We agree with Frau Merkel that only by writing a large portion of debt will we ever be free of its burden.
If the default, or restructuring as the euphemism goes, was to occur now, looses could be limited to as little as twenty percent. Waiting a few years, these loses will grow, with some debt be written down too cents on the Euro. Don't forget that most of these bonds are held by our pension and insurance portfolios.
What I cannot work out is why Germany is alone in understanding this, or is Germany being manoeuvred into the role of the bad guy? Again. Stringing to together a narrative over the last three years makes us wonder, in a "Historic Perspective", how their words and actions will be interpreted. It is almost as if Germany is deliberately forcing the crisis forward.
Let's take is from the beginning. Many may recall that in May 2009 the German Bundestag amended the German constitution
binding the Federal States to budget deficits no greater than 0.35%. This was at a time that British Prime Minister Gordon Brown convinced the rest of the world to go hell for leather in state spending through borrowing and guarantees (Hello Ireland).This Keynesian insanity brought massive government deficits, the difference between receipts and expenditure, in the region of 10%. And thus with Ireland they are spending fifty percent more than they receive.
So the German constitution was amended, so what?
Well, just as our Irish neighbours were voting for the second (or was it third) time on the Lisbon Treaty, Germany had yet to sign it. As Ireland was told to continue voting until the "right" result was obtained, the German constitutional court ruled that yes, it was okay for the government to ratify the Lisbon Treaty, but it also noted that was the end of the line.
According to the court ruling, Lisbon was legal as far as it went. However, an important caveat attached stated that "economic sovereignty" could not evolve further under present law. Furthermore, the court also ruled, and perhaps most importantly, the European parliament was not a democratic institution under the German constitution.
The fact is that the European Parliament, the one that creates around eighty per cent of British law, is not a democratic institution. The court stated that although members are elected by member states, there is not a democratic forum of formal opposition. That is to say, that although elected, there is not a body that is able to defy European Commission Diktat.
Then at the end of November Frau Merkel got most of her wishes in the formation of the European Stability Mechanism, which explicitly includes losses to bondholders. This sent bond traders crazy, selling all exposure to the so called PIIGS. As bonds are sold, the yield or interest rate payable rises. Within days Ireland had crashed and its sovereignty overtaken.
Now we suspect that Germany maybe forcing the crisis to become greater at home. So far, German citizens have felt little pain. By inviting the crisis, could Merkel be positioning a constitutional amendment? If so, all of Europe may suddenly find a European Federacy of five hundred million people under the yoke of a non democratic forum controlled by twenty seven commissioners.
