Watch LIVE

Speculation: Germany Is Going to Pressure U.S. Into Helping Bail Out Eurozone

News

"...she will say that she needs roughly $1 trillion in financial guarantees and liquidity support."

Now here's a dark theory via Business Insider:

We're at the end of "extend and pretend." The crisis of the Eurozone is now acute. The headlines are specific. The best analysis suggests that only extraordinary action can keep it afloat. And even that would work only to delay the inevitable for a month or two more.

The euro zone is indeed gasping for air and its financial health is in desperate need of resuscitation. Christine Lagarde, the chief of the International Monetary Fund (IMF), has repeatedly called for bailouts and government intervention. She has resulted to these pleas because she--and most of the western world for that matter--can see no other way out of the obvious fiscal catastrophe. John Ellis at Business Insider continues:

The reality is that the Eurozone no longer offers any good option for continued unity. As an Italian policy-maker told Martin Wolf of the Financial Times, "it would be better to leave (the eurozone) than endure 30 years of pain."

At the center of the storm sits German Chancellor Angela Merkel, who is being told by one and all that she must take extraordinary action to save the day.  But the truth is she doesn't have the authority to do so, doesn't have the votes, doesn't have the political throw-weight to over-ride the judicial, legislative and political vetoes. She won't save the day because she can't.

What is to be done? Chancellor Merkel, the most powerful woman in the world, has been looked to as the euro zone's last great hope. However, despite all of this  aforementioned clout, she still lacks the necessary authority to save the euro (especially after her party suffered a "sharp slap" at the polls earlier this September).

In the days leading up to the collapse of Lehman Brothers, then French Finance Minister (now IMF Managing Director) Chistine Lagarde told then-Treasury Secretary Hank Paulson that he could not allow Lehman to fail. The ramifications would be catastrophic, she said.  She was mostly right.

Three years later, it will be Angela Merkel talking to President Obama,Treasury Secretary Geithner and Federal Reserve Bank Chairman Ben Bernanke with exactly the same message.  The United States government and the Federal Reserve must come to the rescue of the Eurozone or the ramifications will be catastrophic. And she will say that she needs roughly $1 trillion in financial guarantees and liquidity support [emphasis added].  That's the number that will calm the markets.

Although it is terrifying to imagine this happening, it is not too far removed from reality. Moreover, one would hope that US politicians have learned from the Lehman Brothers debacle.

But this may be extremely, wildly wishful thinking.

Given the spending records of Geithner, Bernanke, and Obama, one is not hard pressed to imagine them giving in to Merkel's pressuring.

Business Insider then proceeds to outline exactly how the German chancellor will go about coercing US support for a $1 trillion European bailout:

She will do this publicly (it will be leaked to the FT or the NYT) because (a) she wants to maximize the pressure on the US to ride to the rescue and (b) she wants the blame to fall elsewhere in the event that the "situation" goes haywire.

And there will follow perhaps the defining moment of the Obama Presidency.  If Obama goes forward and provides all or part of the $1 trillion guarantee, he will likely cut his own political throat in so doing.  If Obama declines to go forward and provide all or part of the $1 trillion guarantee, he will likely preside over the second massively destabilizing financial panic in four years, thus insuring a second Great Recession, thus cutting his own political throat.

On the one hand, the American people will have to pay out should the US government decide to ignore what will most likely be a calamitous financial crash in Europe (which will send shock waves through the US markets). On the other hand, the American people will have to pay out should the US government decide to participate in bailing out Europe (something that America is nowhere near being able to afford).

Either way, unless something magically saves the euro zone from disaster, it is a lose-lose situation for the American taxpayer.

This is the theory presented in Business Insider and it is certainly within the realm of possibility.

It seems that the only thing left to do is pray that D.C. doesn't entertain the notion of a European bailout and that Merkel doesn't ask.

Most recent
All Articles