Richard North, 24/08/2012  
 

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When trying to explain a complex situation, the worst thing an analyst can do is offer certainty when there is none, for want of being able to say "I don't know". And for all our jolly games of guessing when Greece will leave the euro – or not – no-one really knows what is going to happen. Most likely, any decisions that need to be made have yet to be made.

That is the boring reality that confounds many a conspiracy theorist, but it reflects the way politics work. High-level politicians, as a rule, keep their options open for as long as they can and only make decisions when they have to, usually at the last minute. Thus, most certainly, the fate of Greece in the euro is undecided, and could go either way.

However, when she comes to make a decision that might trigger a Greek exit (and only Greece can decide to leave the euro), Merkel will undoubtedly be taking soundings from a wide range of economists (as well as her political colleagues and enemies). And one of those of whom she will take special note is Manfred Neumann, a professor of economics at the University of Bonn. .

Already a critic of the ECB's action in buying up government bonds, which he branded "undemocratic" and running counter to the bank's mandate, he most recently ventured into FAZ, again to criticise the ECB and now, in Süddeutsche Zeitung today, is doing more of the same.

He is particularly critical of Mario Draghi, offering important insight about the man. "He thinks only politically", says Neumann. "He is always there when in Brussels rescue plans are being discussed, making suggestions and influencing proceedings".

This is hardly surprising, as Draghi is one of the quartet of EU presidents working on the shape of a new treaty, but Neumann's comments are useful in that they underline the political role of the ECB president. Draghi is a politician first and bank president second, in an institution that is, itself, a political construct. And while some journalists might style the bank as "independent", on its own website the ECB makes no such claim.

Neumann is styled as the supervisor of Bundesbank president Jens Weidmann and, therefore, as one might expect, is a strong supporter of the German central bank. Furthermore, he expects the federal government to be equally committed. "It is high time that the government broke its silence and makes it clear that it, too, supports the Bundesbank's position", he says.

And on Greece, Neumann is unequivocal. There is no hope for the country, he says. But then, he takes an interesting direction. As a "renowned monetary theorist", he adds that it would actually make sense for Germany to leave the eurozone. But, he says, Germany will not leave. This is a matter of state policy.

Once again, therefore, we see the political dimension, yet again reinforcing the point we have made so often on this blog – that the eurocrisis, above all, a political crisis, and is being treated as such by the players.

How much store you set by Neumann, however, depends on how you assess the relative strength of the Bundesbank against the ECB. The likes of Ambose Evans-Pritchard tend to gives the weight to the ECB, while a recent article in the French journal La Tribune suggested that the Bundesbank was "now quite helpless"..

The Bundesbank, it says, is not, in fact, the real central bank of Germany. The institution that determines the monetary policy of the Federal Republic is the ECB, as in 16 other countries in the euro area. The Buba is only the instrument responsible for implementing the policy set in Germany at the ECB.

One can see why, therefore, why Ambrose put so much store in the views of Jörg Asmussen, Germany's director at the ECB, although, as a SPD politician, Asmussen is most likely to align himself with the leader of the opposition, SPD chief Sigmar Gabriel, who supports the idea of joint liability, with the ECB issuing eurobonds.

On the other hand, although isolated on the governing council of the ECB, Bundesbank president Jens Weidmann is not without his supporters and admirers. In a recent edition of Handelsblatt, the online editor, Florian Kolf, hailed him as "the voice of economic reason".

Either way, there is more than ample evidence of a widening rift between the ECB and the Bundesbank, and it would be unwise at this stage to accord the winner's laurels to either party.

Not least, Neumann is in good company, and its is unlikely, when the time comes to make decisions, that his counsel will be ignored. Draghi isn't the only one who can play politics and, in the final analysis, Merkel will do whatever it takes to keep her party in power. If that means ditching Greece, that's what she will do.






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