Bailout Rebellion in Germany Heats Up
Friday, September 16, 2011 at 4:35PM For the first time ever, a clear majority (60%) of Germans no longer sees any benefits to being part of the Eurozone, given all the risks, according to a poll published September 16 (FAZ, article in German). In the age group 45 to 54, it jumps to 67%. And 66% reject aiding Greece and other heavily indebted countries. Ominously for Chancellor Angela Merkel, 82% believe that her government's crisis management is bad, and 83% complain that they're kept in the dark about the politics of the euro crisis.
"There cannot be any prohibition to think" just so that the euro can be stabilized, wrote Philipp Rösler, Minister of Economics and Technology, in a commentary published on September 9 (Welt, article in German). "And the orderly default of Greece is part of that," he added. Instantly, all hell broke loose, and Denkverbot (prohibition to think) became a rallying cry against the onslaught of criticism that his remarks engendered.
Even Timothy Geithner, who attended the meeting of European finance ministers in Poland, fired off a broadside in Rösler's direction. In the same breath, he proposed the expansion—through leverage, of all things—of the European bailout mechanism, the EFSF. According to Austrian Finance Minister, Maria Fekter, who witnessed the scene, he warned of "catastrophic" economic risks due to the disputes among the countries of the Eurozone and due to the conflicts between these countries and the ECB. Then he demanded in dramatic terms, she said, that "we grab money with our hands to stabilize the banks and expand the EFSF unconditionally."
The smack-down was immediate. German Finance Minister, Wolfgang Schäuble, took Geithner to task and explained to him in no uncertain terms, according to Fekter, that it was not possible to burden the taxpayers to that extent, particularly not if only the taxpayers of Triple-A countries were to be burdened. A bailout "with tax money alone in the quantity that the USA imagines will not be feasible," Schäuble said. (Wiener Zeitung, article in German).
Vocal support for Rösler came today from a group of 16 prominent German economists. If the government in its efforts to stabilize the euro didn't consider the insolvency of a member country, they warned, Germany would become subject to endless extortion (FAZ, article in German). And to impose a Denkverbot concerning it would be a step back into "top-down state thinking." They further lamented that these policies would turn the Eurozone into a transfer union. If the government wanted to establish a transfer union, it should discuss that with the German voters, they demanded, because it would be a fundamental change in the E.U. constitution and should be legitimized by vote. Otherwise, Germany would be "threatened by a populist movement to exit the E.U."
Meanwhile, on his visit to Rome, Rösler had to face down Italian Finance Minister, Giulio Tremonti, who'd "vehemently" demanded the creation of Eurobonds, sources of the German delegation said (Zeit, article in German). President of the European Commission, José Manuel Barroso, supported Tremonti's demands. But Rösler, like Merkel and others, rejected the idea. Transferring liabilities to other countries would remove pressure from debtor nations to reform, he said, differences in yields being a market-driven incentive to get the budget in order. Eurobonds are also legally impossible, he added, based on a recent decision by the German Federal Constitutional Court.
Eurozone must be honest: Big haircuts for bond holders, debt limits for all, says Die Zeit (article in German). The drama of saving European banks that hold Greek debt, and the debt of other tottering Eurozone nations, has been going on for a year and a half. Each effort to keep Greece on track follows the familiar script. Politicians promise spending cuts. Greeks demonstrate. E.U. inspectors check things out and leave angry. Germans declare that Greece will not get any relief until it fixes its problems. Then Greece notices that it needs yet more money and threatens to default. Germany nods. And the next installment gets paid.
By now, all hope for a happy ending has dissipated. Greece is suffering from a multitude of problems that defy quick fixes, among them a huge pile of debt, an inept and corrupt fiscal system where taxes are simply not collected, dysfunctional institutions, and a government-dominated economy. Even unlimited amounts of money can only defer the end game.
But there are already victims. The most recent one: The concept of an independent, apolitical central bank whose primary purpose is guarding the value of the currency, rather than monetizing the debt of countries that have spent beyond their means.
To see how it all started, read my first post on the Bailout Rebellion in Germany
Reader Comments (6)
http://tradewithdave.com/?p=7514
A short, but poignant, excerpt gives the other side of the coin, looking at this from the debtor's perspective:
"The euro rescue packages now being mooted are eerily reminiscent of the reparations imposed so disastrously on Germany after the first world war. It may all be "just", but the forced impoverishment of Greeks, Portuguese and Italians to honour the paper value of German and French debts must be as close to revolutionary incitement as modern policy can get. Does nobody in Brussels read history?"
In my perverted view, the middle class that always wants more and more will disappear. To spell things out in a vulgar manner, this is the economical future: either you get rich or you strive to become it, with smart Scandinavian style help from the state to help you out in pursuing your goal. What could possibly be the way for the middle class t survive? Perhaps, those states that adopt capitalistic social democracy like in Sweden will thrive, the rest — the commies, the capitalists, the autocrats and the plain weird will go to the heaven of economic theories for a well deserved eternal night with 72 Ph.D. candidates in Marco-economics.
Blankfiend — I do not think you understand what you are quoting and comparing, which is normal in Internet but pathetic in real life. The article you direct us towards tries to make the Germans the guilty ones, while they are innocent and the guilty periphery innocent. It is basically a Keynesian stepping back from supporting the Euro. They are lying as is usual, they supported the euro and they still do, provided their is further centralization that gives these people power. If things do not go their way, however, they will all try to blame the entire Euro experiment on someone else.
Still, the Keynesians, who permanently live in a 13th century world where economics is about plundering and crusading, are only as annoying as the looney libertarians, who make a point of ignoring needs of human beings and basic anthropology when it contradicts their 16th century pseudo-Aristotelian views and pseudo-definitions. I think the smart people in this world are simply mercantilists who live with balanced budgets, more I can not say. There is nothing Keynesian in opposing free trade when it hurts you and your country and their is nothing libertarian in sticking to balanced budgets, the smart money is on being a 17th century financier with more appreciation for gold and sound money than those big wigs, literally that is what they were, ever had. Simply an aristocrats take on things, condemn if necessary, throw a glove or a towel if you wish to have a duel.
Blankfiend - I think you put your finger on something important that I didn't cover in this article though I covered it in this post a while back http://www.testosteronepit.com/home/2011/8/22/knife-drawn-the-bundesbank-attacks-the-ecb-and-german-indust.html -- the fact that German banks and exporters are the primary beneficiaries of the Euro. The Euro allowed other countries to on a borrowing binge and buy German goods with that borrowed money. Remember, until last year, Germany was the number 1 exporter in the world (now overtaken by China), and the EU is its largest market. So, in that respect, the excerpt touches an issue that is often overlooked. But not by German banks and exporters; they're fully aware of what will happen to them once this market dries up.
Other than that, I agree with Aristocrat's take on the excerpt. The article in the Guardian is off the mark for numerous reasons (aside from the thorny issue that it compares the current who-pays-what questions to WWI and its aftermath). Among them, this one:
Letting Greece default won't impoverish the Greeks but the lenders (including German banks) who own the paper. That's why it hasn't happened yet. If it were up to the Greeks, it might have happened a long time ago. Bailing out Greece (or Spain, Italy, etc.) is actually an indirect bailout of the banks that hold that paper. My first post on the 'Bailout Rebellion in Germany' made that clear.
Thanks again.