7th December 2011: Immaculate Conception Of A New Superpower. Forget China, Get Ready For: The “Germanic States of Europe”

Quote of the Day:

Angela Merkel: Only political solutions can resolve the situation… A breakthrough can only happen if we are ready to change our treaties.

STRATFOR: Translation: Expect to give up some political sovereignty if you want to share in Germany’s wealth.

Macro Overview

On The EU Poker Table Merkel Plays Her Hand Beautifully

• Christmas started with the “immaculate conception” – Mary, pregnant with Jesus rode all the way toBethlehemto give birth to Jesus. Conception is an interesting concept – all conception is immaculate. We should not be surprised by this, but we always are.
• Consider this: could Angela Merkel and her CDU Party be playing their EU hand beautifully? Many theoreticians and economists make the mistake of looking at the EU through a “lens of logic”. This could not be further from the reality. In a political shake-up as violent as this, self-interests, horse-trading and power-plays dominate and economic logic takes a back seat. Like shifty characters at a high-stakes poker table, EU leaders size each other up as they pore over the political hands they’ve been dealt … and some are playing their hand with much adeptness.
• Consider this: Germans have always been paranoid about inflation. But are they really as paranoid today as they are making out? Is the average German truly petrified of inflation in the midst of a (deflationary) global slump, (deflationary) debt crisis and lurching violently into a (deflationary) pan-European recession? It would be awfully clever of Merkel’s CDU to suggest that they indeed are still vehement inflation hawks (and indeed some are). But, by publicly over-blowing this risk, Merkel’s CDU have irrefutable leverage over other states (like France and the Southern Europeans) to acquire what it has truly wanted since the dawn of the European experiment.
• Consider this: Germany has has never taken its eyes off the prize. A Germanic Central Bank was a significant milestone for Germany in the context of the Euro, but, in this final chess game, Germany recognizes it as merely a sacrificial pawn. Merkel, the longest serving leader of a G8 country, is no mug – indeed Sarkozy is a political lap-dog by comparison. She may be happy to throw her lap-dog a political bone and trade a Germanic Central Bank for the ultimate prize: a Germanic European Constitution. A supra-national political body which, incidentally, would command a strategic force (economically, geographically, militarily, politically) more powerful than anything we’ve ever seen.
• Puppy dog Sarkozy can return home with is superficially triumphant bone of a temporarily flexible monetary victory to his gargantuan domestic banking problem. But Merkel returns with the ultimate prize, an entire continent governed by a Germanic political infrastructure molded under a Germanic ideology. All this and, unlike the World Wars of last century, without firing a single bullet.
• Smart moves Angela, using the ECB chess-piece (no peripheral-friendly monetary solutions without German-friendly political reform) you’ve maneuvered Germany to a position where is effectively holds the other EU states over a barrel…now, for the “greater good” of the Eurozone, here comes the treaty change.
• The World has been fixated with preparing itself for the collapse of the Eurozone and the Euro and all the geopolitical ramifications this would bring. Instead, this Christmas the World may have to prepare itself to welcome the conception of a new Superpower from the most unlikeliest of places… and all the geopolitical ramifications this would bring.

Market Overview

Zzzz…

• Not much of interest in the markets. Unless you’re looking at the bifurcation of Greek borrowing costs to the rest of Europe or the inter-bank lending rates in Europe. Everybody waiting to hear what comes out of the Euro summit this weekend and the ECB rate announcement (some people talking about 75bps cut – yeah right!) tomorrow.
• Chart of the Day Greek CDS – borrowing costs soar for Greece and the rest of Europe leaves them out in the cold.

Chart of the Day

Greek 5 Yr CDS (Source: Bloomberg)

Events

Macro Events:

Update:

• Belgian GDP – slips into negative territory
• UK Industrial Production – disappoints
• German Industrial Production – better than expected

Alerts:

• Australia GDP
• Belgium GDP
• Germany Industrial Production
• Japan Machine Orders
• UK Industrial Production

 

Corporate Events:

Results:

• CostCo [COST]

Dividends:

• Nothing Significant

Reading, Links:

Nothing Significant