Back on April 24 we wrote: Sorry Angela, the jig is up.
The gist was: People across Europe were finally beginning to vocally question the German model of dealing with the debt crisis, which was: austerity + strict reforms.
The reason people were questioning it was simple: It wasn't working. Not only were economies collapsing around the periphery, it wasn't accomplishing the official goal, which was to make the state solvent. Borrowing costs had only been shooting up.
Of course, The Germans loved the German model for the euro, since it's produced such tremendous benefits. The cheap currency has allowed the German economy to thrive even as its peers collapse. Unemployment is ridiculously low in Germany. The country is still growing. Borrowing costs are at rock bottom as money races into its borders and banks.
But if the jig was up on April 24, the jig is really up now. First of all, since then, we've seen Sarkozy lose. We've seen the pro-bailout parties in Greece fail to form a coalition, and we've seen Merkel suffer more defeats in regional elections. So from a pure power standpoint, Merkel is the weakest she's been since the crisis began. A major eurobond coalition is forming among the French, Italian, and Spanish, as they all come for German money.
And now we have a new development, where the old cliche about how if you owe your bank enough money, you're in charge, holds true.
By some accounts, Spain straight-up blackmailed the rest of Europe this weekend, warning about the more than 1 trillion euros it would cost Spain and Italy if things got really bad.
A column in the German newspaper Frankurter Algemeine Zeitung reads (via Google Translate):
Now there's the bailout without political costs that debtors largely dictate the rules. "Madame No" to their last trump card has been out of hand.
You get the idea. The debtors make the rules and Merkel has played her last card.
Whoever wins the Greek election on Sunday has to be feeling pretty good about their chances to get a new package.
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