
Why Germany seems not to want a quick fix for the euro crisis - mrmasa
http://www.economist.com/node/21531032?fsrc=scn/tw/te/ar/keepthefireburning
======
paulkoer
As a German I must say that in my opinion this article captures the German
sentiment very well. On the one hand it is short sided, it will likely lead to
more economic problems than necessary and the stance of the Euro members (and
Germany especially) on Greece is hurting the economy there much more than
necessary.

On the other hand I do feel that some of this sentiment is justified. After
all the example of Italy (Bond markets demand high risk premiums, Italy
announces much needed reforms, ECB buys Italian bonds, Italy removes reforms)
is quite telling. The same (much worse, actually) applies to the financial
institutions. What precedent have we set by bailing almost all of the out.
Without a lot of reform investors will no doubt assume that financial
institutions are state-guaranteed, allowing them to continue the tails I win,
heads you (the state, taxpayers) loose game. Clearly more decisive action is
required to deal with the current problems but I think we are deluding
ourselves if we believe that we can make it out of this debt crisis only by
clever policies.

~~~
zerostar07
It only makes sense, right? Personally i am quite pleased that the Germans
lead this psychological warfare against the faceless 'markets', that are
pushing more and more to funnel taxpayer's money in their ill-gone
investments. As a greek, i find it ridiculous that the world's markets are
turbulent over a tiny small country like Greece (the only PIGS country that is
actually bankrupt), and exaggerate the risks so much. I do agree that markets
have changed and it's time for a reform [What lessons have we learned from the
2008 crisis: None].

~~~
HSO
Have you ever thought twice about what exactly "faceless markets" are? Markets
are composed of many agents, people, institutions, and mostly your pension
money! It's true. Pension funds and other institutional investors are the
single-largest segment, esp. of sovereign bond markets! Now ask yourself, with
the Greek government in its current position, if it came to you today and
asked you to lend it money, not to invest it in some thing or other but merely
to pay back previous creditors, would you do it?! Yeah, me neither...

It's a copout by politicians and the bozos they represent to ascribe
individual actions such as "pushing" or "punishing" etc. to aggregates like
markets. But just as the laws on the molecular level do not simply reflect
those on the subnuclear level of matter, the construct of "representative
agents" is a fiction. Aggregation in the social sciences is just as hard and
unintuitive as in the natural sciences, maybe even harder.

So why do they do it? Because to anthropomorphize "the market" allows them do
demonize it, making things simple for the bozos in describing current
developments as some kind of "struggle" between supposedly good central banks
and politicians and evil, "faceless markets". Unfortunately, this type of
rhetoric completely misframes the issues and leads invariably to wrong
decisions by building political pressure at the wrong points in the system.

~~~
mtts
Markets are indeed composed of many agents, people and institutions
squandering your pension money, all of whom hide behind the faceless market,
arguing that if "the market" is doing it, it has to be right. Which is exactly
what got us into this mess in the first place - everyone shirking off
responsibility for their actions.

~~~
hugh3
"Rational markets", eh?

Does that mean that you should be forced to sell things for a price lower than
you're willing to accept, or that you should be forced to buy things for a
price higher than you're willing to pay?

~~~
bluedanieru
Ah yes, the poor and irresponsible financiers have to take a haircut. Better
that the Greek people should pay the price for a generation for little more
than believing the lies their politicians told them to get elected, as they
piled on the debt? If there were a way to wring a solution to this crisis out
of those most responsible (Greek politicians) I would have us do it, but there
isn't. So irresponsible lenders and irresponsible voters, and nations who
perhaps irresponsibly guided Greece into the Euro in the first place, will
have to share the burden. Sorry this doesn't jive with your Randian neo-
libertarian bullshit ideas about how things actually work.

------
harryf
As the article makes a point of mentioning Angela Merkel...

> All this is true. Yet Mrs Merkel seems to lack a sense of urgency. Despite
> the world’s calls for action, she does not believe in bold strokes—be it
> letting Greece default, or issuing Eurobonds to mutualise governments’ debt.
> Only a slow, step-by-step approach will work. In other words, the pain,
> austerity and market turmoil will go on for the foreseeable future.

...it's worth pointing out, by comparison to other world leaders, Angela
Merkel has a PhD in Physics (Quantum Chemistry in fact). In other words she's
more than capable to grasping the complexities of financial markets.

Much as it annoys Anglo-Saxons, Mrs Merkel might be right.

~~~
HSO
I have no doubt she is intelligent, experienced, and has good intentions. But
to make the simple connection from physics background, decades away, to
today's financial markets and economies strikes me as rather bold.

You need to have thought about things, and you can't (unfortunately) just read
a couple of books or articles to "learn" this subject. You are aware how the
economics profession as a whole performed over the last few decades?

EDIT: Just recently, I was complaining to a friend that I am thinking about
markets and economics now for almost ten years, one way or another, and I am
still just speechless sometimes, asking myself wtf is going on or what does
this mean etc. I feel there are many things that I still don't seem to get on
a deeper, fundamental level. And I like to think I'm not so stupid either. So,
I can fully imagine how tough it must be to get into a situation where you
actually need to make a call with real consequences for millions of people,
for many years to come, on the basis of very, very limited information.
Frankly, I feel a sense of history might be of more help to someone in this
position than a physics background.

~~~
onemoreact
Economics and Quantum Chemistry accually have a lot in common. They are both
looking for mathematical shortcuts / models for highly complex systems and use
similar tools. So sure reading a few book is not going to give you an in depth
understanding of economics, but being able to look at the math and call Bull
!@#$ is invaluable.

EX: It is generally accepted that money is created when a bank creates a loan,
however, you can make also make a similar argument that it's only when banks
fail that new money is created. Both are in some ways true, but the second is
actually a more useful when looking at what happens when the economy takes a
real dip, because the banks created IOU's not money, but the FED get's to
create money to replace those IOU's.

That's not to say Economics is easy, lacks depth, or had no concrete progress.
However, there is a wide range of models out there and evaluating there
relative merits in the short and long term during such complex times takes
deep analytic insight.

~~~
yxhuvud
There are other alternatives as well, like the one MMT'ers do where money is
created when a government spend (and destroyed by taxes). This while bank
lending is a zero sum game since it creates a corresponding net negative on
the other side of the transaction.

------
fforw
> and jealous institutions such as the constitutional court.

The Bundesverfassungsgericht (federal constitutional court) is the only organ
that reliably keeps doing its job, ensuring that the newly passed laws are in
fact constitutional -- a test that was failed so many times in the recent
past. Calling that jealous behavior is a very strange position to take.

------
vsl2
This article spotlights two of the root causes of the crises in Europe -
namely, (i) broken governments that spend beyond their means and the (ii)
moral hazard that exacerbates such overspending.

Greece Example: Greece spent too much money raised through issuing debt (which
increasingly looks like an imminent default) and creditors continued to lend
Greece money under the belief that Greece wouldn't be allowed to default by
the rest of the Euro countries.

There's no painless way to fix this mess, but I don't think giving Greece a
massive one-time bailout sends the right message to the rest of the Euro
countries (and countries' creditors) regarding moral hazard. The citizens of
bailing-out countries (e.g. Germany) will be incredibly angry, rightfully so,
and who knows how that will play out. On the other hand, small delaying
actions like the ones that have been taken since the Euro crises began only
worsen the situation and undermine global confidence in European leadership.

Personally, I think the creation of a common currency (Euro), without a
corresponding enforceable common fiscal policy, is the root cause of the
global impact of this crises. One member of the common currency can bring down
many of the rest of the members by contagion so essentially, the coalition is
only as strong as its weakest link. The weakest link can be strengthened by
enforcement of a common fiscal policy, but there was clearly no such common
fiscal policy being effectively enforced in Greece.

Another problem with the common currency is that Greece cannot devalue its
currency to (i) make its exports more competitive (thereby improving its
economy) and (ii) lessen its debt load through inflation. Before the Euro, the
Greek Drachma could have been devalued in order to accomplish (i) and (ii).
Now, Greece has no way out other than default or waiting for a bailout which
may or may not come.

No easy answers here, but my guess is that Europe will continue to
incrementally increase its "help" to Greece and other struggling countries
until a major comprehensive bailout is required. Similar to as in the US with
its banks a couple of years ago, such comprehensive bailout will occur, global
taxpayers will lose, and the cycle will continue until we see an even bigger
problem next time. Happy thoughts to start off my morning...

~~~
jan_g
Most smaller countries with their own currency can not do (ii), because they
can only get dollar or euro denominated debt from international
markets/institutions.

~~~
hugh3
What's "smaller" in this case?

I thought that most countries didn't need to borrow money internationally,
they just sell bonds primarily to their own citizens.

~~~
justincormack
Depends on whether they are running a current account deficit too, in which
case there will be net borrowing from abroad. Many countries borrow quite
substantially abroad.

------
adrianN
> Think of nuclear fission: it generates useful energy but if it runs out of
> control you get a cataclysmic explosion. After Fukushima, Germany announced
> that it would phase out nuclear power. And yet, when it comes to the
> sovereign-debt crisis, Germany is prepared to live with the risk of economic
> meltdown.

This bullshit analogy nearly made me stop reading the article.

~~~
zerostar07
You have almost missed a great article then

------
sunnydaynow
"The vast majority of financial transactions, he told fellow finance ministers
in a closed meeting earlier this month, “do not serve the real economy”. When
markets go astray the answer is not to make the taxpayer step in once more,
but to introduce better regulation."

Spot on!

~~~
anamax
> When markets go astray the answer is not to make the taxpayer step in once
> more, but to introduce better regulation."

And this better regulation is going to come from the folks who wrote Dodd-
Frank, who think that the CRA is a good idea, who keep defending Fannie Mae
and Freddie Mac.....

~~~
eru
No, no, we are going to get it from the Germans.

------
derpapst
One of the many reasons we got that far the global crisis is probably the
reactive attitude "jump when the markets tell you so". As a German I find it
comforting that our chancellor is not of that kind. One can criticize many
points, but one has to agree that she does not fear head wind. Would be nice
to have more politicians of her kind in Germany.

------
sprash
"German politicians are constrained by a complex federal system, a sceptical
public, messy coalition politics and jealous institutions such as the
constitutional court."

You mean German politicians are constrained by Democracy. This article portays
it as if it was a bad thing.

~~~
vsl2
Democracy I think is the least evil of the types of government that a society
can have, but is still inherently terribly flawed (but less than other types
of government) because of basic human failings (e.g. moral corruption, greed,
"sheeple" mentality).

Perhaps only a benevolent dictator could actually make decisions in an
unbiased "best for everyone" manner...but then again how long would any
dictator remain benevolent once he/she's had a taste of absolute power?

------
gibsonf1
I have no idea why Keynesian ideas are assumed as the proper way to solve
economic problems when, in fact, they _never_ work. Germany is unusual,
especially in comparison to the United States, in that they make a point of
only spending the money they have. They have been watching the "wonderful"
results of Keynesian intervention in the US recently and around the world and
likely noticed that the results are always greater economic disasters. What
sense is there in pouring gasoline on a fire?

~~~
jtbigwoo
_...they make a point of only spending the money they have._

Germany has the third-highest public debt in the world with only the
fifteenth-highest population. Their debt is much higher as a percentage of GDP
than the U.S. (83% vs. 62% according to the CIA world Factbook. [1]) They've
spent plenty of money they don't have.

[1] [https://www.cia.gov/library/publications/the-world-
factbook/...](https://www.cia.gov/library/publications/the-world-
factbook/rankorder/2186rank.html)

~~~
lispm
But Germany was/is in a very different situation. We are absorbing since
twenty years a formerly communist econom - the GDR. Germany had little choice
than invest a lot of money to do so. If you look at current policies, they are
much about getting the debt problem under control.

------
smackay
The real problem is the uncertainty of the solution. It is not clear whether
strong action will have the slightest effect so Germany, given it's calamitous
history with financial crises, is probably holding back just in case.

The picture of a group of penguins standing on the ice at the edge of the
water waiting to see who jumps first (or gets pushed) seems to sum up the
situation nicely.

------
64ways
Debt issuance is money creation, and debt destruction is money destruction.
Why is the latter SO intolerable?

If nothing fails, nothing succeeds.

This is all a result of the myopic human opinion of perma-growth.

In the end private industry(the IMF) winds up bailed out, THEN using their
ill-gotten gains to scoop up public assets for pennies on the dollar.

------
stfu
The EU has and always will be a forced construct that Germany will essentially
have to shoulder. Other countries were going to tolerate Germany's reunion
only when they support the EU. Now that they realize how the construct
attempts to level the standards of live across the union, Germany realizes in
what kind of downward spiral they tapped.

Going to be even more "fun" to watch, when certain rules such as "penalty" for
countries that export more than they import are enforced. Germany makes an
excellent Hamster-in-the-wheel.

~~~
tomjen3
It is only going to be fun if you can watch it from afar.

Those of us who live in Europe see no point in antagonizing somebody who isn't
a pain in the ass.

~~~
beachgeek
Sounds like you don't want to join the Turkish army then...

------
derpapst
Also interesting that the Economist continues to come up with the same kind of
story every week. Just check the last Economist links that were posted on HN
over tha last weeks and you will see that they all have the same message. To
be honest, I would expect them to be more diverse.

~~~
zwieback
That's what the Economist is all about, though - extremely well written and
produced with a very predictable and consistent message and opinion.

~~~
derpapst
Zwieback - that's the coolest alias I've seen for a long time :-D Are you
plattdeutsch?

~~~
zwieback
No, I grew up in Stuttgart and now I'm an Oregonian. My mom grew up in
Mecklenburg so that's pretty close.

------
jasonkolb
While I generally abhor taxes, I really like the idea of a financial
transaction tax. It would effectively eliminate the profit margin for high
frequency trading and remove a LOT of volatility from the markets. IMHO the
market volatility is causing the average person to doubt the stability of the
economy and hurting the entire ecosystem.

Even a small transaction tax... Say, $1/EUR per trade would remove the
incentive for High frequency trading and encourage some more productive market
dynamics. I mean, really, who wants to IPO in a market like this? And that
removes a pretty significant source of funding for new businesses...

~~~
blue1
By drastically reducing volume it would also reduce liquidity and increase
spreads. Sweden tested this in the eighties and abandoned after seeing the
market substantially dry up (and the resulting taxes as well).

~~~
_delirium
I can see that happening with a large tax, but surely it's not a step
function, where no transaction taxes results in huge liquidity, while any non-
zero tax causes a catastrophic drying up of liquidity. How about, say, a
penny-per-trade fee? That would discourage trading at the sub-penny level of
liquidity, which is not particularly useful anyway, while still making it
profitable to provide liquidity if arbitrage opportunities of >$0.01 were
involved.

------
athoma
Even the title of this article doesn't make a large amount of sense. Of course
the Germans want to take part in "fixing" the Euro crisis. But this is the
problem with people in the finance world today. All they want is a "quick"
fix. "Patch" the hole and the boat will stop leaking. I completely agree,
something must be done to avert a double dip however a "quick fix" will not
get us there. Most importantly, people need to increase their savings, lower
spending.

~~~
DasIch
If people save more and spend less, the prices go down, the companies make
less money and unemployment figures go up. I don't quite see how this would
solve the problem.

~~~
j_col
Precisely. That is why Germany does not have a great domestic economy, all of
their wealth is generated from exports, i.e. first we lend you the money, then
you buy our expensive cars with the money, then we ask for the money back ;-)

~~~
Uchikoma
And then I bail you out with the money from my high income tax.

You have the car. The carmaker has it's money. The bank has it's money. I
don't have a car. I've paid for all this ;-)

~~~
j_col
Eh, who exactly is getting bailed out? I think you mean loans, which are
expected to be paid back in full (and up until very recently, interest was
also paid on these "bail outs" making it a profitable venture for the country
doing the lending).

~~~
Uchikoma
With bail out, I mean you default on the debt and I pay your dept towards a
bank.

~~~
j_col
Nobody has defaulted (yet!).

------
mise
It comes down to the Protestants keeping the Catholics in check :)

~~~
j_col
The Greeks are neither...

