The end of Draghi's void hopes

The last week verbal attack of Mario Draghi that skyrocketed the markets for some days obviously has exhausted its power. Today it became clear that Draghi will do nothing than to talk, as the real boss of the Euro - Bundesbank, still thinks Euro is its currency.

Generally it is not possible for Draghi to accelerate the money-print without the approval of Bundesbank. The only value that Euro still has is the German support for it.

Without Germany the Euro will devalue in hours and in fact will no more be a real and reliable currency. So Draghi is in difficult situation of being a chairman of ECB that formally is an EU Central bank, but in fact is a clone of Bundesbank.

Germany has already made much compromises with Euro when allowing low interest rates at inflation times, along with massive bond purchases on secondary market and more than 1 trillion Euros bank injection through LTRO.

When Axel Weber and  Juergen Stark resigned in a discontent with money-print experiments of ECB, some analytics, including the author of this article, decided that Germany is preparing itself for an exit from Euro zone and a rebirth of Deutsche Mark.

But up to now Jens Weidmann does not give signs of such an exit which may be means that Germany is not sure what is better - fighting still for Euro, or kicking it out of game.

Two things are absolutely sure:

1.The Euro-zone can not survive with such a strong Euro and needs at least 2-3 years of strong inflation to help the indebted governments to survive.

2.There will be no serious inflation in Germany.

Obviously this means that either weak countries must leave the Euro, or strong countries must do this.

Draghi is in situation of being an Italian - a weak country, but heading the institution that rules the currency of strong countries. Being dependent on Germany that is the main fulcrum of Euro, he is pressed to save its own country from debt spiral along with Spain, Portugal, Greece, Cyprus, etc.

In this blocking situation Draghi has nothing to do than to talk. Words help for some time, before the reality confutes them, leading to even worse result with even no words. Fake hopes usually return bad final results.

I think Bundesbank must finally decide what will be the fate of Euro. If Deutsche Mark is to come back, lets this happen as soon as possible and leave Draghi with falling down Euro. If Euro is the future German currency, then Draghi must resign, a German to take over the Bank and a procedure of leaving the Euro zone from weak countries to be created.

EU needs a clear decision. Not a mess of words and void hopes.

August 2ng 2012

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