tax-valued

OF BALLS AND GUTS

This week, another summit in Europe…This one has more than a financial plot. I sense a huge political game might be played as the poor Latin Europeans try to unite against the powerful Teutons. Hollande’s arrival at the poker table might prove significant if the Mediterranean players, with but a few chips left, unite and desperately call Merkel’s bluff and impose their will on the EU and the ECB.

Some recent headlines:

Eurozone rift deepens over debt crisis Pledge on growth but Berlin resists debt moves
EU Leaders, Divided, Push Growth Leaders of the euro zone largest economies said they endorsed a proposed plan to support growth, but failed to agree on other measures to contain the crisis.

“But most of the measures they flagged already have been floated. The four also remain divided over more prickly issues, including how to shore up the ailing debt markets of Italy and Spain. Germany remained firm on its insistence for fiscal discipline.

Moreover, the measures are focused on long-term objectives, such as building infrastructure, that in most cases won’t have a real near-term economic impact.”

Debt crisis: Angela Merkel defies Latin Europe and the IMF on bond rescue German Chancellor Angela Merkel has shot down calls for full mobilisation of the eurozone’s bail-out funds to halt the raging bond crisis in Spain and Italy, ignoring unprecedented pleas for action from the International Monetary Fund.

Mrs Merkel — or La Signora No in Italy — doused hopes of a break-through on proposals by the “Latin Bloc” leaders of Italy, France, and Spain to deploy the funds (EFSF and ESM) to cap the bond yields of “virtuous” countries vulnerable to contagion, or to recapitalize banks directly to take the strain off sovereign states.

“If I give moneystriaght to Spanish banks, I can’t control what they do. That is how the treaties are written,” she said.

Christine Lagarde, the head of the IMF, warned before the summit that the eurozone is under “acute stress” and at risk of a downward spiral.

“The viability of the European monetary system is questioned. There must be a recapitalisation of the weak banks, with preferably a direct link between the EFSF/ESM and the banks, in order to break the negative feedback loop that we have between banks and sovereigns.”

But, is there money for that?

Tax

Gavyn Davies: The eurozone’s finances don’t add up
The arithmetic of eurozone government refinancing needs, relative to the size of the current firewall, looks increasingly unpleasant.

“Overall, the remaining €400bn firepower in the EFSF/ESM is probably inadequate to finance a bail-out programme for Spain, and would of course be dwarfed by the €1,600 bn needed for both Spain and Italy. In the near term, what this means is that there is very little spare money in the EFSF/ESM to initiate a bond buying programme in the secondary market, which was the favoured option in the G20 summit discussions this week. “

So we will probably see more debt mutualisation via the activities of the ECB. This could occur in several different flavours: outright bond purchases through the central bank’s Securities Markets Programme; allowing the ECB to provide leverage to the ESM; or further LTROs to encourage banks to hold more government debt. The ECB probably does not like any of this, but may well prefer the second and third flavours to the first.

Once again, it is all up to Mario Draghi.

But Germans are watching:

Bundesbank Swipes at Draghi as European Fault Lines Deepen
As Draghi’s officials scramble to put together policies that will fight the latest stage of the turmoil, German policy makers are emphasizing the dangers of pursuing unorthodox policies that potentially put taxpayers on the hook for future losses.

What we can expect Draghi to do is cut interest rates at the next ECB meeting. Inflation is no longer an issue. Deflation will soon be one

But so what?

There is a bigger game being played. Actually, two huge games, both called The Euro! And both starring Germany.

In The Euro game played indoor, Angela Merkel plays both offense and defense. Der Spiegel:

“Still, it seems unlikely that Merkel will be able to stonewall completely. With Sarkozy gone from the euro-zone stage, the German chancellor now stands largely alone in her battle for austerity. She faces significant pressure from a newly elected Hollande, a political leader in Monti whose approval ratings are plummeting at home and needs to show some form of success on the European state, and a leader in Rajoy whose management of his country’s banking crisis has been widely criticized.

Furthermore, Merkel’s crisis management has been blasted by leaders around the world, including US President Barack Obama and the leaders of Brazil, India, Argentina and Russia. The media too has gotten on her case, the most recent — if breathtakingly tasteless — salvo coming from the British magazine New Statesman, which compared Merkel to both the Terminator and Hitler in the span of a few short paragraphs and also said she represented a greater threat to the world than Iranian President Mahmoud Ahmadinejad.

Up to now, the pressures have been on the Club Med countries. It now looks like it is up to Germany to deliver.

Christine Lagarde, the head of the IMF, warned before the summit that the eurozone is under “acute stress” and at risk of a downward spiral.

“The viability of the European monetary system is questioned. There must be a recapitalisation of the weak banks, with preferably a direct link between the EFSF/ESM and the banks, in order to break the negative feedback loop that we have between banks and sovereigns.”

She called on the European Central Bank to back-stop the financial system with “creative and inventive” measures to fight the crisis.

Merkel said:

Each country wants to help but if I am going to call on taxpayers in Germany, I must have guarantees that all is under control. Responsibility and control go hand in hand. If I give money straight to Spanish banks, I can’t control what they do. That is how the treaties are written.

But Hollande is no Sarko:

French president Francois Hollande did not hide his frustration, warning that France would not accede to German demands for a step-change in EU integration until Berlin puts the neuraligic issue of shared debts on the table. “There will be no transfer of sovereignty without greater solidarity, ” he said acidly.

Fraü Nein is clearly isolated. This is reaching deep into Germans’ guts. Will she give in? This Der Spiegel piece illustrates the challenge: Germans Willing to Donate Organs, But Often Don’t

While Germans are in favor of donating their organs in principle, few have made the move to do so, frustrating government officials who are trying to get the organ donation figures up.

Ask an average German if he or she would donate, and some 70 percent say “yes,” organ donor experts say.

But only 25 percent actually have the required donor identification papers that would allow a physician to take a needed organ in the event of a documented brain death, said Marita Völker-Albert, spokesperson for the Federal Center for Health Education (BZgA), a government agency that is promoting organ donation.

Germany’s organ donor rate is less than half of what it is in Spain, the leading donor country, according to 2010 figures provided by the German Organ Transplantation Foundation (DSO).

Germans don’t particularly fancy taking gut wrenching decisions:

Germans have a lot of reasons why they don’t want to donate organs, according to a 2010 survey published by the Federal Center for Health Education. Some 62 percent of those surveyed said they did not want to make a decision now on donating organs; one-third of respondants said they don’t want to deal with topics related to death; and another third said they are worried that if they agree to donate, and then become critically ill, doctors won’t do everything they can to save them.

It’s all cultural:

“I don’t have an organ ID card,” wrote one person in an online forum about the topic. “Somehow, I’m afraid that my organs would be transplanted into a nasty person and I don’t want that.”

Here’s a possible solution to the Euro crisis: all German organs should be exported to the south and vice versa. In two or three generations, the eurozone would be totally unified!

Think about it: Merkel’s guts into a Berlusconi body!

How “cocky” would that be? “