are there to see to that.

 

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

the sting Milestone

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

Hate speech exacerbating societal, racial tensions with ‘deadly consequences around the world’, say UN experts

Ben Stiller’s new role, more about hope than humour, as he’s named Goodwill Ambassador for UNHCR

Germany is trying to rescue its fabled forests from climate change

COP21 Breaking News_10 December: UN Climate Chief Calls for Final Push to Meet Adaptation Fund Goal Very Close to Target

Three ways Finland leads the world – and education isn’t one of them

Guinea-Bissau spotlights threats of organized crime, Sahel terrorism in speech to UN Assembly

India’s future as a world power depends on 4 key relationships

Right2Water initiative: Is the Commission ready to listen to citizens?

“Beyond the beach: tackling plastic pollution upstream”, a Sting Exclusive by Erik Solheim, Head of UN Environment

Roxane in Cambodia

Will Eurozone be able to repay its debts? Is a bubble forming there?

UN Security Council calls for South Sudan leaders to speed up action on peace deal

The EU stops being soft with 10 Downing Street about Brexit

Releasing trapped value is key to success in the digital world

Under-fives’ daily screen time should be kept to 60 minutes only, warns WHO

Scores killed in ‘barbaric’ attack on Mali village, UN chief urges restraint, calls for ‘dialogue’ to resolve tensions

A new crop of EU ‘Boards’ override the democratic accountability and undermine the EU project

WEF Davos 2016 LIVE: “It is the implementation, Stupid!”, German Finance Minister Wolfgang Schaueble points the finger to Greece from Davos

COP21 Breaking News_12 December: 195 countries adopt the First Universal Climate Agreement

ITU Telecom World 2016: it’s all about working together

Ten reasons to be optimistic in 2019

Europe faces economic turmoil as Italy gets closer to the Excessive Debt Procedure

Intel, Almunia and 1 billion euros for unfair potatoes

Mario Draghi quizzed for last time by Economic and Monetary Affairs Committee

Main results of European Council of 18/10/2018

Promoting gender equality a ‘crucial contribution’ in effort to restore, protect our planet’s oceans

The Europeans back Russia-Turkey on Syria: A ‘Waterloo’ for Saudis and their Crown Prince

Texting is a daily source of stress for 1/3 of people – are you one of them?

Humanitarian crisis in Yemen remains the worst in the world, warns UN

2nd Global Consultation on Migrant Health 21-23 February 2017 in Sri Lanka

AI will drive the societies of the future. Will the governed consent?

How venture capital can transform global health

What Ghana can teach us about integrating refugees

Moves to create a Kosovo army have ‘deteriorated relations’ with Serbia: UN peacekeeping chief

UN urges ‘maximum restraint’ as Israel-Hamas tensions rise over rocket attack

Privatization and public health: a question of Human Rights

Climate change is a disruptor. Here’s how to harness it for innovation

Across the world, women outlive men. This is why

Civilian death toll continues to mount in Syria, UN relief chief tells Security Council

China is picking up the fight against rare diseases

When it comes to envirotech adoption, NGOs can lead us out of the woods

UN experts cite ‘possible exploitation’ of workers hired to clean up toxic Japanese nuclear plant

Will the EU reconsider Frontex’s role in light of accusations about violations of migrants’ human rights?

ECB’s billions fortify south Eurozone except Greece; everybody rushes to invest in euro area bonds zeroing their yields

Commission reviews relations with China, proposes 10 actions

UN General Assembly President upholds value of multilateralism in speech closing annual debate

Gender parity can boost economic growth. Here’s how

How tech can help businesses balance profit and purpose

New round of bargaining for the 2014 EU budget late in autumn

More women in Latin America are working, but gender gap persists, new UN figures show

International partners pledge $1.2 billion to help cyclone-hit Mozambique recover, ‘build back better’

Border management: EU signs agreement with Montenegro on European Border and Coast Guard cooperation

Making money from meeting the SDGs? An overarching approach to sustainable development.

Who is to lose from the 6-month extension of the EU economic sanctions against Russia?

Thursday’s Daily Brief: ambulance attack in Libya, #GlobalGoals defenders, human rights in Cambodia, Swine Fever

Direction Wakanda: finance methods to make Africa a superhero continent

Hunger in Yemen: WFP considers aid suspension in face of repeated interference by some Houthi leaders

More electric cars on EU roads by 2030

Can Eurozone’s uncertain growth answer the challenges that lie ahead?

Music is a vital urban resource. How do we plan for it?

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s