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Germany is a nation that fears inflation for good historical reason, and among the nations of the world, Germany places a particularly high priority on price stability. Yet, so long as Germany remains in the European Economic and Monetary Union (EMU) with the euro as its currency, Germany may not be in control of German inflation. In particular, the current crisis with Greece, and the crises that may follow with other nations such as Portugal, Italy, Spain and Ireland may prove disastrous for German investors and taxpayers. For so long as it is in the EMU, Germany may have no effective choice but to bail out countries that have been running up huge deficits – despite Germany itself not having the economic capacity to do this for all of Europe on an indefinite basis, let alone the political will to do so. These are among the reasons why in a letter to clients late last week, Morgan Stanley warned that Germany may leave the euro and the EMU and that investors should be prepared for this event.
If this event happens, it may create an enormous financial windfall for millions of individual Germans, as well as German companies, not to mention the German government. While leaving the monetary union is still far from certain as Germany also has strong economic and political incentives to stay in the EMU, in this article we will say “what if” and explore some of the startling benefits for nations and individuals of quickly exiting a failing monetary union – as well as the many perils. But while the specifics of this article are about Germany (and France), the implications go far beyond Germans and Germany (although there are very important implications for arbitrage opportunities with German companies). Rather, in this world of financial crisis and sovereign debt crisis, there are powerful related wealth and financial security implications for individuals in every country.
(Please note that the European economic and monetary union (the EMU) is not the same thing as the European Union (the EU), and Germany may potentially leave the monetary EMU without exiting the political EU.)
I would firmly place rumors of an imminent re-emergence of the Mark in the "Tin foil hat" bin.
But then I read this:
BRUSSELS — Europe announced radical plans on Wednesday to pre-vet member states' budgets from next year, drawing decidedly mixed reactions from euro giants Germany and France.
The idea forms part of a post-recession drive towards pan-European 'economic governance,' aimed at reining in runaway state debts threatening the region's financial stability and wider economic recovery.
Uh, without sovereignty over the budget you do not have a sovereign nation. Period, end of discussion, full-stop.
German Chancellor Angela Merkel meanwhile said that budgets are "not secret anyway," pointing out that Brussels "can already today form an opinion about what governments put forward during budgetary debates."
Allowing the commission to comment earlier is, "I believe, not a bad thing," she added.
Her deputy, Foreign Minister Guido Westerwelle, had earlier stressed that the "right" to set budgets fell to "national parliaments," representing the "nucleus of state sovereignty."
That's the beginning and end of national sovereignty, when you get down to it. Without the power of the purse you have no powers at all. Everything depends on the ability to cut checks and raise taxes; indeed, your entire premise as a sovereign economically - the premise on which you can borrow money - rests there.
I still rate the odds of the persistent rumors as somewhere around slim and none, but if such a thing was to happen.... well, let's just say that the only safe stock market in the world would be the DAX.
And by the way, as has been noted by myself and others on the forum:
If Nations are to be Nations, and not subservient to banks, they better do it now. This would be the correct time, place and manner to make clear to banks that they exist at the pleasure of nations, not the other way around.
French President Nicolas Sarkozy threatened to pull his country out of the euro currency group to force Germany to help Greece with its debt crisis, El Pais newspaper reported Friday, quoting Spanish Prime Minister Jose Luis Rodriguez Zapatero.
the French president demanded “a commitment by everyone, for everyone to help Greece, each according to his means or France would reexamine its situation in the euro,”
You have the great problem of a potential disintegration of the euro,” Volcker, 82, said in a speech in London yesterday. “The essential element of discipline in economic policy and in fiscal policy that was hoped for” has “so far not been rewarded in some countries.”