Germany: From one alliance to another?

The European Union is still undergoing a heavy political storm as the economic and financial crisis has created a true geopolitical division within the structure. Getting deep into the economic figures, there are no huge differences between countries, which are supporting austerity and those willing to undergo a Keynesian policy. Germany's public debt is approximately 82% of GDP while France is not far away with 89%. Both countries have also an oversized financial industry, which needs to be supported because of over-speculation.

Countries obviously need to be realist. More cash leads to inflation and the destruction of value, while too much austerity can lead to deflation and the fall of consumption and investment. Where is the truth? Why are France and Germany fighting over how to solve the problem?

Is it a cultural issue? France has a long Keynesian culture among its elite, while Germany, which suffered hyperinflation will do everything it takes to avoid such an experience again. If this is the only difference, the best French and German specialists can sit around the table to share experiences. That is the best way to create coordinated macroeconomic policies for countries trading approximately 120 billion euros and representing more than 36% of EU GDP.

This has not been possible. Germany unilaterally managed to impose its austerity measures on European member States (especially through a skilled German diplomacy led by Wolfgang Schäuble). It was easy to bargain as no country has been respecting the EU Maastricht criteria. The fear of markets also convinced politicians educated that States cannot do anything against this powerful "invisible hand". Germany also refused to adopt the Euro Bonds vetoing the proposal at the Council of the European Union. Against the will of the UK, a financial tax will be enforced in a near future and Merkel's government is pushing for outlawing speculation on strategic financial products, i.e. shorting national bonds.

Consequently and for the last 5 years, the European Union has changed the source of its development. There are no bargaining among member States and the Franco-German duo is not the central EU engine anymore. Does it mean that the European Commission has managed to become the supranational power, above states, which is finally defending common interests of States (if they ever exist)? It seems that this is not the case as Angela Merkel's government disapproves most of the EU Commission's ideas. There are cold diplomatic ties going on there between the two entities.

National interests are back on the scene and Germany with other core countries are able to impose them through continental structures (EU), which were at first built to push forward common ideals. Is Germany behaving as a "Regional Hegemon" or as a Pivot acting for another superpower?

We still need to wait a little to get more information as the German Foreign Policy is full of subtlety.
The country is strengthening its new core of alliances within the EU. It obviously is not neglecting the historical ties with the United States. But at the same time, Germany is developing a new diplomacy towards Russia. It is too early to define the quality of this new relationship, but it is obvious that there are some more powerful individuals in the matrix who can shape the structure of regional and international relations (Poutine for example).

Again it is too early to answer any question, but a time will come where analysts will consider the position of Germany between three continents too central...to powerful (North America, Europe and Asia). Is Germany going to cease this historical opportunity?

The battle for Europe...by Europeans!

The global financial crisis and its consequences have been pushing faster the European Union for more integration. More banking regulation, more public debt control (Golden Rule), less speculation on some derivatives (CDS) and redesigning the structure of the European budget (2013-2017) have been at the heart of the latest European summits. It has been a period of extreme tough negotiations and struggle between states to find the right agreement. The EU members are deciding and the EU Commission is executing. 

Hence many international analysts see the EU Commission as the central engine of the EU construction. Mr Barroso and his team are always quick to write a new text that fits all sides. But let us not be wrong, there is a fight between states, which are building alliances around them and beyond the Euroland, to impose their point of views on what the Commission should do.  The Commission is pursuing its own objectives with the Eurobonds, the ESM and the Banking regulation. The supranational institution is pushing forward its calendar on that of States, their economies and institutions. A necessary push obviously to support the EU but this engine is facing competition within the EU. To simplify, one alliance of states is backing the Commission while the other is opposing.

More Europe! Yes but which one? 

Is it where the European Central Bank can print more money to support the PIIGS? France, Spain along with the European Commission and other States say, YES! Germany, the Buba (Deutsches Bundesbank) and European Central States are saying, NO! 

What about the Eurobond solution? The same actors along fault lines are supporting YES for the first ones and no for the second. And what about the European banking supervision? Again same answers from both sides. 

Therefore the European Commission cannot act alone. An alliance of states supporting its policy is a minimum to build the EU after the crisis. However at the same time it is alienating half of the EU member states, which represent more than 50% of the continental economy. 

Eventually one group will prevail over the other therefore giving its definite colour to the European Commission. But this latter should better manage the growing tensions between these alliances. The risk is to create a true division within the European Union. The EU is in a position of balancer, strategic and tough position at the same time. This paradigm has historical background rooted in the 19th century.

Gold and the Euro

James Turk, one of the most famous gold analyst, published at the end of May this year on his website GOLDMONEY an article about the unexpected power that the European currency can be hiding thanks to the gold held by its national central banks. France and Italy have almost 2500 tons of gold and Germany has more than 3,000 tons. A stabilizing factor according to the author who hails the precious metal and is expecting it to have more importance in international relations in the years to come.

However this gold has been kept by national central banks although it could have been used differently according to the ECB. The European Central Bank System (ECBS) is a federal system based on the European Monetary Union with the European Central Bank at its top. The current president Mario Dragnhi has been leading a keynesian policy as the institution sought to restore confidence in the PIIGS (Portugal, Italy, Ireland, Greece, Spain). Although central banks are independant from Member States, there has been climbing and ongoing tensions between the ECB and the Deutsches Bundesbank (nicknamed Buba) as the latter refuses to give the ECB assets so the it could support the periphery countries. The risk of inflation is constantly asserted by Jens Weidmann, the Buba's President.

The ECB along with the IMF have been pushing countries to give away some of their most precious assets, among them gold and silver, so they would provide more liquidities to support States. In a effort to bring confidence back to markets, the ECB also provided 1.3 trillion euros between December and February this year. However to this date many countries have been fighting back against this movement showing that again central banks are linked to the policy of states.


There is a growing fault between countries and institutions supporting keynesian policies (USA, Australia, ECB, IMF) and countries backing austerity measures. The first group supports the idea that a common policy and an international institution are key to this success. The second group understands this strategy as a way to manage the assets they have worked so much for.

French elections

Sunday 10th of June is the first round for the deputy elections in France. Will François Hollande have a strong majority? A weak majority? Or will he be forced to govern with the conservative right party UMP? Don't ask too much as the answers are only set for next week's second round. 

The market will be as usual closely following the headlines in France. No wonder that the market is seeking the positive sign the French President has already put forth during his campaign: "No more austerity measures!". But what does this really mean? More liquidity for banks and individuals? Euro-bonds? And what about the long term reforms to support growth? How is Europe going to evolve to become finally an efficient organisation?