CNBC just reported that the likely new Greek leader is willing to gamble with the Euro to get what Greece needs:
“The head of Greece’s Radical Left Coalition, Alexi Tsipras, told CNBC Thursday that he will “go as far as I can” to keep Greece in the euro zone despite declaring earlier this week that the Greek bailout agreement is “null and void” and should be abandoned.”
It’s about time that someone step up to the Germans and start pushing back. For years now, I’ve been trying to explain why Germany is NOT in the driver’s seat. Why you ask? It’s simple. So, they’re all involved in a single currency. So there’s no floating exchange rates to balance trade. There’s also no currency sovereignty so each of the nations are susceptible to solvency crisis. So what happened was the trade deficit nations inevitably had to borrow from the trade surplus nations to fund their continued spending. Who was doing most of this lending? Germany’s banking sector of course. So, the two are inextricably linked. If Italy, for instance, defaults, it will kill the German banks. Additionally, because Germany is the primary trade surplus nation in the region they are enjoying the benefits of the single currency system. If Italy were to bring back the Lira in this environment the Euro would soar against the Lira making Germany less competitive with Italy. So, Germany has A LOT to lose here. In fact, I’d argue that it’s the periphery holding all the cards here.
This should have happened years ago, but it’s about time someone like Tsipras steps up to the plate. He should not even bluff with Merkel and the Germans. He should walk right up to the Germans and tell them how it is: “we are going to blow this whole thing up if you don’t start giving us what we want”. Then the ball’s in Germany’s court. Maybe they leave the Euro? Maybe they succumb to the pressure and move towards something resembling a fiscal union? Maybe they give in on E-bonds? Who knows. But someone needs to push back because the current construct isn’t working and isn’t going to work.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.