Merkel Protests Too Much: Are German Banks Short The Euro?

“A failure of the euro means a failure of Europe,” German Chancellor Angela Merkel said today, according to Dow Jones. This is after she banned naked shorting in some financial stocks and supported curbs on speculation in the euro and certain sovereign debt issued by Eurozone members.

Merkel has yet to get approval for her nation’s contributions to the nearly $1 trillion bailout fund for weaker European countries from the lower house of the German parliament. Her comments may be designed to move the approval along. But, her enthusiasm for helping Greece has been consistently questioned. German public opinion is against the move. Some German leaders have even asked large banks in the country to contribute to the bailout. That might be to protect the bank’s own interests, or to show multilateral support from several corners of the financial industry in Europe’s largest nation.Observers continue question Merkel’s motives. It could be argued that the collapse of the Eurozone partnership would strengthen Germany’s financial system because it could go back to its own currency, but the country would then have to deal with significant fallout, some of which is not obvious.

A collapse of the euro would mean a weakening of several economies, all of which import German goods. But, the bailout carries that risk as well. The austerity measures being adopted by Greece, Spain, and Portugal along with new taxes being implemented in the nations could be regressive. The actions may eventually hamper GDP growth, in which case Germany’s exports would suffer as well.

Some financial experts believe that Merkel is acting in the interest of German banks which hold billions of dollars in sovereign paper in Eurozone paper. Defaults could swamp the balance sheets of those banks.

But, the real reasons behind Merkel actions may be more complex and sinister. There is a great deal of evidence that some of Germany’s large banks have bet against both the euro and sovereign debt in the weakest nations in the region. If so, these banks, like other speculators, probably made billions of dollars on such deals.

Merkel may have to deal with the accusation, probably an accurate one, that Germany allowed its banks to take sides against the euro as the government helped drive its value down. How would it look if Germany then left the Eurozone and its banks became, under a set of circumstances helped by Merkel,  rich in the process?

Douglas A. McIntyre

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