Will German Politicians Wreck Europe To Save Their Own Skins?
show comments
  • Andrew Allison

    Exactly! This charade has always been about how to distribute the losses. One hopes, for Europe’s sake, that the final solution (sorry) isn’t to throw more money into the bottomless pit of Club Med debt.

  • dearieme

    Your thinking is in a hopeless tangle because you do not distinguish Europe from the EU or the Eurozone.

  • gooch mango

    “The German political establishment seems willing to destroy Europe to avoid telling German voters the truth about how stupid it has been. Germany’s leaders are doing everything possible to conceal the ugly truth that the mistakes that the German banking and regulatory establishments made in underwriting Club Med debts are as much a cause of Europe’s woes as spendthrift Greeks.”

    Establishing the EU and Euro was stupid; the German financial/political class’s actions once they were inside the Euro weren’t. In fact, they were necessary.

    Any exporting nation stuck in a trade relationship with an importing nation where the currencies of the two are fixed will eventually have to resort to vendor financing, or else the exports stop.

    Sometimes the currencies cannot float for political reasons (US & China), other times because they are the same currency (Germany & Club Med)… but the point is the same: If you wish to keep exporting, you’ll need to begin lending. Or begin buying — land, buildings, businesses, etc. — and that generally doesn’t go over too well in the nation being bought up. So you’ll be lending…

  • d.m.

    “The only freedom the Greeks have left is to choose how to suffer, but that is a choice that must be theirs to make.”

    Anyone who makes this choice will be thrown out of Greek office. All the options are too painful. Better to default, then rally voters against the greedy Europeans.

    “German politicians … can begin by taking public responsibility for their own very considerable part in creating the European crisis.”

    That will never happen. It would be career suicide. And it’s contrary to everything we know about the temperament of Europe’s infallible, technocratic ruling class.

  • Walter Sobchak

    Since they are not using tanks and bombers, how can they destroy Europe. If you are talking about the unelected and imperious bureaucracies of the EU and ECB, why is it a problem? They aren’t causing a depression. That is already underway in the southern tier. The word today is that Spain’s unemployment rate is close to 25%. Everyone in Europe who does not work for the EU or the ECB would be better off if those entities returned to their fathers.

  • joe

    The Germans relationship with Greece has soured severly in the last 15 years. The poison that pervades Athens currently has its genesis in a decision by the Greek Supreme Court that the treaty on compensation for the German occupation of Greece during WWII is not a bar to further litigation by individual plaintiffs to recoup punitive damages for their ancestor’s death during the commission of war crimes. This was in the late 90s. The Germans were visibly unhappy and after applying pressure, this type of litigation vanished.

    What it did was anger the Germans who felt that Greeks were using recents “advances” in international criminal law as an excuse to get a major payday. Looks like the Greeks are following the Italians’ example and trying it again: http://www.welt.de/politik/ausland/article12140825/Westerwelle-empoert-ueber-griechische-Klage.html. The Germans regard this as an insult and it would account for some of their politicans’ faux-pas of late, like the CSU politican who thought that Greece should pledge some Aegean islands as security for any more German assistance.

  • Michael Goodfellow

    I think this is just a face-saving way for the Germans to tell the Greeks to get lost. They can’t really expect them to agree to this. I’m hoping that behind the scenes, banks have gotten rid of or written off the Greek debt they are holding.

    But I’ve been surprised the discussion hasn’t been more brutal. I would think the Greeks (and Italians, Spanish, etc.) aren’t saying to the Germans and French “Nice Euro you’ve got there — it would be a shame if something were to happen to it…”

    Greece can demand money and threaten to take the system down at this point. And emotionally, why shouldn’t they say “if we’re going down, we’re taking the rest of you with us.” Seems like the natural reaction.

  • iron308

    “On the other hand, the austerity policies the Germans favor are hopelessly biased in favor of German banking interests”

    Did they borrow the [darn] money or not? If they did they owe it. Just like folks underwater on their mortgages. No one forced them to borrow.

    They were foolish. They over borrowed and over spent, they had their fun. Time to pay up. Period. The productive and thrifty don’t owe the foolish anything.

    Don’t like the terms. Kinda late now.

  • Dean Langsford

    Silly. Greece, Spain et al got themselves into their own messes, Germany had nothing to do with their politicians going in debt to get re-elected. Germany (and others) should not have to bail them out…which is doubtful they could.
    Greece and Spain are are 3rd world countries who have hid their propped up their economies behind the skirt of the EU and Euro.
    Quick – Name one world class and world marketed product or service that Greece has created in the last 50+ years. Spain? Portugal?

  • harumpf

    German banks were in effect forced to make those loans. Those were not consumer loans. What would have happened if the banks of the EU refused to make loans to government?

    What total Socialist poppycock. Villainize the German for stopping the rest of the EU from having their pockets picked. Here is a concept for you. National Sovereignty.

    The Germans have a point alright, and you entirely miss it.

    Once again you prove that you are at heart a Leftist.

  • Mike

    Hello from an American in Germany,

    I usually like your blog, but somehow whenever you discuss Germany you go off the rails. But I haven’t given up hope that this is only temporary, but this post is particularly weak. It was a nice attempt to inoculate yourself in the first paragraph, though.

    All over the world, banks have largely abdicated the evaluation of risk to government regulators, in the expectation that a lender of last resort will always be there. Regulators allowed government debt to be considered riskless, which, of course, they are not.

    But,are all Greek bonds held by Germans? Of course not: http://www.polycapitalist.com/2011/06/top-holders-of-greek-government-debt.html. So Germany is left with the unhappy task of saying what needs to be said, and others hide behind it. And the Greek politicians need it to be said. Certainly you don’t think they are going to suddenly become models of rectitude because unpopularity is suddenly in vogue?

    It is really so horrible that Greece should pay it’s debts? Is this Animal House (you f*cked up, you trusted us)? German taxpayers get to pony up because Greek taxpayers can’t be bothered.

    And if they don’t like it, then people like you will beat the Hohenzollerns about the pickelhaube.

  • John Burke

    I disagree with this uncharacteristic diatribe from WRM.

    Sure, it takes two to make a bad loan, and the lender usually will be moved to restructure debt to avoid a bankruptcy that results in a total loss. However, this financial realism does not shift the moral responsibility to pay from the borrower onto the lender (we are seeing far too much of that in many places).

    Greece has options — not any pleasant ones to be sure, but options nonetheless. It can accept German/EU terms. It can make an acceptable counter offer. It can tell German bankers to take a flying leap and default. And it can leave the Eurozone.

    Such bad outcomes are only in keeping with Greece’s profligacy. If I spend my income on high living and can’t pay my mortgage or credit card bills, my creditors may well have been stupid to lend a fool like me so much money but I should not be left off the hook.

  • The situation Prof. Mead describes is also a morality tale for America. How much of our own economic suffering today is due to the desire of politicians, bankers, investors, borrowers large and small, and the public to avoid the painful responsibilities of coming clean and fixing the problems?

    We had TARP, the stimulus, the various home mortgage ‘programs’, the Fed policies on interest rates, quantitative easing, bailouts not just of American banks but of foreign ones as well, the behind the scenes rescues of state governments, of Freddie and Fannie, and so on and so on, precisely because no one on the American political and economic scene wanted to own up honestly to the bungling. We go into our current national election with politicians on both sides hoping to blame the other side and hoping even more that the public doesn’t figure it all out.

    The Germans and the Greeks don’t have a lock on willful misunderstanding.

  • Andrew Allison

    I fear that it your thoughts which are tangled. The, increasingly likely, collapse of the eurozone would send shock-waves not just through the EU, but throughout Europe (and the world).

  • Neville

    Since Europe’s political elites are as awful as you describe (and they are), it will surely be a good thing if the EU flies apart and they never get to run a centrally-controlled continent.

    The need to compete with each other, and with countries outside the EU, is the only influence capable of saving the citizens of these countries from the failings of their politicians, and saving the rest of us from the secondary effects of their blunders.

  • maxw3st

    It’s always amusing to see Germans talking about how the Greeks are lazy and profligate. Direct calculation of hours worked between the two countries shows that Greeks, on average, work about 15% more hours a year than Germans.

  • Rich k

    Castigating german pols on doing the right thing will go no where. If I know anything from watching politics the last 40 years its that pols will NEVER do whats right, yet will do EVERYTHING possible to save their [hindquarters].

  • Jim.

    “The German government encouraged banks to load up on Club Med debt even as those countries grew steadily less creditworthy after 2008. Banks were told that the sovereign debt of eurozone members could be carried on their books risk free, in effect making those bonds significantly more attractive than other securities priced at a comparable level.”

    Point out all the villains you like — German politicians, German bankers, Italians, Greeks, French diplomats, whomever — but the fact is that to expect German taxpayers to bail out this situation is not to resolve the injustices here, but to consummate and entrench them.

    To read your hand-wringing “Europe will collapse” posts, it seems that Germany has two choices as you see it:
    1) Continuing this charade, and underwriting more and more loans (Eurobonds) to the deadbeats of Europe
    2) Actually institutionalizing cash and wealth transfers between productive Germans and unproductive PIGS, effectively indenturing the German people.

    How do either of these improve the situation in the slightest? How do they prevent a recurrence of these crises, when they do not change the underlying system of shady bankers and deceitful borrowers??

    The fact is that it is grossly immoral for German workers and taxpayers to be expected to keep toiling for the sake of any of these freeloaders and losers — from the bankers to the politicians to, yes, the Italians and the Greeks.

    All of these proposals to save Europe have one thing in common: keeping a rotten status quo from falling.

    To pretend that letting this system fail is worse than setting it in stone for all eternity is a crime against all justice, fairness, or basic decency. Worse than that, it is a MISTAKE — it can’t continue for all time; it will just fail later and possibly with more dire consequences.

    You need to come up with a better answer, “Professor of Strategy” Mead.

  • I note the similarity to the crisis created by bad policy in the US, in which, starting in the 90s, moronic government encouraged idiot banks to take on stupid loans by pretending that government backing made them risk-free.

    Lesson: government stop trying to pick winners and losers and should stop creating moral hazard.

  • teapartydoc

    I like gooch mango’s analysis. I’ve looked at the EU as a situation that would exist if I were trying to keep in business by loaning my customers the money they need to buy my product. This always seems to work well in the short run (see GMAC), but it never seems to have much long-term benefit, or we would see much more of it. The other thing I’ve compared it to is our own housing bubble where government policies mandated more lenient lending to those less able to pay, with the EU as the government, Germany as the bank, and Greece as the poor risk about to buy the third house in a year they plan to flip.

  • Stephen

    Goodness! Don’t hold back. Tell us what you really think.

  • Jacksonian Libertarian

    The EU and the Euro were always bad ideas, and the British were wise to avoid the Euro if not the EU. The entire EU is the biggest kludge of red tape and bureaucratic overreach in history. If someone were to set out to design the most inefficient government in history, the EU is what they would come up with. It’s a crying shame how little economic efficiency Europe gained from the common market and the Euro, as it was all eaten by the bureaucracy and red tape. America during the same period has grown 1.3% faster every year than the EU, despite the fact that it didn’t get a new common market or common currency. The critics all said this would happen and the Europeans were uncivilized not to listen and answer the critics complaints.

  • Andy McGill

    This will work, once. You can probably make German banks eat a lot of the loss, once.

    But then the PIIGS will not be able to borrow money for a generation. Try growing an economy if you can’t borrow money….

  • WRM – I’m a huge fan but this post misses some substantive and material aspects of the current situation.

    It’s not fair or accurate to describe Germany’s political class as engaging in “demagoguery” wrt the crisis – if anything they are simply trying to appear engaged with voter concerns.

    Those concerns are organic and valid: German workers paid a stiff price for many years becoming competitive and productive in the world economy and absorbing the economic detritus of the former East German economy. The popular rage at subsidizing Greek public sector extravagance is well founded. That Greek public sector extravagance in comparison with German standards is well documented.

    Yes, the EFSF/ESM/SMP bailouts are aimed at the Franco-German banking sector as much as at Greece. Yes, the elites – political, regulatory, and financial – in those countries did stupid things.

    But soberly and objectively, the Greeks (and the rest of the PIIGS) have both a debt “stock” and a cash “flow” problem. The stock of debt is too high and the structural revenue and expenditure scheme is unbalanced. Even if the Greek debt were to be forgiven in its entirety (“stock” problem solved) the structural problem guarantees the crisis will simply reappear (flows remain unbalanced).

    Asking Germany to forgive the debt (stock) without guaranteeing the crisis won’t be soon repeated arguably violates German sovereignty and constitutional principles.

    Any mechanism sufficient to correct this structural budget imbalance in Greece in a way satisfactory to (legitimate and well-founded) German interests is necessarily going to violate Greek sovereignty!

    German sovereignty – Greek sovereignty – Eurozone continuity. Pick any two. You can’t have all three.

    The sooner people realize this is an insoluble puzzle, the sooner we can stop pointing fingers (in a circle) and make the tough choices. (The “pick any two” decision is not one US citizens have much say in).

  • A little more inflation, please. That will “automatically” reduce debts and deficits, penalize imprudent lenders, and offer an opportunity to reduce real (not nominal) wages and benefits in areas where those politically unpalatable changes need to be made.

    This is the least bad solution and the one that I feel sure will eventually be followed if only by a process of elimination.

  • McLean

    maxw3st said:

    “Greeks, on average, work about 15% more hours a year than Germans.”

    Are they working or are they just showing up for work? OECD figures reveal Germans are nearly twice as productive:


  • Toni

    Good grief, Via Meadia. You certainly got it wrong this time. THE ENTIRE EUROZONE IS TO BLAME!

    This Wikipedia article explains the various economic criteria countries must meet in order to adopt the euro. http://en.wikipedia.org/wiki/Convergence_criteria
    These criteria were part of the 1993 treaty that created the EU, which led to the the euro’s birth in 1999.

    Among the treaty’s sensible criteria are these: public debt cannot exceed 60% of GDP, nor budget deficits 3% of GDP. See the table under “Economies of [EU] member states” here. http://en.wikipedia.org/wiki/Economy_of_the_European_Union#Economies_of_member_states
    Check out the columns “Public Debt % of GDP” and “Deficit/Surplus % of GDP.”


    Okay? I don’t know how eurozone countries got from that 1992 treaty and the euro’s 1999 debut to their present state. But ALL their leaders and ALL the voters who elected them are complicit.

    Really, Prof. Mead, I wish you had someone on staff who had a nodding acquaintance with both economics and history, and could write pieces less naive than “Big Bad Germany Victimizes Poor Little Greece.”

  • ErisGuy

    To answer the question in your title, I would pay the Germans to wreck the EU. If they’ll do it for free, so much the better.

  • Eurydice

    Well, finally – someone’s willing to state out loud that Germany’s not an innocent victim, but a major player. The Euro was based on deceit – the lying and manipulation that went into meeting the requirements for entry into the Euro was enormous, it was well-known and it was practiced by all, including the Germans.

    At the time Greece was being considered for entry, everybody knew that Greece couldn’t handle it – they were already talking about how to plan for Greece’s eventual removal, not only behind closed doors but in the press. But the profits to be made by bringing Greece’s standard of living up to the rest of Europe were too tempting – and Greece is such a small country, how could it become a dangerous problem? Yes, Greece borrowed money and should be expected to pay it back, but the lenders made those loans knowing that Greece was a problem and hoping that things would work out enough so they wouldn’t be left holding the bag.

    As for Greece, there a reason why surrealism has never died there. When presented with viable solutions A, B and C, they will choose X, Y or Z. But even if they chose A, B, and C and even if they let the Germans cut their budget down to zero, that wouldn’t eliminate the debt that’s already piled up. There’s an old Greek story about a farmer who tries to save money by starving his donkey – he rages, “That stupid donkey, just when I taught him not to eat, he had to die on me.”

  • Andrew P

    I would like to see the Germans and French place Greece under EU military occupation. The German Finance Minister (Schauble) has talked about doing this, and I would love to see them try. They will need an EU-wide draft to raise the army, and a true EU fiscal union with Federal Taxes to pay the army. And these two things would solve most of their problems. Then they could hang a few hundred thousand Greeks from street lamps to make a fine example of them and show who is now in charge.

  • Mike

    I don’t understand the problem here. If the Germans will just give Greece all the money they want, the Greeks will continue to party, overspend, under work, and retire at 50. Then they will remain happy and all will be well. It’s just that the greedy Germans won’t give all their money away to those more in need. After all, isn’t that what Socialism is all about?? California, New York and Illinois included.

  • David Kluver

    No, Lewy14, its you who’ve missed the point. Prof Mead’s point is that every German (and my opinion of my forebears has slipped quite a bit since 9/11) alive should be not just executed, but publicly burned at the stake for crimes from Varus to Hitler and perhaps beyond. And as for the one who commented that Mead is sounding like a leftist, I agree. He certainly has begun to diverge from what I as a conservative think is reasonable thought. I’m beginning to fear that he is about to start raging about Sarah Palin’s womb.

  • Wow! WMD goes yard with this one!

  • Kenny

    Jim is correct in saying, “The fact is that it is grossly immoral for German workers and taxpayers to be expected to keep toiling for the sake of any of these freeloaders and losers — from the bankers to the politicians to, yes, the Italians and the Greeks.”

    To which should be added that it would even be a great travisty if U.S. taxpayers have to suffer in any way for Club Med’s folly.

  • SteveM

    >>”The German political establishment seems willing to destroy Europe to avoid telling German voters the truth about how stupid it has been.”

    You mean “destroy the EU”. That’s a good outcome regardless of the reasons why it is done. And the German political establishment has been noticeably less stupid than most others in Europe.

  • Eurydice

    @Kenny and Jim – it’s grossly immoral for the German public to bail out its own banks? The German public benefitted from the greed and machinations of their banks and their politicians – just as the Greeks benefitted from the corruption and profligacy of their own politicians. So, now the public has to pay for it – maybe it’s immoral, but at the end of the day the public pays for everything.

  • Duke

    So I read all these comments, and the last one I read (32), well I almost thought that he was the first one seeming to agree with Professor Mead, buuuuuut in the end it was even harsher than any before.

    I also agree, Mead.

    There’s a quote that sums it up all quite nicely, interestingly from the GSElevator twitter:

    “Greece is like a miserable 40yr old dude. Why wait? Face the inevitable and just get divorced now.”

  • Karl

    I have read that the offer to turn over domestic control of finances in Greece is actually positioned as a way out for Greek politicians, a way to save face, as it gives them a reason to leave the Euro that the populace will embrace. No one wants to be the one to force the breakup of the Euro….but this gives the Greek politicians the “out”.

    The banks and governments have been very successful at privatizing profits and socializing the losses around the world. Debt servitude for the masses.

    Iceland may have had it right.

    ps: via the IMF, the US is also on the hook for all of this debt…will the US taxpayers be the last one’s at the table, holding the check?

  • Charles R. Williams

    Destroy Europe? Come on.

    Greece cannot finance its debts. Greece cannot even balance its budget if it repudiates all of its debts. So the game is for the Greeks to play along with the Germans as long as the Germans will meet the budget shortfall. “Austerity” is just a effort to reduce the size of the Greek budget shortfall that the Germans will have to cover.

    Germany’s banks are insolvent because they hold Greek debt. The game for the Germans is to hide the pea from the German in the street by doing what it takes to keep the Greeks from defaulting. All this “international” activity with the ECB, the IMF and the ESSF is a smoke screen.

    This is a game of chicken that the German taxpayer will lose because as time passes the Greeks dig the whole deeper and default can only be postponed by solvent governments assuming more and more ultimate responsibility for the ever-growing losses.

    The only way out is for the Greeks to liberalize their economy and grow or for the Greeks to accept the third-world status consistent with their political culture. The sooner the Germans pull the plug, the sooner the Greeks will be forced to choose a path.

    When this happens, the Greeks will riot, emigrate, starve or subsist on handouts. It will not bring down Europe because the governments will backstop their banks. They have to because they have by policy choice built their banking system around the lie that sovereign debt is riskless.

  • EJM

    While those who borrow and have the primary responsibility to pay their debts, Prof. Mead is partly right that the tangle of EU bureaucracy and wishful thinking that led to the subsidization of more than a decade of irresponsible lending cannot be absolved either.

    The tragedy for the US is that as we gape at the collapse of the eurozone house of cards, we are failing to understand its lessons for us. We still have about half of our population who want to emulate Europe. For these folks the gravy train of government spending and ‘entitlements’ can and must continue unabated or even increase with Obamacare, and they couldn’t care less how or from whom Obama’s ‘stash’ is borrowed, extorted or stolen. How are these folks different from the Greeks of the last 20 years?

    Their attitude is aided and enabled by Washington elites of both parties that dare not admit the truth that we have already run out of other people’s money. Blame the greedy banks if you like, but cooking up a mess of these proportions requires the complicity of borrowers, lenders and government enablers. Our own Greek tragedy is no more than a few years off.

  • Mtz


    I beg to differ. Sending a European Commissioner to Athens and have him impose reforms on the Greeks and their Government may actually be what the Greek political class silently yearns for.

    You write: “If Greece is to make the reforms and take the painful steps the Germans want, its elected politicians should take those steps on their own.”

    The sad reality is: Athens, the Greek Governent, simply DOES NOT WANT to impose exceedingly painful structural reforms on their country and their electorate. We are talking here about shedding at least 50 percent of today’s government spending, probably more, if Athens is ever to stand a chance of getting close to balanced budget!

    There is not a snowball’s chance in hell that any Greek Government, any Greek PM, any Greek party or politician will ever force such cruelty on their electorates and constituencies. That will simply NEVER happen.

    Which means they may actually – and silently – be quite happy to see a Brussels dictator impose those dreadful reforms on them and their country. Sure enough, they would immediately get into permanent sreaming and wailing mode. There would be endless rage in the Athens parliament and on the streets, there would be permanent and increasingly mad fingerpointing against Brussels and Berlin.

    BUT Greek politicians and parties could and would loudly claim they were fighting tooth and nail against the Brussels diktat and had nothing to do with it. For their constituencies they would pose as innocent victims fighting a heroic but lost cause against cruel European and German oppressors. Greek politicians would love that dramatic tragedy stunt, and voters would lovingly fall for it.

    Athens’ parties and politicians would be free entirely from whatever responsibility for whatever would be the consequences of those painful but unavoidable reforms. Public rage would turn on Brussels and nowhere else. Greek politicians would have the absolute best of all worlds – and would love it. Strictly off the record, of course.

    A Brussels Commissioner would be the ultimate European gift for Athens’ entirely worthless political class.

    Which does not mean it would matter much. Only a couple of weeks ago a brand new OECD study shed some light on the working of the Greek Government and its ministries. Bottom line: Greece is practically a failed state with no such thing as a functioning government structure. There is no government supervision of what ministeries do or do not do. The PM’s office practically never meets top officials from ministries. Ministries, which are spread all over Athens anyway, have no communication whatsoever with each other. There is not even communication within ministries and departments. Hard to believe: Most ministries do not even have conference rooms. There are no archives, no data and anyway no skilled staff that could process data, even if it existed. Parliament may pass laws, but those laws are simply never enacted since there is no administration and no staff to do it.

    Sad truth: There simply is no such thing as a Greek Government or even the semblance of an effective administration. And that was the OECD’s impression just of what was going on on the top. You would not even want to imagine what the situation looks like on the provincial or local level.

    If the OECD is right with its devastating assessment of Greek non-administraton —– what difference will a Brussels commissioner make? What would he ever achieve?

    Obvious answer: NOTHING!

  • Snorri Godhi

    The real question is: what are the chances of The Netherlands, Austria, Slovakia, and Finland (and I could expand the list) remaining in the eurozone, if money is handed over to the Greek political class with no strings attached?

    The second question is: what sort of options are on the table for the German political class if The Netherlands or any of the others opt to leave the eurozone? Not a good sort, in all likelihood.

    I submit that this is a primary motivation for Merkel’s assault on Greek sovereignty.

    I also submit that it is unfair to blame Merkel for commitments taken under pressure that came more from Sarkozy than from domestic interests. If she is to be blamed, then blame her for not standing up to German interests when it was still possible to do so, rather than for trying to do so now.

    Other than that, I agree with the main points in this post.

  • don

    Seems like the Germans are getting blamed for everything:WW1, blowing the Wiemar Republic, WW2, and now those frugal burghers are getting blamed for screwing over the Greek high life. It’s kind of like the ugly American blaming the Mexicans for their inability to control their violent drug lords, cartels that supply the lucrative American drug market across an international border the American politicians refuse to control. And the German government failed to regulate their banks? Gee, the Fed’s and Treasury’s wonderful lack of foresight regarding the housing bubble comes to mind, and those regulators blew it having both the luxury of a currency and fiscal union.

  • Corlyss

    “Will German Politicians Wreck Europe To Save Their Own Skins?”

    Of course they will. You job doesn’t matter to them nearly as much as theirs does to them. The one politician put it very pithily during the discussions in 2008-9 about Iceland and what, O what, were they going to do about Iceland. He said, “we know what to do. We just don’t know how to get re-elected if we do it.”

    I hear the pols are now demanding the private equity people and the bond holders take a 70% haircut to save the Euro. Why not just ask them to waive the debt entirely?

  • Jim.


    “All over the world, banks have largely abdicated the evaluation of risk to government regulators, in the expectation that a lender of last resort will always be there. Regulators allowed government debt to be considered riskless, which, of course, they are not.”

    No kidding. You should have seen the loan that they were trying to hand me when I started house- (bargain-)hunting in the summer of 2008, as prices started to fall. “Mr. Fresh-out-of-college Loan Officer, do you realize that if this ARM you’re trying to sucker me into signing adjusts to the highest rate it could adjust to, it would consume my and my wife’s *entire combined pre-tax income??*”

    His answer: “Hey, I’m just giving you whatever loan the FHA is willing to insure!”

    (I swear, it’s like the people who are saying, “It’s foolish not to borrow at the 2%-for-10-years level we have now”. Come on guys, government debt is the biggest adjustable-rate powderkeg the financial world has ever invented! As if we’re going to have the budget balanced in 10 years with enough of a surplus to pay back whatever we borrow now!)

    Now, if Mead had simply pointed out that German pols were no more responsible than our own dear FHA, that would be one thing. But he goes on to argue that instead of cleaning house of these binge lenders and putting a stop to binge lending, we should go on another huge lending binge. I’m glad to see he’s taking so much flak for that.

    Mead seems to be channeling St. Augustine…. “Lord, please give me fiscal responsibility and sound monetary policy — but do not give them to me yet!”


    Once the Germans have cut the Greeks off without another pfennig, we can start talking about the (im)morality of using German taxpayers’ money to bail out the German banks. You might be surprised to find I’m not a big fan of that, either.

    Or, if you’ve read many of my comments here on Via Meadia, you shouldn’t be surprised … but I devoutly hope that you have enough in your life that you have trouble keeping track of the opinions of individual political blog post commenters. 🙂

  • Mark Michael

    How does America compare with these European countries? Our Fed has been expanding the supply of dollars as fast as it can. It bought about $1.25 trillion in dodgy securities (MBSs) from our largest banks in order to get them off their books. It paid dollar-for-dollar for them – never mind those discussions before Congress at the time of TARP about how they’d “price” those MBSs. It lowered interest rates to near-zero in 2008 and has announced it will hold them there until 2014 – 6 long years. That tells savers they won’t earn much if anything on their savings for another couple years.

    America is now the world’s largest debtor nation. We were the world’s largest creditor nation when Reagan took office in 1980. Our annual foreign exchange account went into negative area in the 1980s and got larger year by year. (I think it peaked around $800B and lately it’s come back down to maybe $450B, thanks to the dropping dollar, higher exports, and the recession reducing imports a bit.) But our net national debt, public + private, grows each year by the amount that foreign exchange account is negative.

    East Asian countries – China, Japan, S. Korea, Taiwan, Singapore – all run trade surpluses with US to one degree or other. They become larger & larger creditor nations as we become a Greece-like larger debtor nation.

    This relationship is unsustainable – over the long run, of course.

    Hmm. So which European country are we like? Any of the Club Med countries – all of which are deep in debt to other countries? Like France? Surely not Germany, since they’re an export powerhouse.

    Unlike them, we have a Fed that prints our own dollars – and foreigners continue to buy them up like hotcakes. The 10-year T Note is now under 2% interest. The poor investor has a bunch of bad choices: the euro? the yen? the yuan? smaller countries’ currencies such as the Swiss franc? U.K. pound? Australian dollar? Canadian loony?

    These smaller countries cannot tolerate large purchases of their currencies. It will drive up their values so much it’ll ruin their exports.

    So where does it stop? The culprits behind the whole mess IMO are government institutions and politicians: central banks, bank regulators, elected officials who care only about short-term prosperity and hence hector their central banks to hold interest rates down.

    IMO it has to stop when there’s a collective agreement among the major countries’ officials to call a collective stop. Central banks have to stop funding unsustainable trade deficits (China, S. Korea, Japan, Taiwan) by their export industries. They must open up their borders to our exports – so we can begin working down our massive debt. Within the EU, they have to stop providing taxpayer’s money to their 17 national central banks, those 17 CBs have to stop feeding funds to the ECB, and then it going to those PIIGS’ governments and banks. The PIIGS have to suck it up and cut their government spending…

    Hmm. Having typing the above, it’s obvious this is hopeless! What’s really going to happen is that the EU, the US, the East Asia countries will all debase their currencies in a race to the bottom until universal inflation starts up around the globe…

    One that cheery note, I’ll stop typing!

  • xmm


    “Did they borrow the [darn] money or not? If they did they owe it. Just like folks underwater on their mortgages. No one forced them to borrow.

    They were foolish. They over borrowed and over spent, they had their fun. Time to pay up. Period. The productive and thrifty don’t owe the foolish anything.

    Don’t like the terms. Kinda late now.”
    Well iron308 probably you have not read the little letters at the lending contracts and YOU are trying to change the terms.
    Greek state debt was by no way guaranteed or backed with guarantees. The banks knew that very well, they did nt calculate the risk well (at that point of time we were not “lazy” as it seems”) and they are crying that we (Greeks) are broke to pay the debts. Well EU banksters read the little letters – the loans were not guaranteed.
    But why did banksters keep lending Greece? Because they could borrow money from ECB at 1% and then use that money to lend Greece with 3,5-4%, a nice scheme that played up well for many many years. This is the real moral hazard. Banksters making a profit for borrowing at states with no productive investments in place.
    so read the little letters at the contracts and stop crying, the pitty is that the Greek state managed to transform 110BE of non guaranteed state to banks debt to 140BE of collateral state to state debt just to save EU failed banks.

  • xmm

    With regard to the German commissioner lets put things into perspective:

    Greeks pay the state about 40-50BE/year in taxes. So the Germans want for participating in a 130BE loan (revenues of Greek state for 3y) the control not only of their share of 130BE (they already do that) but the control of ours 40-50BE WE pay in taxes *indefinetely*.
    Moreover they want to control our 40-50BE/y in order to pay foremost not needs like national defence, security, healtcare but for debt to their banks(no obligation for that currently)! Also I imagive that with a German at the helm we will buy (with our tax money) some Eurofighter, nwe failed Uboats, new Leopard IIs and some Siemens equipment.

    So they really want to confiscate the taxes all the Greek ppl pay in exhcange, INDEFINETELY, for their next tranche of Troika loan and for EU banks not going bust. NOT GOING TO HAPPEN. we are very thankful for your euros, if this means economic and national slavery thanks we will not take them. Clear up the Euro mess on your own.

  • Anita Menig

    I am a German living in America. I love it when Americans take to the streets and let their politicians know how they really feel. I am wondering why the good citizens of Germany cannot find the courage to do this. It angers me that the european elite (politicians) have impossed on millions of people their dream of a united Europe. This has become a neverending nightmare for millions of Europeans, especially Germans. Our politians are the biggest traitors. What do you do with a traitor? Put him against the wall and shoot him. The End.

© The American Interest LLC 2005-2017 About Us Masthead Submissions Advertise Customer Service
We are a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for us to earn fees by linking to Amazon.com and affiliated sites.