We should blame Germany for the crisis!

It seems to me that the European crisis has just bounced from one bit of bad news to another all summer.  If the heat wasn't enough the failure of politicians to make any effective decisions had become equally tiresome. 

However, no sooner had the start of September come around than the newspapers started opining about the fate of Europe once again.  So I thought, let's take a slightly different view on who is to blame in Europe.  The Greeks, Italians and Spanish are taking the brunt of the negativity.  But, Germany has a very big part to play in the way this crisis has evolved. 


Germany's role in the European crisis since 2008

The European Union was created for political reasons. Economic considerations were a means to stop the wars that had torn Europe apart in the first half of the 20th century. The key was linking Germany and France in an alliance based on the promise of economic prosperity.

Postwar Europe evolved with Germany resuming its pre-war role as a massive exporting power. For the Germans, European unification became the solution of the German problem, which was Germany's ability to produce high quality goods was greater than its ability to consume them. Germany had to export in order to sustain its economy, and any barriers to free trade threatened German interests. The creation of a free trade zone in Europe was the fundamental imperative, and the more nations that free trade zone encompassed, the more markets were available to Germany. Therefore, Germany was aggressive in expanding the free trade zone.


Also Europe wide standards in areas such as employment policy, environmental policy and so on helped protect already highly efficient, larger German companies, which can absorb the costs of implementing the regulations and protect them from entrepreneurial competition from the rest of Europe. Germany's strategy was to raise the cost of entry into the marketplace.

Finally, Germany was a champion of the euro, a single currency controlled by a single bank (in Frankfurt) over which Germany had lots of influence in proportion to its importance. The single currency prevented countries in trouble from printing money and inflating their way out of trouble in the future. These countries were now locked in a monetary union which was controlled largely by influences in Germany.

The problem

So long as there was prosperity, the underlying problems of the system were hidden. But 2008 revealed them. Firstly, most European countries had significant negative balances of trade with Germany. (In other words they were importing more German goods than they exported to Germany).  Secondly, European monetary policy focused on protecting the interests of Germany and, to a lesser extent, France. The regulatory regime protected existing large corporations.

Germany is utterly dependent on its exports, and its exports in Europe are critical. The free trade zone had to remain intact. Germany has to convince it's home voters that the crisis was due to 'less efficient' Southern Europeans and that Germany will not be taken advantage of.

The truth hurts.

The truth is that the crisis was caused by Germany using the trading system to flood markets with its goods and limiting competition through regulations

Germany does not want any country to leave the free trade zone of the European Union. (although I am still doubtful whether Greece will stay in the Union). Once this begins it is difficult to predict where it will end.  It might end in German catastrophe.

In the end, the Germans will have to absorb the cost of the crisis. It knows this and is attempting to draft a new European structure in return for Germany's submission to the starting of the Euro printing press

Germany needs the European Union more than any other country because of its trade dependency. Germany could never allow the union to devolve into disconnected single nations. Therefore, Germany will constantly bluff and back off and ultimately the EU and the Euro will survive, although in what guise is any ones guess.

My conclusion

I hate to sound alarmist but I worry for myself and my clients.  I have said it many times already.  The end to what is considered as being the crisis, will be the actual start of the real crisis in my opinion.  What do I mean?  The only solution to the end of this crisis is to monetise the debt across EU nations and the only way to do this is to start printing money.  The effect of this will be to cause inflation across the Eurozone and the rest of the developed world. (If it is not happening already). The amount of money which we are talking about will stretch into trillions , not billions. 

To put this into perspective,

A trillion seconds would take us back to 30,000BC. 
If you buy a €3 gelato, you would be able to do so every year for 900 million years
It could buy every share on the Canadian stock exchange
Fund all the military of all NATO countries combined
And the best of all, send All of Europe on a 10 week holiday at the same time.

It is a lot of money and its about to start sloshing about in the EU, which includes Italy.

You can protect your money from the ravages of this inflation through investment.  Its the only solution.  The purchasing power of cash deposits will be eroded quickly in a high inflationary period. 

Think wisely about your own future financial planning and invest wisely for the future before it is too late.

As Wayne Gretsky (ice hockey legend) says:  "I skate to where the puck is going to be and not where it has been'. 

If you would like to learn more or arrange a meeting to discuss your finances in more detail  you can contact me on gareth.horsfall@spectrum-ifa.com or 3336492356.