A true debacle happened. Just when we thought the euro was safe, that ECB President Mario Draghi had single-handedly duct-taped the Eurozone back together in the summer of 2012 with his magic words, “whatever it takes.” Markets assumed that they were backed by the ECB’s printing press, and they loved their assumption. Spanish, Italian, even highly dubious Greek debt, some of it with a fresh haircut, soared. And hedge funds and banks gorged on it and loved it. The debt crisis was over! Stocks soared even more. Money was being made.
So bank bailouts continued, and the Eurozone recession proved to be a nasty long-term affair, but no problem, everything seemed to be guaranteed by the ECB. Debt-sinner countries, as Germans like to call them, could suddenly borrow for nearly free, and neither deficits nor debts mattered to financial markets.
But now comes ratings agency Standard & Poor’s and douses our illusions, because that’s all they were, with a bucket of ice water. The soaring popularity and electoral successes of Germany’s anti-euro party, Alternative for Germany (AfD), could push Chancellor Angela Merkel and her party, the conservative CDU, to take a harder line against bailouts, hopes of QE, and all manner of other ECB miracles that financial markets had been counting on. And it could spook them. And the nearly free money could suddenly dry up. So S&P warned:
None of this would matter much, if we were to assess that the euro crisis is safely behind us. However, this is unlikely to be the case. Eurozone output is still below 2007 levels, and in 2014 the weak recovery has come to a near halt in much of the euro area. Unemployment remains precariously high and disinflationary pressures have been mounting. Public debt burdens continue to rise in all large euro area countries bar Germany.
Anti-euro movements have been coagulating across the Eurozone. There is Marine Le Pen, of the right-wing National Front (FN) in France. “Let the euro die a natural death,” is her mantra. She finished third in the 2012 presidential election, and some polls give her a shot at winning the next one. But she’d be the most impotent President in the 5th Republic. Her party will have only a tiny presence in parliament, based on the French system that was designed by the “political class,” as they call it, to protect itself against outsiders like her party. And it’s that parliament that would get to vote on the euro.
Austria has Frank Stronach, founder of Magna International in Canada, and one of the wealthiest Canadians. Austrian by birth, he went back and founded the Team Stronach for Austria in 2012. Europe should guarantee peace, the free movement of goods, people, services, and capital, he said at the time, but it “can only function if every country has its own currency.” The efforts to bail out debt-sinner countries were “insolvency procrastination.” And “the sooner Austria gets rid of the euro, the better for the Austrian people.”
In September 2013, Team Stronach obtained nearly 6% of the votes in the national parliamentary elections. Alas, the party has since become more concerned with balanced budgets, a simplified tax system, a reduction in bureaucracy, and the like.
Italy has Beppe Grillo, leader of the 5-Star Movement, a Eurosceptic with considerable election successes. And there are others across the Eurozone, vegetating or thriving, but none of them got the attention of the ratings agency, not until AfD started soaring in the polls.
During the debt crisis, and with a good dose of brinkmanship, Merkel had made sure that the Eurozone stayed together. It put German taxpayers on the hook to the tune of hundreds of billions of euros. And when her mantra – “There is no alternative” – hit resistance in her own party, wayward voices were gagged.
“Politics is nourished by alternatives,” announced Konrad Adam out of the blue in March last year, one of the founders of the AfD that didn’t even legally exist at the time. He demanded the orderly dissolution of the “coercive euro association.” The euro would be replaced by parallel national currencies or smaller, more stable monetary unions. Governments should stop borrowing piles of money. And power should be returned from the unelected EU government to the elected parliaments of member states. Those demands have been ringing true to an increasing number of Germans.
During the federal elections last fall, the AfD failed to win enough votes to jump over the 5% minimum required to enter parliament, but it has since put representatives in the European Parliament.
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