During pre-election period Merkel and Hollande will have to come into Brexit arrangements, together with TTIP’s regulatory convergence agenda which brings EU standards closer –if not identical– to those of the US. In the meantime, Brexit is expected to have more negative impact for Fed pricing than the Bank of England, easing or even diminishing expectations for rates hike, which brings pressure to bear on Berlin to accept more expansionary monetary policies, which is exactly what hits the value of German savings and the conservative voters’ confidence to the EU’s institutions, forcing recently Schaeuble to put the blame on Mario Draghi for the rise of far-right xenophobic AfD; that brings insurance industry in Germany closer to insolvency as its profitability is already shrinking, while pressure on German pension funds will inevitably lead either to bigger contributions by the employers or lesser benefits for the pensioners.
The trend (against Germany’s pattern of exporting to its partners the excessive savings created by postponing domestic consumption rise relative to GDP towards full employment) has already been in place, but now it’s getting worse. Berlin is reluctant to absorb its demand deficiency by increasing wages (and consumption less savings) at home, as it believes this step will undermine its competitiveness across the borders; neither the country’s private sector seems eager to invest, due to weak global demand and deteriorating outlook in emerging markets.
Intolerable domestic unemployment in crisis-hit countries puts a limit on the surplus capacity of German exporters who rely more and more on demand from the rest of Europe. Of course, no-one big will risk higher domestic unemployment in order to rebalance EU’s or the eurozone’s deficits. But what if someone’s banks decide to make loans the way Germans did in the 00s? Someone who breaks apart by issuing preferably more debt as the trend goes; someone with the ability to depreciate its currency, intervene in trade and make use of zero rates in order to bring balance in new established trade zones, while increasing its share without the burden of moralizing economic behavior? Poor (pure), little England.
