The European “End Game” Will Have Global Consequences

Too many pundits believe Germany holds all the aces in the European power dynamic. After all, they are the creditor nation with all the wealth. They should be able to dictate the terms of the European Union and instill their fiscal and monetary dominance on the rest of the EU nations.

Yet we have long passed the point where Germany can walk away from this union. Let’s forget the political implications of an EU collapse (which are considerable and provide a great degree of inertia for the EU remaining together), and instead focus on the fiscal implications.

Start with the obvious. The ECB is busy ramping up their balance sheet. At the start of 2015, they held 2 trillion euros in assets. Over the past three-and-a-half years, the ECB has more than doubled that. They now own more than 4.5 trillion of euros in assets.

Yup. Germany just keeps digging a bigger and bigger hole. Another 900 trillion of assets that have been lent out to European nations. So almost 25% of German GDP.

Germany might think they will dictate terms of the European Union, but the reality is that they have way too much at stake to enforce their will on the debtor nations. Any perceived overly restrictive conditions will just hasten the EU’s demise.

End result
No denying that Europe is a financial basket case. The main Central Bank is expanding its balance sheet at an unprecedented rate. All the while, the individual countries’ Central Banks are furiously adding exposure in a desperate attempt to keep the whole system from falling apart. Add into this toxic mix various political shenanigans as different countries try to extract even more advantage.

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