And now the Germans will have to decide which kicked can they finally want to pick up from the road!
At this point, there are essentially three choices:
The Germans must send a clear signal that the ECB will become the lender of last resort, that more stimulus will be undertaken in Northern Euroland, and that a higher inflation rate of 5%/year will be tolerated until competitive balances within Euroland are restored.
Alternatively, the Germans could decide that they and their richer counterparts will depart the Euro, which would allow for the necessary currency devaluation to correct the competitive balance, but will not change the need to shore up what is becoming a non-functioning financial system.
The final possibility is allowing Greece to leave the Euro, but it’s very likely that this will force, Ireland, Portugal, Spain, Italy, and possibly France to also consider leaving. The danger of this contagion is that it will prompt massive capital flight to Northern Europe and make the austerity undertaken so far seem very benign as the banking systems in those countries collapse and a continent-wide depression ensues.
What’s absolutely essential at this point is for the Germans to understand that they have no more than a month to make up their minds.
The Greeks are screwed regardless, they simply don’t have the resources or the capability to keep going without at least a 50% change in the competitive balance.
Anyone in Berlin who thinks that austerity remains a viable solution is living in the fantasy world created by Angela Merkel and the Bundesbank.
Gorilla says: “For the third time in a century, the Germans must crawl out of the devastation they’ve created!”