Frankfurt hasn't seen such drama since Gustavus Adolphus (left) marched on it. But ECB head Mario Draghi (right) is preparing his attack
The New Year's biggest fireworks party wasn't Beijing or Shanghai, but Frankfurt. Frankfurt? Has anything ever actually happened in Frankfurt since Gustavus Adolphus crossed the Rhine in 1635? It has now, as the Bundesbank goes head-to-head with the ECB.
The Bundesbank is meant to be subservient to the ECB, but as in so many of the EU two-way, see-through swivel mirrors, the actuality is quite the reverse: the ECB's Mario Draghi is fighting a furious battle with the enemy over his plan to print money to buy sovereign bonds (debts) from the ECB's illiquid banks.
Mario may know something the Bundesbank may not: namely the parlous state of many of the eurozone's banks, including some German ones, because he has recently conducted a 'vigorous' enquiry into them, which must have seemed like looking into a dark valley of praying and delaying dreamers – because the assets, mainly property, are deflating with the euro – down 10 per cent last week.
The trouble with the eurozone, however, is that participating nation states are meant to be responsible for their own debts; any involvement by the ECB in bond-buying means that everyone else becomes responsible too, which in the final analysis means Germany as the strongest economy. But as the euro declines because of ECB hints over QE, perversely the great beneficiary is the zone's strongest exporter, Germany again.
Then the threat of the Syriza anti-austerity party in the Greek elections on 25 January doesn't help either, as they intend to renege on Greece's euro bail-out debts, claiming restitution from Germany for its WW2 despoilments of Greek assets. And that's a lot of rolled-up interest to pay since 1945. But if you lend money to Greece, however, write it off as you send in the cheque.
You can see why Mario wants to resort to the printing press to save the euro, as it's the line of least resistance, but it's also the father of all ruin for the Germans, who are impregnated with a Weimar Inflation anti-serum at birth. Hence the fireworks show on the Rhine, scheduled for an ECB Ruling Council meeting on 22 January. But will it be the end of the fireworks or just the beginning?
The background to this inevitable shoot-out is not good for the supposed 'one-size-fits-all' eurozone. Leaving aside the great Greek euro-entry con, courtesy of money-sucking Goldmans, we await news from Italy, now in a nineteen-month austerity-driven deflationary free-fall, and France is not far behind, with a seven-month straight economic slide. Their economic hands are tied by the single currency.
It seems there are only three possible outcomes for the eurozone now: either a total political union led by Germany – the Merkel solution, but politically unacceptable to many; or a Nord-Euro and a devalued Sud-Euro, which would be an admission of a divided Europe; or a complete or partial break-up, with currency devaluations by the weaker economies. It's Merkel versus the rest.