Am reposting this story from the Daily Telegraph in the UK. Seems like it's pretty much bad news as most of Europe teeters on the brink of financial collapse. Still, apparently it's good news for the German's, which seems to imply that the rest of Europe can blame Germany, again!
Not many financial stories have the ability to make me laugh out loud, but this line did : "That German voters were never asked whether they wished to fold their prize into a peseta-lira porridge makes the issue even more neuralgic." Marvellous.
All animals are equal in the one-size-fits-all monetary system of the euro, but some are more equal than others. Germany is supremely equal. It is now up on hind legs.
Or in the words of Italy's financial daily Il Sole, Berlin has "declared war" on southern Europe by refusing to back desperate pleas for a weaker euro – by which is meant a tilt towards looser monetary policy. Indeed, it is strangling such efforts.
Germany's post-1990s mini-slump delayed this showdown but delay has merely made matters worse. Loose money for German needs caused Latin booms to get out of hand. Now those booms are over and Germany is resurgent.
The clash is a foreseeable result of strapping together Europe's two ancient cultures – each with different wage systems, trade patterns, economic cycles and sensitivities to interest rates – in a premature currency union without a central treasury. And doing so in an entirely political bid to force the pace of EU federalism, against the warnings of the European Commission's economists.
Germany has clawed back 40pc in labour-cost competitiveness against Italy, 30pc viz Spain and 20pc viz France since the currencies were fixed (Eurostat data). This was done by hard work or – depending on your view – by squeezing wages in a beggar-thy-neighbour strategy to snatch market share from the rest of euroland. The truth lies between the two.
Italy has held up better than feared. Or at least, the Ostrogoth "Republic of Padania" above the Po is holding up. Fiat has silenced critics. But there are limits as the euro stalks $1.44 against the dollar and screams to mad highs against the Asian mercantilists. "What really worries us is new orders," said Francesco Peghin, head of Padova's business league.
"The euro has risen 60pc against the dollar since 2001. Until now companies have held share by squeezing margins but it's no longer possible at this level.
"A strong currency is one thing. It is quite another when the exchange rate completely decouples from the real economy," he said.
France is slowly bleeding. House prices are falling. In the Jura – Europe's toy-making capital – Smoby-Majorette has just gone bust, undercut by Chinese imports. Nearby, car-parts group Manzoni-Bouchot has suffered the same fate.
The big names are shielded by currency hedges but these become ever more costly to roll over. "The euro has become a terrible handicap," said Peugeot-Citroën's Christian Streiff.
As President Nicolas Sarkozy knows, it takes a year or two for currency effects to feed through and the victims draw political sympathy. Hence his daily broadsides against the European Central Bank: liquidity spigot for "speculators" but foe of working people.
Germany is in another world. Its August trade surplus was $19.8bn and, a paragon of fiscal virtue once again, it is becoming bossy. Finance minister Peer Steinbrück unwisely makes cisalpine enemies as if it were sport.
Whatever the theory of EMU, everybody knows that the German people gave up the Deutsche Mark and the revered Bundesbank under an implicit contract that their country would never face inflation.
That German voters were never asked whether they wished to fold their prize into a peseta-lira porridge makes the issue even more neuralgic. Yet inflation is what Germany now faces. It reached 2.7pc in September, hitting milk, butter, bread and fuel.
Bundesbank chief Axel Weber is breathing fire. "By the end of the year, inflation in Germany could increase to 3pc. As a central bank we are really concerned," he said.
"Monetary policy can't lose sight of its primary mandate – even if that means no longer supporting a robust economy."
The teutonic bloc of Austria, the Netherlands and Finland is behind him, alarmed by M3 money supply growth racing ahead at 11.3pc.
But while the North is inflating, the South is wilting and Ireland faces crucifixion. The celtic boom is over. The Irish economy contracted by 1.4pc in the second quarter. House prices have fallen for six months in a row. A satellite of the dollar zone, it is painfully leveraged to the US property slump.
For now, Spain's inflation is the same as Germany at 2.7pc, but that is an illusory convergence. Property prices fell 4.1pc in Seville in the third quarter, 0.9pc in Madrid and 0.5pc in Barcelona on official data. The Iberian bubble is bursting, whatever sunshine vendors in Britain continue to claim.
Over 98pc of Spanish mortgages are priced off Euribor, up 60 basis points since the credit crunch. "All is beginning to go catastrophically wrong for the Spanish economy," said Bernard Connolly, global strategist for Banque AIG.
For a remortgage in Spain - to interest only perhaps - go to http://www.europamortgages.com/
Spain is left floundering with a current account deficit of $125bn (9pc of GDP). Greece is worse (10.5pc).
But this is not a national morality tale. The Spanish and the Greek peoples are victims – even if they don't yet know it. Never forget that Frankfurt kept rates at 2pc until December 2005, turning a blind eye to frothy M3 when it suited Germany. By doing so, it consigned the South to even bigger boom-busts.
Once the EMU's enthusiasts are thrown out of power in Spain and Italy this winter, Mr Sarkozy will have enough allies to force a change in ECB policy – as he is entitled to do by invoking Maastricht article 104. The bank's sacred independence is a Wagnerian myth.
As for Germany's Mr Weber: does he really mean to destroy the post-war European order nurtured by Adenauer, Schmidt and Kohl with high-minded idealism for half a century?