Sunday, November 27, 2011

Will Germany pay more for helping save the Euro than it paid for losing the War?

The figures seem to show it would, according to Landon Thomas in The New York Times:
This Lady ain't for stampeding ...

Bernard Connolly, a longtime critic of European policies, estimates that it would cost Germany, as the main surplus country in the euro zone, about 7 percent of its gross domestic product a year to transfer sufficient funds to bail out the deficit countries, including France.

That amount, he has argued, would far surpass the $400 billion World War I reparation bill forced upon Germany by the victorious Allied powers — the final payment of which Germany made just last year.

Obviously, any such move to a full-fledged transfer union would be resisted by Germany. And it is this unbending attitude by Europe’s richest country that it not become responsible for the debts of the weaker economies that has so far resulted in little progress on the widely supported proposal that the euro area be able to issue its own collective bonds.

Clearly Merket would lost power if she opted to ride to the rescue of the Euro by shouldering existing debts and funding future debts of the Eurozone.

And there is no reason on earth why she should do that.

Her approach of solving the problem by solving the spendthrift ways of the weaker countries, and forcing them to make structural changes, is a far better course for Germany and for Europe.

As for the Nervous Nellies among the investors (US banks, for example, hold over $700 billion of European governments bonds etc), tough luck. She should not be swayed by the self-interested chorus of doomsayers who are deliberately trying to exacerbate a difficult situation in order to stampede Germany and France into saving their bad loans.

Let the chips fall where they must.

If the banks take a drubbing, so be it: the governments of the countries where these banks are situated can take steps to enforce recapitalization on them, including the injection of funds or even outright nationalization, if needs be.
Fixing core problems makes more sense than rushing to rescue lenders who have not done their homework.

1 comment :

  1. Italy, Spain, Ireland, France, are not bad loans. They are all solvent countries that will continue to pay their debts after the crisis as they did before. This is a bank run, not insolvency. Bank-runs happen rationally or not, and can be halted with the simple application of liquidity. Germany is being asked to allow others to stop said bank run, and they are refusing


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