As a senior Russian banker hinted yesterday that Russia is building a global alternative to the Swift bank-transfer system, Angela Merkel has allegedly been telling David Cameron that she thinks the Draghi QE “a very, very bad thing”.
Merkel is the last person on the planet who’d be indiscreet without some purpose to it. Yesterday, a leak went out to various news media from the Berlin Chancellery alleging that ‘Frau Merkel is privately dismayed with Mr Draghi’s pledge to buy €60bn in bonds a month. She believes policy makers have ignored Berlin’s fears about the use of QE on this scale…’. The FT for one printed it almost word for word – and is today running this piece about where and when the split began.
Two years ago, critics of the Slog’s Bankfurt Maulwurf (mole) contact kept affirming that, in the end, Merkel would back Draghi against her erstwhile protégé at the Bundesbank, Weidmann: several German and American sites even suggested the Maulwurf was a product of my imagination. But the person – who has now disappeared entirely off the radar – was real enough: and that person has been shown to be 100% on the money. The Bankfurters are now in the ascendancy in the Merkel Circle.
The only unknown left here is whether she and Schäuble just think they’ve got a somewhat brio Italian on their hands, or whether they’re becoming convinced (like me) that Mario is batting for the other side. Despite some weakening of the Pound yesterday, the £/euro exchange rate rose to 1.34.
The Economist earlier this week described euro/Dollar parity as ‘plausible’ during 2015. But Big Red also thinks that such will cause friction with the Americans. I’m prepared to stick my neck out and say I could not disagree more.
The dimension Economistas neglect is the Transatlantic Trade and Investment Partnership or TTIP.
Conventional wisdom would aver that, if the TTIP happens with the Dollar and Euro at parity, then the US must lose in trade terms, because a cheap euro plus lowered (or removed) trade tariffs is a double-boost for EU exports. But we need to look way, way beyond short-term advantage.
There is a very fine line indeed between cheaper exports and zero credibility. My view remains that, if Draghi is allowed to go ahead and complete his QE drive, the euro will fall into the latter category. If he isn’t allowed to do that, the euromarkets will panic, and chaos will ensue in the eurozone.
Either way, the Dollar is the winner.
And while this may seem perhaps a little ‘out there’, nothing would make the establishment of a ‘eurodollar’ (to replace the petrodollar) easier than near-parity value. Beneath that, ‘local’ currencies could still operate with floating values for items beyond gold and energy: and even if the potential instability of that could easily act to reduce EuroDollar value, who cares? It would only serve to inflate away the debt. Meanwhile, continuing to lay stress on competition with Asian tigers would facilitate further power-shifts from wages to capital within the entire TTIP area.
Charles de Gaulle’s dream of a Europe to counteract American power would become the nightmare of Europe becoming a de facto American colony.
This is, I must emphasise, way beyond certainty as an outcome. But being a megalomaniac, Merkel thinks geopolitically like most of us drive cars: it’s almost autonomic. She and Wolfie Wheelchair will, I do not doubt, be mulling this and myriad other outcomes over.
I will only leave you with this, my recurring concern: if you wanted to piss off every demographic in Greece, bring on default there – and then deal with the contagion that would spread via Italy to Spain and then France, what might you do? And my answer is, “Play rock-hardball with Syriza while spending billions on a QE form whose likelihood of stimulating economic recovery is near-zero…and thereby piss off Germany too to create anarchy in the ezone”.
Which is precisely what Mario Draghi is engaged in doing. So is he stupid – or is he working for Wallington Street?
Mario Draghi may be many things, but he isn’t stupid.