http://www.tdf-tours.com/In the run up to the 2010 Tour de France, Lance Armstrong will compete head-on with Alberto Contador Saturday in France's Criterium International. The two-day race takes place on the French island of Corsica. This little-known race will likely attract extensive media coverage as this is Lance's first confrontation in 2010 with former Astana teammate and longtime rival Contador. Armstrong was recently in Paris, en route to Corsica, to give President Sarkozy a new bike. Touching new lows in opinion polls, Sarkozy may use the bike to quietly escape Paris when the next revolution comes.
Speaking of heads of state, Germany's Chancellor Angela Merkel will meet with Sarkozy and other European leaders in Brussels today. This should be interesting. Debt-ridden Greece continues to languish but the bigger story is an ascendant Germany. While the Greek government struggles to contain debt levels hovering around 120% of GDP, Germany refuses to fund profligate countries by throwing more money at the problem. To Merkel's unending credit, she has stood her ground on the Greek issue refusing to write a blank check. This effectively breaks 65 years of post-war German bankrolling of Western Europe. While Greece is the current issue, Germany is the bigger story.
European dithering about Greece and other debtors like Spain or Italy has put pressure on the Euro. Spyns former clients have long lamented the Euro-Dollar exchange rate so we welcome depreciation. Despite the media-generated "crisis" in Greece, the Euro has fared quite well and now hovers around US$1.33. A cheaper Euro is not an unwelcome development for export-heavy Germany.
As I've written before, Greece represents less than 2% of European GDP so it is financially insignificant. This is why the Euro remains at a relatively high US$1.35 exchange rate despite the "crisis." A rating agency recently downgraded Portugal, likely too late. The agencies are usually a bit behind the curve as they so capably demonstrated with their 'AAA' ratings of mortgage-backed securities right up until late 2008. Why poor Portugal gets a downgrade when Italy (now at almost 120% of GDP debt levels), the UK and United States all get a pass is merely a question of political influence in my opinion. Greece and Portugal represent the first signs of global systemic failure and the politicians are terrified.
Enter Germany. It is the only Western European country with a trade surplus. While most countries like France and Spain lived off of real estate bubbles, shuttered factories, increased wage/production costs, and failed at retirement reforms, the French and Spaniards gorged themselves on Chinese imports. Germany chose another route. After two world wars, hyperinflation, punishing war reparations, and a costly reunification, the German's simply loathe debt. Rather than await the onslaught of Chinese goods, Germany re-tooled, slashed labour costs, and became a larger exporter than the United States.
But where Germany wins, another European must lose. Based largely on German economic strength, the markets treated the Euro as a glorified Deutschmark. Financial institutions extended cheap credit to countries that simply couldn't afford it. Not unlike a college student with a new credit card, they maxed out. Greece is but one example but Italy, Portugal, and Spain also succombed to the temptations of cheap credit and will eventually pay the price. Merkel simply asks the obvious: why loan more money when it will just postone the inevitable (default)?
In the past, Germany has taken a backseat to France in both European and international affairs. The French act like a superpower but are more like the skinny kid at the bar picking fights with everyone while a 6 ft 4 ins 250 lbs "friend" (Germany) takes station behind the aggressor. Following historical precedent, French President Sarkozy seized upon the Greek crisis, decided (unilaterally) to give the Greeks more money, and swiftly handed the bill to Germany. Merkel refused to pay. In the ensuing weeks, Europe demonstrated that it can't do anything without German money. In an interesting turn of events, France has now accepted the German proposal for an IMF-led bailout. The tail wags the dog.
Today Sarkozy, Merkel and a lot of Euro-thingies are meeting in Brussels. Don't expect much. Even before this mini summit, Merkel wanted Greece off the agenda. The Greeks threatened the IMF. Then our crafty Chancellor called the Greek's bluff, repeating their own finance minister's assertions that Greece didn't need a bailout. Merkel: "Ok. You don't want a bailout, so we won't discuss it." Greece will eventually default but not before Germany imposes prudent financial management on the rest of the Eurozone. This will also lead to a rift with profligate France, a country with a 9% budget deficit that still believes it can lend to and lecture others in the Eurozone.
Greece was the tipping point in a new era of German-dominated Europe.
Spyns is an active travel company based in Whister, BC (Canada) and Beaujolais France. Spyns offers active holidays to Europe including trips to the 2010 Tour de France. For more information about Spyns 2010 Tour de France tours, please visit http://www.tdf-tours.com/, http://www.spyns.com/, or call 1.888.825.4720.
