- Joshua M Brown
- September 10th, 2012
I'm not sure whether or not the markets fully appreciate the German about-face on keeping Greece in the euro, but let me tell you something - this is majorly significant. Even if we don't get anything concrete on it until post-US elections.
Because Angie Merkel, the woman who holds all the gelt, has come around. And she's dropping hints about her newfound encouragement about the Greek situation everywhere she goes.
Here's Spiegel featuring the Rolling Stones:
"Angie, Angie, when will those clouds all disappear?
Angie, Angie, where will it lead us from here?"
Attentive observers already noticed the chancellor's apparent change of heart two weeks ago. Merkel, whose father was a pastor in communist Eastern Germany, has suddenly discovered a deep affection for the downtrodden people of Greece. She compassionately expressed empathy for "what many in Greece have to suffer," and said that "it does make one's heart bleed."
Up until this point in time, Merkel and her finance minister, Wolfgang Schäuble, were seen as supporters of the "chain theory." According to this theory, the monetary union is a chain in which each individual country forms a link. Since Greece is the weakest link, if it leaves, as the theory has it, the chain will become stronger overall.
"With no loving in our souls and no money in our coats
You can't say were satisfied
But Angie, Angie, you can't say we never tried"
But since this summer, the majority of Merkel's advisers have now become supporters of the "domino theory," which postulates that the monetary union would not become stronger if Greece exits. On the contrary: If Greece falls, one country after the other could then be in danger of toppling.
Domino theorists argue that the impact on the economy, growth and employment would be catastrophic and incalculable. But one thing remains clear: If Greece falls, Germany will have to pay -- and the bill will come to almost exactly €62 billion ($79 billion). This is the colossal sum that the Greeks and their central bank owe the Germans. The entire amount would all have to be written off.
"But Angie, Angie, ain't it good to be alive?
Angie, Angie, they can't say we never tried"
Does the market believe yet? Because all indications say that Angie is genuinely trying to hold things together now. Saving/fixing Greece has become the lessor of two evils to the German way of thinking, significantly better than a chaotic exit replete with massive losses and the tumbling of the periphery.
Hate to say I told ya so, but this is what rich white people do - they choose the path of least resistance and always make the choice that preserves the status quo.
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The Reformed Broker is a blog about financial markets and the economy. Joshua Brown is a New York City-based investment advisor for high net worth individuals, charitable foundations, retirement plans and corporations... More.