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German “Nein” on Eurobonds

Following the Merkel-Hollande talks last week, many have begun to speak of a softening of Germany’s line towards its indebted European neighbors. Recent weeks have seen Merkel backing down somewhat on harsh austerity pledges, and concessions to ideas like “growth” and “stimulus” have begun to creep into her public statements. Given the abrupt change in tone, it appeared as though Germany may finally be moving toward France’s position on the euro rescue.

Perhaps this shift has been oversold. On Tuesday, Germany issued its strongest refusal yet to the idea of “Eurobonds” that would make the Eurozone as a whole responsible for the debts of the most indebted nations. Eurobonds are a cornerstone of  Hollande’s euro rescue program, and the idea is also supported by Italy and Brussels. Even the OECD, in its most recent report, backed the idea of a euro bond scheme to break the continent out of its downward spiral. But as the FT reports, the idea remains a non-starter in Germany. As the de facto lead creditor of the Eurozone, Germany would essentially be assuming much of the debt load of its profligate Southern neighbors. The German public has repeatedly expressed opposition to any bailouts of the “Club Med” states without guarantees of austerity, and politicians are likely to follow the voters’ lead. In Tuedsay’s statements, German officials have nixed Eurobonds on the grounds that they may discourage southern countries from enacting much-needed reforms.

Moral arguments about Greek profligacy and concerns about Weimar-style hyperinflation at home explain much of the German opposition to Eurobonds. But it’s also about the future: Germany’s population has started to shrink, which means debts incurred now will have to be paid back by a smaller population in years to come. Germany may be flush with cash at the moment, but with one eye towards the future, Germans would rather set money aside for future troubles than bail out Greece, which may end up leaving the Euro anyways.

This also helps explain why talk of fast economic”growth” is less important in Germany than it is for other countries. If your population is growing, you need an increase in GDP simply to keep everyone from losing ground. If your population is shrinking, zero growth overall means that GDP per capita—the standard of living—is going up.

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  • Mrs. Davis

    In light of yesterday’s “shock poll” post, one has to wonder why we should pay to defend EUrope militarily when Germany isn’t willing to pay for it economically. Perhaps the Germans have more common sense than we?

  • Cunctator

    Many of the commentators writing on the Euro-crisis seem to have a hard time understanding that the disagreements among governments are, as this article clearly lays out, grounded in national interests.

    The mention of Germany’s demographic problem is very useful in expanding upon this argument — and I had not seen it linked to this issue before. Thank you.

  • Eurydice

    Huh, that makes the kind of sense that doesn’t. I suppose sometime down the road Germany will only have to sell a couple dozen Mercedes to cover the cost of their few remaining citizens. Fortunately, they’ll have that “future troubles” money to tap into when they realize that getting rid of Greece doesn’t actually get rid of the problem.

  • Jacksonian Libertarian

    The German people aren’t fools, they know that the only way to deal with a spendaholic is to cut up their credit cards, not to give them new higher limit credit cards.

  • vanderleun

    Now we know what was said at the G8.

    Merkel to Europe: Drop Dead.

  • Stacy

    The Germans will agree to Eurobonds AFTER Greece exits, not before. They have no choice. They must offer up a sacrificial lamb to their voting public as a “worst case scenario” example. This will frighten the heebeejeejee out of the other PIGS and force political cooperation. They are determined to preserve the Euro but want it on their terms.

  • Kenny

    Vanderleun writes: “Now we know what was said at the G8. Merkel to Europe: Drop Dead.”


    She said, “Europe, sober up.”

  • Soul

    Interesting, about Germanys GDP view on lack of growth and shrinking population.

    I would guess Germans are questioning what their money will buy with further bailouts of bankrupt EU countries. If Germany gambled more with their savings bailing out countries, what could be won? Would their main benefit of being part of the single currency Euro, greater exports of German goods, still be there?

    Seems the other EU countries are struggling under the higher costs the Euro places on their goods. That problem will remain for a long time, I would guess. If that is the case,that will undoubtably reflect on future German export sales. Germans might believe in the long run it is better to work more closely with economically growing Asian countries and possible America also.

  • alex scipio

    ALL european natiuons are shrinking in population. Some just more quickly than others. There are NO Blue entities – nations (european, Japan, NZ, etc), or American States – with a fertility rate of even 2.1 (replacement), other than Nevada, New Mexcio and Hawaii – not exactly thriving metropolises. Soclialists/Democrat/Progressives simply don’t believe enough in the future to populate it.

    Why should ANY polity, say America via the IMF, spend taxpayer money on nations whose own people don’t believe in the future? Why should Germany extend a credit card that certainly will be abused by Greece (and then Spain and Italy and Ireland and Portugal and then France), when Germany has its OWN problems to deal with?

    .. and why should we defend nations to ensure their free futures when the residents of thsoe nations (all of europe – and I’m talking about NATO), don’t even believe in the future of their own countries?

    .. and why should we spend taxpayer money listening to what the peoples of nations that don’t believe in their future have to say about ANYTHING (we’re talking UN here…)?

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