What is Mrs. MERKEL playing...?

As usual a rather long article, but... Lots of perspectives from the......

While the major media have been focusing public opinion's attention almost exclusively on the "jihadist threat" for more than 10 days, things of great importance are happening on the euro front.

The past few days have indeed been marked by two important facts which constitute two new twists in this monetary adventure which is leading an entire continent to ruin:

• on the one hand, the public declarations of the Chancellor of Germany, Mrs. Merkel, who said she was ready to let Greece leave the euro, as if it was up to her to decide.

• on the other hand, the sudden decision of the Swiss National Bank to no longer prevent the euro from falling below the exchange rate of 1,20 Swiss francs.
   

We offer you a decryption. 

• September 6, 2011: the reasons why Switzerland had set an exchange rate floor for the euro against the Swiss franc

On September 6, 2011, our Swiss neighbors and friends decided to set a “floor rate” for the euro against the Swiss franc.

We were then at the height of the sovereign debt crisis in the eurozone and the Swiss franc acted as a safe haven, as has been so often the case for decades in monetary history. The growing demand for the Swiss franc had the effect of pushing up its exchange rate against the euro or, which amounts to the same thing, causing the euro (EUR) to fall against the Swiss franc (CHF).

The euro exchange rate had thus continuously eroded: 1,65 CHF in January 2008; CHF 1,50 in January 2009; CHF 1,40 in May 2010; CHF 1,30 in September 2010; CHF 1,25 in January 2011; CHF 1,15 in July 2011; and even CHF 1,06945 at the start of August 2011. All of this, of course, made Swiss exports more expensive and threatened the Swiss Confederation with a slowdown in growth that could even lead to recession.

The Swiss National Bank (SNB) therefore intervened by announcing the introduction of a “floor rate” for the euro, which it justified with three arguments:

- the "extreme overvaluation" of the Swiss franc against the euro, which had just reached a historic "low",

- the threat to the Swiss economy,

- and the deflationary risk.

On the basis of this observation, the SNB had set at CHF 1,2000 the “floor rate” below which the euro could no longer fall. In the days following this announcement, the euro rose sharply, in fact, from 1,07 CHF to a level slightly above 1,20 CHF.

Of course, this brutal re-appreciation of the euro against the Swiss franc and the maintenance of the rate of the euro above 1,20 CHF were not achieved by the operation of the Holy Spirit.

In practice, the central bank of Switzerland had to sell the Swiss franc en masse and buy against the euro, in order to depreciate its own currency until it reached the exchange target set against the euro.

In practice, this also means that the SNB had to intervene as often as necessary to ensure that the euro did not fall back below the floor threshold of CHF 1,20, which gradually led it to accumulate considerable reserves of euros.

It is this day-to-day management of the external exchange rate of the Swiss franc that has just been shattered. On January 15, 2015, the Swiss National Bank (SNB) capitulated.

However, just a few days ago, the consensus of experts and financial markets was around the idea that the floor rate would be maintained "as long as necessary", according to the established expression (whose form is reminiscent of the famous " whatever it takes  by Mario Draghi).

Morgan Stanley Bank, for example, wrote again last week, January 8, 2015: “To be sure, our base case is for the EUR/CHF floor to remain in place, as the SNB's commitment to purchase unlimited quantities of FX has proven credible to date... ”( http://www.morganstanley.com/institutional/research/pdf/FXPulse_20150108.pdf. Translation: "Of course, our base case is that the EUR/CHF floor will remain in place, with the SNB's commitment to buying unlimited amounts of currency having proven credible so far... ").

As for the BNP's "trading" recommendation for January 15, it was to be "long" the euro (i.e. to have bought euros) and "short" the Swiss franc ( to have sold Swiss francs). The Zerohedge site noted this masterful blunder with malice ( https://twitter.com/zerohedge/status/556007540606382080 ).

Some even speculated on an increase in the floor rate to 1,25, or even 1,30 Swiss francs for 1 euro, in the months to come.

On the side of the authorities, the same thing. The surprise was complete on the floors of the ECB, where the scenario had neither been planned nor analysed.

But the SNB let go. It must not have been an easy decision to make and it is important to understand why.

• January 15, 2015: the reasons why Switzerland has given up guaranteeing the floor rate for the euro

The defense of this minimum rate had forced the SNB to accumulate, over these three years, gigantic reserves of euros. We do not know the exact figures, but we can count on an order of magnitude of 220 to 240 billion, half in German then French government bonds, half in cash, held directly with one of the central banks of the euro zone.

The abandonment of the floor rate guaranteed by the SNB caused a sudden surge in the Swiss currency. During the day on January 15, the Euro fell from CHF 1,205 to CHF 0, a collapse of -995% in a few hours. The dollar meanwhile fell to CHF 17, down -0,858%.

Evolution of the euro exchange rate against the Swiss franc between February 1, 2014 and January 15, 2015. This historical graph shows the effect of the "floor rate" set at 1,20 CHF for 1 EUR, then the spectacular tumble of -17% that occurred in a single day.

What must be understood is that, on the basis of 200 to 240 billion euros of reserves, a depreciation of the euro by 17% against the Swiss franc represents an exchange loss for the SNB, around 34 to 40 billion euros. His decision of January 15 is therefore anything but trivial. It may even be the most costly decision ever taken by the SNB.

To consent to such a dizzying financial loss, the SNB had to have serious reasons.

These reasons are to be found in what happened the day before.

On the morning of January 14, we learned that the Court of Justice of the European Union (CJEU), - in this case, one of its Advocates General, acting as counsel to the judgeses -, considered that the OMT announced by Mario Draghi in 2012 did not contravene European laws.

Let us remind you that" UNWTO is a program for the acquisition of public debt securities issued by the Member States of the euro zone, a program called “Outright Monetary Transactions” in English and “Operations Monétaires sur Titres” in French, or “OMT” in both languages. The OMT is an “unlimited” mechanism for the purchase of eurozone government debt by the Eurosystem, which has not yet been activated. Although not activated, it was widely perceived as the first step towards the new flagship measure concocted by the ECB, monetary easing or “quantitative easing” (QE).

It should be remembered that "quantitative easing" generally consists of an expansion of the central bank's balance sheet through, in particular, the acquisition of assets which may be bond debt securities, or more risky assets such as so-called debt. agencies, or asset-backed securities like mortgage-backed securities.

Admittedly, the opinion of the Advocate General of the CJEU will not necessarily be the decision that the judges of the same CJEU will render in a few months. Admittedly, EQ and OMT are two different things. It prevents. This January 14 announcement was unanimously perceived as a legal green light given to the ECB to proceed soon with QE, so dreaded by all the guardians of monetary orthodoxy.

It is most likely this prospect that triggered the SNB's decision. Because defending the floor rate of 1,20 CHF against 1 euro, since this euro would be subject to QE – that is to say a very large issue of euros – was mission impossible.

The SNB's balance sheet is already overloaded with euros. If floods of new euros are expected to circulate on the markets in the near future, the SNB would have been forced to absorb even more of them, and for sizes, we can presume, even more considerable.

The SNB thought it best to stop the already huge charges, throw in the towel and “take the loss” that comes with dropping the floor price defense. To properly measure the enormity of this loss, it suffices to point out that, being of the order of 34 to 40 billion, it represents roughly half of the institution's own capital (73 billion francs at the end of November ).

Difficult decision, therefore, but inevitable.

Of course, the problems that the setting of a floor rate for the euro against the Swiss franc had sought to counter in September 2011 will immediately resurface. In less than 24 hours, Swiss exports have just become more expensive by more than 20% when their price in Swiss francs is expressed in euros and by more than 18% when it is expressed in dollars.

The growth rate of the Swiss economy will therefore suffer a sharp brake, and perhaps turn into recession. This is why the Zurich stock exchange had a historic day on 15 January. The SNB's decision triggered a massive drop in the Swiss market, to an extent rarely seen. The flagship SMI index collapsed by 15% during the day, before recovering a little at the end of the session to close with a considerable decline of -8,67%.

The National Bank of Switzerland is headquartered in Zurich and the German Bundesbank is headquartered in Frankfurt. Although the problems that the euro poses for these two sacred monsters of world finance are factually different, they are no less similar in substance.

• The Bundesbank basically has the same problems as the SNB

There is a relationship between the problem which arose at the National Bank of Switzerland and that which arises at the German Bundesbank. We don't see it enough, because the Bundesbank's membership of the euro gives the problem a different appearance, but the substance of the problem is the same.

• The SNB had too many euros? The Bundesbank has too many claims on its counterparts in the Eurosystem.

• The SNB was threatened with having to absorb even more euros and for increasingly huge volumes? The Bundesbank is threatened with having to absorb even more claims on its counterparts in the Eurosystem for increasingly enormous volumes.

• The SNB had to give up defending a floor rate between its currency and the euro? The Bundesbank should give up defending a minimum rate between its currency and the euro of others – and it does nothing else, de facto, than to defend such a course by remaining a member of the Eurosystem.

Naturally, the Bundesbank does not discover the problem today. She has been aware of this since 2010. A latent conflict ensued between her and the rest of the area; the ins and outs have been described in another article ( https://www.upr.fr/actualite/europe/bundesbank-bce-la-guerre-des-tranchees-analyse-par-vincent-brousseau ), and we will not return to it.

Let us just note that a few days before the announcement by the Court of Justice of the European Union on January 14, the German representative on the ECB's executive board, Sabine Lautenschläger, and the President of the Bundesbank, Jens Weidmann, continued to oppose the projected QE. The head of the German central bank going so far as to deny the existence of the risk of deflation.

From left to right: German Finance Minister Wolfgang Schäuble (in a wheelchair), German representative on the ECB Executive Board Sabine Lautenschlager (formerly at the Bundesbank) and Bundesbank President Jens Weidmann. The links between political power and the German central bank are very close.

If the German authorities do not discover the problem today, it can be assumed that they have already thought about it for a long time.

However, Germany cannot leave the euro zone, nor take responsibility for bringing about its end, and this for political reasons.

On the one hand, it does not feel capable of assuming moral responsibility for the end of the euro or that of Europe, for reasons which have been very well analyzed in this article ( http://www.geolitico.de/2013/09/25/der-euro-als-teil-eines-historischen-deutschen-heilsprozesses/ ), unfortunately only available in German.

On the other hand, it is under colossal external pressure, coming from Washington, not to put an end to the project.

Given all these constraints, it is probable that the project that the German leaders cherish is to bring about the stoppage of the euro, but in such a way that it does not appear clearly to be of their making. What they are probably looking for is sabotage on the sly.

note that this hypothesis on Germany's secret objective – a hypothesis which has been made by the... for several years – helps to explain why Mrs Merkel very recently preferred to say publicly that Greece's exit from the euro (dubbed “Grexit”) was possible, rather than pressuring the Greek electorate to stay in the euro.

This is an extremely notable shift in German communication on the subject of "Grexit", as revealed by the examination of German and European speeches, yesterday and today, on the subject in question. .

• Germany's discourse on the future of the euro has changed dramatically

The German authorities have changed their tune. In 2011, Mrs Merkel proclaimed, regarding Greece, that she would not allow the disintegration of the euro, and also that she linked the survival of the euro to that of the European Union itself ( http://en.wikipedia.org/wiki/Greek_government-debt_crisis#Return_to_bond_market ). It should be noted in passing that the second assertion is not entirely consistent with the first, but it does not matter: the intention was clear, the Grexit was declared out of the question.

The discourse today therefore seems radically changed. The Chancellor said, in essence, that Greece's exit from the eurozone would no longer jeopardize the survival of the eurozone. It's hard to contradict yourself any longer.

Of course, some explanations have been provided to justify that what was impossible yesterday is no longer impossible today. The communication advisers have advanced pell-mell the European banking union, the European Stability Mechanism, the reforms well under way in the other countries of the South which would protect them from contagion, etc.

But these explanations are not. They are pure rhetoric. Because the problem is not there. The real problem is called, in Greek, Pandora's box. If the Grexit were carried out in earnest, it would demonstrate that leaving the euro is possible, just as the movement is demonstrated in progress.

Even more, it would provide the beginning of a concrete instruction manual for any other country that might be tempted to recover, in turn, its currency. It would only be necessary to examine how the various legal, political and operational obstacles, hitherto presented as insurmountable, would be overcome, and to adopt or adapt each solution to each problem.

This is how when the German authorities answer banking union and MES, they answer, and knowingly, beside the question. This should lead to questioning the purity of their intentions.

The European discourse persists in saying - in public only - that membership of the euro is "irrevocable"

The European authorities, on the other hand, have not changed their communication by one comma.

In 2009, the ECB published a " legal working paper concluding that leaving the euro legally implied leaving the European Union by article 50 of the Treaty on European Union since there is no article allowing to leave the euro without leaving the EU, which, by the way, is correct ( https://euobserver.com/economic/113563 ). But, as the prospect of leaving the EU seems totally inconceivable for those holding the dogma, this analysis implicitly amounted, in their minds, to affirming that it was impossible to leave the euro.

In 2011, the European commissioner of Spanish nationality Joaquim Almunia expressed himself in these terms: “Those who think that this hypothesis [that of an exit] is possible have understood nothing about our integration process. European integration is the only option. » ( https://euobserver.com/economic/113568 )

Today, unlike the German discourse which has changed completely, the discourse of the European institutions has remained identical. The President of the European Parliament, Martin Schulz, describes the possibility of leaving the euro as "irresponsible speculation" ( http://www.welt.de/wirtschaft/article136091396/Schulz-wirft-Regierung-Verantwortungslosigkeit-vor.html ) while the Commission reiterated that membership of the euro is "irrevocable" ( http://www.rt.com/news/220039-greece-eurozone-exit-crisis/ ).

Of course, these public positions are only public positions. Internally, the constituent institutions of the "Troika" (ECB, Commission and IMF) were indeed obliged - nolens volens - to decide on the course of action to be taken in the event that this “impossible” event should nevertheless occur.

On this point, the oligarchy that governs us seems to have realized the trap into which it has locked itself with the Treaty on European Union (TEU). The editors had thought it clever not to include an exit clause from the euro, thinking that this would strengthen the confidence of international investors in the eternity of the European currency. Only here it is: as the ocean cannot be stopped with a dam, the pressure of the facts which are pushing for the break-up of the euro is such that the countries concerned will soon have no other choice but to leave it. , which, by law, requires them to also leave the EU.

Mario Draghi and all the European oligarchs are trapped by the absence of an exit clause from the euro in the treaties.

The oligarchy, trapped by the absence of an exit clause from the euro in the treaties

For the oligarchy, this is the disaster scenario.

It cannot agree to force a country leaving the euro to also leave the EU. Because the consequences of these two combined shocks would be completely unpredictable, both for the country in question and for the impact of these events on other EU states.

Europeanists can imagine with horror what would happen if Greece, for example, left both the euro and the EU and if, two or three years later, its situation had become flourishing again. The exemplary effect would be devastating for the survival of the EU…

In these conditions, the Euro-Atlanticist oligarchy is looking for an expedient to allow a state to leave the euro without leaving the EU. Rumor has it that Article 352 of the Treaty on the Functioning of the European Union (TFEU) may be used for this purpose, whose abstruse formulation would authorize all legal forfeitures. It is true that §1 of this article is so obscure and vague that some minds can imagine using it for anything and everything:

"1. If action by the Union appears necessary, within the framework of the policies defined by the Treaties, to achieve one of the objectives referred to in the Treaties, without the latter having provided for the powers of action required to this end, the Council, acting unanimously on a proposal from the Commission and after obtaining the consent of the European Parliament, shall adopt the appropriate provisions. When the provisions in question are adopted by the Council in accordance with a special legislative procedure, it also acts unanimously, on a proposal from the Commission and after obtaining the consent of the European Parliament. »

( https://europadatenbank.iaaeu.de/user/view_legalact.php?id=49 ).

Certain minds doubtless imagine that they could present Greece's exit from the euro as "a Union action which appears necessary, within the framework of the policies defined by the Treaties, to achieve one of the objectives the Treaties, without these having provided for the powers of action required for this purpose. »

However, this would be an absolute legal forfeiture because this device would amount to modifying the treaties - which is moreover on an essential point: Greece's membership of the euro - without going through the legal procedure which is compulsory for any modification of the treaties, which consists in asking the 28 peoples for their unanimous opinion, which requires the signing of a new treaty and then the 28 necessary ratifications on the part of the 28 States.

• The real question: what is Ms Merkel playing at?

The question is not whether a Grexit is possible. It is, as is always possible a change of an agreement concluded between human beings.

Nor is the question whether a Grexit is likely to happen after the elections. The risk exists, as wealthy Greeks believe who have resumed their bad habit of emptying their bank accounts ( http://www.zerohedge.com/news/2015-01-12/greeks-stop-paying-taxes-ahead-elections-central-bank-scrambles-halt-bank-run-rumors ), to safeguard the contents either in the form of cash or in the form of accounts located outside Greece.

This behavior also places Greek banks in a difficult situation. Two of them would have been obliged, in the last few days, to ask the ECB for the special assistance known as " Emergency Liquidity Assistance (ELA) ( http://www.zerohedge.com/news/2015-01-15/greek-bank-runs-have-begun-two-greek-banks-request-emergency-liquidity-assistance ).

The real question is what Ms Merkel is playing at.

This question is disturbing and only the... provides a convincing answer. Our hypothesis is that, like Penelope in the Odyssey, Mrs. Merkel unravels at night what she weaves during the day, waiting, not for Ulysses but for the inevitable explosion of the euro.

So far, our hypothesis has never been contradicted by the facts.

... and Vincent BROUSSEAU

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source: Agoravox.com

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