Germany demands nations hand over portions of their sovereignty (such as the ability to set budgets) before any assistance can be given.
This is a fundamental and seemingly unconditional cause of what may be a powerful bearish move in financial markets over the coming months.
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Looking into the medium-term for “the Zone”, are her individual countries prepared to cede political control to a higher order? Will it be politically acceptable for Germany to continually sign their name on the dotted line to bailout deficit-ridden countries without having some control over that country’s financial affairs? Will citizens of these countries allow German control? Up to this point, I remain unconvinced they will. A comeback for the Peseta, Lira, Franc, or the Deutsche Mark is becoming seriously probable. Perhaps the Euro will split into 2 currencies, a north/south pair? — RCS Investments Macro Outlook (Mid-2011) (Jun. 16, 2011)
Unfortunately, these countries are only in the middle innings of this BOP recalibration, at best; more pain lies ahead. Political risk remains extremely elevated. Furthermore, existing government and private debt is so large that debt traps are becoming evident in Greece, Portugal, and Spain. They in turn will lead to further austerity and worsening political and social trends, a nefarious feedback loop. Germany also needs to impose its own set of painful reforms to induce consumption and reduce their strong reliance on exports to become a deficit country. I haven’t heard much on this front. All nations cannot export their way out. My $64,000 question is: Has psyche amongst the periphery citizenry and political spectrum crossed the event horizon into nationalism? The rise of the True Finns in Finland, dwindling political maneuverability for Merkel, and an increasingly dangerous election for Sarkozy in April say that this view is gaining strength. — RCS Investments Macro Outlook (Begn-2012) (Jan. 16, 2012)