In his final days as ruthless EU dictator, the Leader made a series of cataclysmic blunders, based largely on a misreading of the strategic situation. These led to his inevitable downfall[i].
“Mein Führer. The Russian delicatessen chain, Azbuka Vkusa, has breached the gates of Berlin. They are bearing down on our Aldi and Lidl divisions. The situation is grave”.
This was offered by the Leader’s staunchest loyalist, General Selmayr, whose judgment even the great Leader had never questioned. A gathering of military top brass stood erect, facing the seated Leader some fifteen metres below the streets of Berlin.
The Leader stared at his interlocutor, motionless. Then General Mogherini stepped forward. As she saluted, her blond tresses seemed to cascade down her black leather jacket.
“Mein Führer. I must report that we can no longer assume the cooperation of the Axis powers. Bulgaria and Moldova may have gone over to Russia. The English have resumed round-the-clock hostilities with their powerful American friends. And it seems that the French, who were so decisively dealt with some years ago, may be about to re-assert themselves”.
There was the sound of a distant explosion and a dull, visceral vibration swept through the bunker. The ligaments of the Leader’s neck quivered perceptibly. His laser-like blue-eyed gaze swivelled towards his Finance Adviser, General Tholoniat.
“Mein Führer. I cannot guarantee that the TARGET2 intra-Eurozone settlements system will withstand the current onslaught. Even the French financial newspaper, Les Echos, hitherto a stalwart supporter of your regime, is articulating Eurozone collapse scenarios. Two-year German Bund yields have fallen to record lows of minus 0.91 percent. The Banca d’Italia now owes a record €364 billion to the ECB which no one believes they shall ever repay. As the European Central Bank – your brain-child, Mein Fürher – purchases corporate bonds, so more capital is sucked out of the very peripheral economies that it is supposed to be helping…There is a capital flight from the South of the Eurozone to the North which is only exacerbating the problem of trade imbalances…”
The General was silenced by the Führer’s right palm, raised into the air as he stared towards the floor.
“Mein Fürher.” This was General Selmayr, once again. “General Tholoniat is speaking the truth. Up until now the TARGET2 imbalances have been treated as just an accounting anomaly. But if the markets were ever to believe that there is a significant probability that a country might actually want to leave the Eurozone – then they would price the contingent liability represented by those TARGET2 obligations into the government bond markets. And that might leave the single currency itself vulnerable to speculative attack. To Italian TARGET2 obligations we should add a volume of bad debt in their banking system much greater than that; and a declared government debt of around 137 percent of GDP. The so-called 5-Star Movement – a resistance movement that we are dealing with severely – have a clear policy of pulling out of the Euro, and they have a significant chance of winning the elections that will no doubt be called shortly…”
Hush. It was apparent that the Leader was about to speak.
“Italians” he almost whispered. “Italians. Italians…And I extended our hand of friendship to them in good faith. I promised them economic support in return for their unquestioning devotion to our Project…And this is how they repay me…”
The Führer smashed a clenched fist down onto his desk several times, his tortured features contorted with rage. There was a moment of tense stillness. Moments after he fell silent, General Mogherini stepped forward again.
“Actually, Mein Führer, it’s not just us Italians. You should look at the Spanish. They’re almost as bad with €328 billion of TARGET2 liabilities. While the rating agencies still refuse to treat the counterparty obligations of Eurozone member central banks as real liabilities, the Banco de España can just sweep its massive liabilities under the proverbial carpet. But the fact is that if the peripheral Eurozone nations were to leave the single currency in the crisis that is upon us, the Bundesbank itself would experience an overnight write-off of TARGET2 assets of about €795 billion. That’s about one quarter of the German economy in nominal terms which would go up in smoke…”
This time the Leader was incandescent.
“You have the temerity to lecture me about financial obligations…Our entire Project has been based on the Northern European Protestant notion of financial obligation. I lend you money. You pay it back. If you don’t meet your obligations – there are consequences. In finance, as in war, might is right…”
“Mein Führer. If I may say so, you are not really a German at all but a Luxembourgeois. The central bank of Luxembourg has TARGET2 assets worth €187 billion – about 350 percent of the Duchy’s GDP. And much of that arises by virtue of the fact that when you were Prime Minister there, Luxembourg, already an offshore financial centre in all but name (where German banks have conducted money laundering for decades), turned itself into a tax haven beyond Panama’s dreams of avarice. When the mad British buy CDs on Amazon these transactions are booked in Luxembourg…”
This was General Kramer. She paid a high price for this comment; for the Führer pulled a pistol from his pocket and shot her straight between the eyes.
“Would anyone else like to offer me advice?” the Führer asked. “I have come closer to unifying the European continent into an irreversible Union than anyone since the great Napoléon Bonaparte, whose tomb in the Champ de Mars I intend to share. All this TARGET2 nonsense is for a nation of shopkeepers and accountants like the English. I will not countenance any opposition to our ultimate goal…”
“Mein Führer. There is another problem: the European budget. When the British leave the sacred Union, even if we manage to penalise them by a factor of perhaps ten times the reparations against Germany under the Treaty of Versailles (1919), at some point Germany will have to pick up the shortfall.” This was Marshall Shotter.
General Salmayr added: “And the Greeks require another bailout, Mein Fuhrer”.
The Führer’s eyes blazed. “Have I not already solved the Greek problem? They are a recurring nightmare. The only solution is to make these people suffer more and more until there is no possibility of their ever wanting to borrow any more money from anyone: just as the dead do not borrow. Do I make myself clear?”
“Beloved Führer – Frau May has launched another RAF raid…We may need to reconvene the meeting at a lower level…”
“The English”, said the Leader, pensively. “The English. How I wish I had crushed them when I had the chance. And now it is too late.”
This time the power of the explosion above was so intense that the bunker lights went out.
[i] Check out Der Untergang (Downfall), a film by Oliver Hirschbiegel starring Bruno Ganz.