Archive for June 10th, 2012

10
Jun
12

Four reasons that Germany should bail out Greece

Economy of Germany

Economy of Germany

The Euro crisis drags on and on. If the British press are to be believed then the problem is that the Euro Zone wont face up to its problems and bail out the weak economies. Specifically, Germany has the economic power to sort things out but wont put its hand in its pocket. Here are four reasons why the Germans should bail out Europe.

1 The Irish have already helped bail out German savers

The Germans make out that they have been prudent and none of the current crisis is down to them. This may be true of the German people who save a large proportion of their earnings. But the German people put their money in German banks and the banks had to invest the money somewhere. From what I hear the German banks lent a lot of money to Irish banks.

The Irish banks became insolvent and, if there was any justice, they should have gone bust. If they had then the German people would have lost their money but because Ireland thought it could not allow its banking system to fail the Irish tax payer bailed out the Irish banks. The upshot is that many German people have the Irish tax payers to thank that they did not lose their savings.

2 The Germans should get over their phobia for inflation

After the first world war the German economy went down the drain and there was massive inflation which brought about the catastrophe of Nazism and this is still etched on the German national consciousness in the form of a phobia for inflation.

One thing I read often about economics is that after a catastrophe everyone runs around making rules so that the catastrophe cannot happen again. But the same type of catastrophe is not a likely threat. Similarly with Germany, the catastrophe that looms is not massive inflation but collapse of the Euro. The Germans should wake up and see the threat of today not worry about the mistakes of the past.

3 Germany should recognise their national interest and their role as the largest European power

Germany is a big power. Not on the same scale as the United States or China but it has the 4th largest GDP in the world and by far the largest GDP in the EU. The Greek economy is tiny by comparison. The German public debt is about 81.2% of German GDP. If you added in the Greek public debt then the German public debt would be about 95% of German GDP.

Yet Germany still lives in the shadow of the Holocaust. There is still an attitude that Germany should keep its head down. That was right and understandable for a while but Germany has faced up to its crimes. The people who ran Nazi Germany are mostly all dead and they have a new generation with sound democratic credentials.

After World War 2 the European economies collapsed but thankfully, the United States stepped in with the Marshall Plan. No doubt the U.S. acted  in its own interests and realised that rebuilding Europe would benefit the U.S. but that is the point If the Germans do nothing the Euro will collapse and they will lose. If they step in and bail out the Greeks they could save the Euro and thereby help themselves.

4 Germany should get over its hypocrisy

The Germans have a very naïve and hypocritical addiction to rules. They are conservative and like the appearance of correctness but under the surface they are fudging and fiddling as much as any nation (and possibly more because of their obsession with appearances). Recall that it was the Germans (with The French) who first broke the rule that deficits should not go above 3 per cent of GDP? This hypocrisy makes it difficult for them to justify helping the Greeks who lied to get into the Euro in the first place.

The Germans are as complicit in current economic crisis as anyone else and need to wake up to current threats rather than dwelling on the past. They should step out of the shadow of the second world war and accept their power and responsibility. Also they should grow up and forgive the Greeks. Didn’t the world forgive Germany? Sometimes, in order to help yourself, you have to help people who don’t deserver it.

Germany should use its power to save Greece, the Euro and the European economy.

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