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Sunday, September 09, 2012

Wow - Not The Greatest Soros Fans

The forum comments for the Spiegel article about Soros' call for Germany to lead or leave are less than favorable to his small request. Most of them make some reference to the fact that he is talking his own book. 

If you don't read German, you can use Google translate to get the gist of it.

The German High Court's decision over the ESM funding is due on the 12th, and it doesn't seem like its decision will be greeted with joy. One must remember that the voters can overrule their representatives in the next election!

There is however some enthusiasm for the idea of leaving the Euro, but wouldn't that produce a northern currency and a southern (bankrupt) currency? 

Comments:
Well, Soros is a vulture, after all.

I think the best case is for the northern countries to leave the Euro. The Euro would immediately devalue, which would give the southerners the easing they need. But then the northern lenders would have to realize tremendous losses, so that's not something the elites want to do.
 
Wouldn't that immediately throw all the "southern" Euro bloc into bankruptcy? Who would lend them money? Collectively, their credit rating would be zero. Not even junk bond ratings.

It seems to me that Soros is trying to achieve a dramatic bust here. Maybe that's what he has bet on.

If his plan were adopted (the collective >60% funding), Germany's ratings would promptly go to "piss-poor", because of the debt increase. Either way, the Euro loses.
 
Isn't he pretty much right, though? I mean, either Germany has to pony up and take the interest rate hit or the southerners will have to go bust. What other choice is there?

 
Yep. Bankruptcy is coming. You can have smaller bankruptcy or larger bankruptcy, but not no bankruptcy.
 
Neil, the scale of the debt overhang in Italy is such that Germany can't take the interest rate hit and save Italy.

It's another Greece. One way or another, that debt has to be written down. Just moving it to Germany would put Germany in a debt bind akin to France. Bundesbank estimates current 2013 Germany debt at over 80% debt-to-GDP ratio. That's with the ESM but no other extensions, I believe.

Since the Germans already have a retirement age of 67 and have already instituted the social reforms in the first half of the 2000s, they really are without any place to make that up. That is the reason the Germans keep insisting that other countries make these reforms. First they are entirely sincere - it worked for them. Second, they simply cannot take on debt that would force them to push their retirement ages to 70 or so while funding better benefits for other countries.

See page 98 of The Bundesbank monthly report July. Q1 2012 is estimated 81.6%. Taking on 400 billion more in Euro debt would put Germany at 100% or over.

As soon as a general Euro scheme is adopted, Germany's credit rating goes to shit and the ability to borrow money at low rates disappears.

 
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