Merkel’s got Everything Under Control, so far

Merkel’s Dilemma: Risk Euro Zone or Her Government – WSJ.com.

Did you read this line of the article?

“The problem for Ms. Merkel is that the March deal was based on optimistic forecasts that no longer match reality.”

The forecasts never met reality. Remember the whole painstaking process in March? The parties involved knew that the privatization revenue would not materialize, and the country’s deepening depression was keeping tax receipts way below the forecast. The numbers were fudged to get a deal done and forestall a market panic.

A politician is motivated by the need to remain in power, so Merkel and the rest of the politicians will do whatever is necessary to maintain the status quo. Her coalition partners know that a Grexit would be an unmitigated disaster, so they are bluffing. Merkel will give them some concessions, perhaps a ministry or some spending in their region, and they will toe the party line.

Keep in mind that the backdrop for all of these machinations is Merkel’s popularity. She is enjoying a very high approval rating, and two-thirds of the Germans approve of her handling of the Eurocrisis.

Another point to remember is that Greece has been insolvent for quite some time; the ECB has allowed the Greek government to sell t-bills to its banks who turn around and pledge the bonds for euros courtesy of the Bank of Greece.

The Greek government is projected to be in the hole €14bn a year for the next two years. This is basically a rounding error when compared to the Spanish situation. Greece willl continue to try giving political cover to central bank printing of euros. Problem solved. But then there’s Spain…

http://dareconomics.wordpress.com/2012/08/17/spanish-financing-needs/

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