To believe the pundits is to believe that German Chancellor Angela Merkel is a fool for making scary comments about bond markets and the deadbeat nations in the European Union.
The situation is "exceptionally serious," she says. Bondholders will have to share the pain, she adds. Predictable result: The bonds of walking-wounded countries like Portugal and Ireland crumple, the euro sinks and the critics come out swinging.
The German Chancellor "exacerbated Greek tragedy" by "prevaricating in the face of media and public opinion hostile to bailing out those feckless heirs of Oedipus," wrote Oxford professor Timothy Garton Ash in the pages of this newspaper.
The Austrian central banker, Ewald Nowotny, who also sits on the board of the European Central Bank, diplomatically called her a fool, saying that "this is not differentiating between the euro as a currency and the problems of individual states."
One of BMO Nesbitt Burns' legion of economists says the Chancellor is right but "she shouldn't be saying stuff like that. All she's doing is confirming people's worst fears, that there is a chance that the euro could collapse. That prompts more speculative bets from people that the euro's going to fall pretty sharply. It's kind of a self-fulfilling prophecy."
In short, "Shut up. You're not helping."
Hammering the Euro
Yet here's a curious thing: While the Greeks and others protest in the streets, the Germans aren't complaining. Business confidence in Europe's foremost economy is surging, and confidence tends to predict economic growth. German stocks are up 15 per cent so far this year. Germans are paying lower interest rates.
Why? Because, as Ms. Merkel full well knows, a weak euro is wonderful for the German economy. BMW loves a weak euro. So does Mercedes Benz, Porsche, Siemens, BASF, Bayer, Adidas, Nivea, Hugo Boss, ThyssenKrupp and the thousand other firms that make up Germany's economic backbone. Exports make up a third of the German economy and a weaker euro helps by making its goods cheaper.
Lest you're tempted to argue that much of Germany's goods are sold into the euro zone, making a devaluation useless, think again: France, which takes about 10 per cent of German exports, also benefits from a lower euro, meaning more money for the French to buy Beemers and so on.
The domestic economy, a big one with 82 million people, is also doing quite well. Germany pegs economic growth this year at 3.4 per cent, better than just about anywhere else in the industrialized world.
Meanwhile, this strength begets strength. Germany is a euro zone safe house so its bonds are attracting lots of buyers, lowering interest rates for those same manufacturers whose sales and profit margins are expanding thanks to a weaker euro. Media reports make it sound like Germany is single-handedly writing the cheques for these bailouts; it's not. It's the euro zone and the International Monetary Fund.
So is Ms. Merkel really a loose cannon? Or is she a crafty politician who knows that speculators are listening to her and who knows the power of her words? Politicians are masters at public relations. Devaluation helps an economy. An easy way to do so is to sprinkle accelerant on a fire with a few well-publicized quotes.
It's not that Ms. Merkel doesn't mean it when she makes intimidating comments about the risks bondholders are taking. It's that she knows Germany benefits from the resulting selloff in the currency and flight into its bonds. A falling currency helps all of Europe to varying degrees, for that matter.
Buy Germany
Investing is as much about psychology as numbers, and it's easy to lose your nerve when the headlines are uniformly negative. But it's also easier to maintain your composure if you look beyond them and realize that there's a silver lining.
When the Greek "crisis" beat up stocks around the world it was a good time to buy. This round of weakness may prove to be another opportunity.
German equities in particular are doing very well, and it stands to reason that, all else being equal, they should continue to do well if the euro stays low or weakens.