Merkel's Vision: "United States of Germany"

Following brutal negotiations with EU finance ministers, the IMF and various European government officials, Cyprus finally agreed to measures that her highness, Angela Merkel would accept.

This time she held her ground. Previously, Merkel compromised every key position she has ever held in the sake of political expediency.

For example, Merkel went twice went to the well on Greece to appease her opponents. She repeatedly caved in on demands from French president Nicolas Sarkozy. She reversed her stand on nuclear energy following German polls.

So why did Merkel drew the line at Cyprus?

To Merkel everything is a play to win the next election and ultimately to preserve her legacy. She is willing to play hardball now for one reason only. Public opinion is decisively against further bailouts, and anything but exceptionally harsh terms on Cyprus would hurt her election chances in September.

She fears the rise of the eurosceptic Alternative for Germany (AfD) Party and the best way to take some wind out of the AfD sails is to show she cares about austerity.

Merkel's Vision

Merkel's vision is not a United States of Europe. Rather, Merkel's vision is for a "United States of Germany". 

In this light, every move she has made makes perfect "political" sense, solidarity be damned.

That Cyprus and Greece were ruined in the process is acceptable "collateral damage". If Spain is not careful, it will become the next "collateral damage".

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
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