
Germany, Not Greece, Should Exit the Euro - cs702
http://www.bloomberg.com/news/2012-06-10/forget-greece-a-german-euro-exit-might-be-better.html
======
cs702
This article is obviously proposing something that Germany would never agree
to, but in doing so the article lays bare an important truth: the adjustments
necessary to save the Euro zone should perhaps come from _everyone_ \--
including Germany. Along with Greece, Portugal, Spain, Italy and all other
'peripheral' Euro zone countries, Germany is partly responsible for the
current crisis: it financed the consumption and housing booms in those other
countries.

Let me offer a poor analogy which I find insightful: Germany acted like a rich
neighbor who irresponsibly lends a ton money to his poorer neighbors so they
can throw a really costly, drunken, all-night-long party, and then demands to
be repaid the next day without acknowledging that he knowingly made a really
stupid loan.

The main implication of the article: Germany is trying to force austerity and
deflation unto the Euro zone's 'peripheral' countries, but the adjustment
would be a lot easier and faster for everyone if Germany simultaneously forced
profligacy and inflation unto itself. (A higher rate of internal inflation in
Germany would have roughly the same impact as a revaluation of a newly
reissued Deutsche Mark were the country to leave the Euro zone.)

~~~
o1iver
Germany may have profited from the spending sprees of the southern nation, but
it did not directly cause the problem. Lack of discipline is what caused the
crisis. Germany passed difficult structural reforms in the 2000s and is now
reaping the rewards, whilst the southern nations abused the availability of
cheap money. Germany reformed and invested, whilst the southern nations
didn't! And it is not like Germany was just sitting by doing nothing... That
money going to Greece and Spain is coming from somewhere! German politicians
are very hard at work keeping the German population from revolting about so
much money being "transferred"!

My personal opinion is that the correct way _is_ austerity, but not like it is
being forced unto Greece at the moment. The greek economy is in shatters as
is, the current austerity measures are not helping. I think the solution is
that Germany should lend Greece way more money than currently so that they can
build up their economy, whilst enforcing structural _and_ governmental reform
(ex: taxes must be collected, bureaucrats fired, etc)... Finally the money
should be paid back over the next 40 years, as the economy recovers.

~~~
_delirium
Spain actually had _better_ fiscal discipline than Germany during the boom,
with lower government deficits and lower public debt, so
"discpline/indiscipline" is definitely not the whole story.

~~~
JumpCrisscross
The _central_ government was. But historically as now the relatively weak
central government wasn't the problem - the regional governments ran up (and
some continue to run up) exorbitant deficits. This is in exclusion of private
Spanish debts, which are very large.

~~~
_delirium
I believe it's still true even if you add in regional debts. From what I can
find, before the current crisis, outstanding central government debt hovered
around 30-35% of GDP, while regional debt added up to around 10% of GDP, for a
total of 40-45% of GDP, one of the lower debt totals among large economies in
Europe. Lately it's been ballooning due to a mixture of: 1) interest-rate
rises producing a self-fulfilling prophecy; 2) recession reducing tax revenue
and increasing safety-net expenses; and 3) recession causing the GDP
denominator to get smaller.

The main difference I can see is just that the German economy is much stronger
than the Spanish economy, not any difference in fiscal discipline. Germany can
afford to carry bigger deficits and bigger debts because it has a
comparatively strong economy; same reason the U.S. can maintain much higher
deficits than Spain without borrowing costs increasing.

------
lispm
This article is absurd.

The cost of doing so would be gigantic. Nobody in Europe would want to pay
that.

Actually the Euro was introduced to keep Germany under control:

[http://www.spiegel.de/politik/ausland/historischer-deal-
mitt...](http://www.spiegel.de/politik/ausland/historischer-deal-mitterrand-
forderte-euro-als-gegenleistung-fuer-die-einheit-a-719608.html)

Without the Euro the Bundesbank had controlled the most important currency,
the Deutsche Mark, alone. Many countries in Europe had been depending on the
Deutsche Mark anyway - without being able to influence any decisions.

The Anglo-Saxon press is obsessed with the Euro. I've been reading a lot now
over the last years about the Euro - mostly written against it. Article over
article predicted its death, often within days or weeks. The Euro is still
there.

Instead the articles get more laughable day by day.

~~~
mafribe
And such undemocratic machinations are a really good reason to abolish the
Euro. Or don't you like democracy?

~~~
lispm
what?

~~~
iuguy
I think the parent may be referring to some of the undemocratic elements of
the European Council, or the bailout fund that was proposed a while back to be
run by a separate body to the ECB.

------
Spooky23
The problem with the Euro is the moral hazard that it creates.

People in the "PIGS" countries were able to borrow and spend based on the
credit of more robust economies such as Germany. So now, the people in these
countries will be suffering for years under devaluation or austerity, but the
rich who were the biggest beneficiaries of the bubble are completely safe,
with their fortunes migrated to strong German banks with the click of a mouse.

The Germans and northern Europeans are culpable in this -- they essentially
co-signed billions of loans to countries like Greece that lack the governance
ability to function with a German credit line.

~~~
gaius
There's actually nothing to stop the EU declaring that all accounts _anywhere_
in the EU belonging to a Greek national (say) get redenominated in Drachma.

~~~
_delirium
I don't believe that would be legal under most EU countries' domestic banking
laws, not to mention EU law. For example, I'm a non-Danish national (American)
with a Danish bank account, and under Danish law the government could not
treat my bank account in a disadvantageous way (such as confiscating it, or
unilaterally redenominating it) solely because I'm American. They could pass a
law forcing me to close the account (e.g. by tightening the rules on foreign-
owned bank accounts), but they would have to let me withdraw my money if they
did so, in the same currency as it's denominated in (DKK).

~~~
gaius
It wasn't "legal" for countries to stray from the stability pact either, but
they did! We're in the realm of making stuff up as we go along here. Or the
Greek government could declare it illegal for Greeks to hold bank accounts
elsewhere. Certainly it's not tenable for the average Greek to squirrel away
all his or her money in German banks, waiting for the "grexit", then cashing
in.

~~~
excuse-me
It's not tenable but I suspect it's what's happening. Actually it's what's
been happening in Greece since WWII. First you have fascist governments that
you don't trust and then you have democratic governments that want you to pay
tax. Greeks have long been used to keeping their money where the government
can't find it - in US$ under the bed or in Euros in German banks.

The situation in Spain at the moment seems to be that every Euro sent in the
bailout is removed form a Spanish account and paid into a German bank.
Spaniards speak Spanish, they read Argentinian newspapers when their brilliant
economists 'solved' their currency problem by seizing the accounts of everyone
who wasn't a ruling General.

~~~
gaius
Well, the Greeks freely voted for politicians that promised lavish spending
from the public purse - I don't think they deserve too much sympathy for the
taxes to pay for it all.

~~~
excuse-me
When did US voters last pick a government that didn't promise tax cuts and
then increased spending ?

But that's not the point - the point is that there isn't very much you can do
at this point to stop Gresham's law in Greece/Spain/etc. Short of building a
wall searching people at border Greek 'money' is going to be flying out of
Greece at the moment, whether it's to Euro savings accounts in German banks or
US$ held by their brother/cousin/uncle in New York.

------
lifeisstillgood
Are you sure this was not written by Angela Merkel?

Germany is desperate not to have the euro / union explode, and is basically
saying if you want any more cash then there is proper fiscal union (ie
everyone follow Germany's industrial and fiscal models.) This will screw most
of Southern Europe who don't manufacture anything, so cannot export anything
that is not subsidised under CAP.

So the Germans will only pay up if the whole of Europe agrees to tighter
fiscal controls.

And you don't agree to tighter fiscal controls, we just walk away. Didn't you
see the positive reaction to those articles we planted :-)

However the Spanish _government_ followed the fiscal rules. It was their banks
(with political connivance) that massively over reached.

I think fiscal union is the only solution Europe has. But it will also need to
reign in banks otherwise another Spain will occur. Presumably a combination of
never trading privately (ie only over public exchanges where markets can
assess the deals) and never being allowed to exceed certain crash levels
(again guaranteed through the derivative markets). Oh and never letting the
Greek government lie about its borrowing levels.

Just like every other government in Europe has in one way or another. (The UK
government uses PFI - they ask private finance to build a hospital and they
rent the hosiptal grounds for 30 years. Never mind it is always cheaper in the
long run to build your own, is that private debt? Yes according to UK
government. But they will never ever stop paying the rent. Or let a hospital
provider go bust.)

Its only becoming clear to me how much debt is an addiction to banks.

~~~
mafribe
Most German citizens would be very happy to get rid of the Euro, but the
ruling parties refuse to have democratic elections of this question. What we
are seeing is democracy being eroded away under the banner of European
unification.

~~~
lispm
What? Few German's would be 'very happy'.

> ruling parties refuse to have democratic elections of this question

Seems like you don't know much about the system in Germany.

~~~
mafribe
None of the major transfers of political power away from the German
parliaments/citizen towards the democratically non legitimised EU institutions
have been put to a referendum in Germany (and various other countries). That's
a clearcut erosion of democracy.

~~~
lispm
How can that be an erosion? A referendum was never necessary. There is an
European parliament. For major decisions the Bundestag remains decisive.

------
piquadrat
... and thereby killing the Swiss economy, thankyouverymuch. We're struggling
enough with the strong Swiss Franc against the Euro as it is. A further
devaluation of the Euro would be pretty devastating for Switzerland, even if a
strong Deutsche Mark would mitigate the effects a bit.

~~~
polshaw
No offence but the competitiveness of the Swiss economy really isn't something
anyone is concerned with outside of Switzerland (vs the whole EU).

~~~
piquadrat
None taken, we're quite clear on how importantly the big players take
Switzerland's economic health.

------
polshaw
An interesting proposition (and seemingly fiscally sound), but it misses a lot
of the point of the European integration, which is long term peace in Europe.

Separating Germany seems a particularly bad idea in that context.

~~~
yummyfajitas
Are you suggesting that if Germany were to leave the currency union, a war
would result? If not, then why bring up "long term peace in Europe"?

~~~
nhaehnle
I'm not sure that he is suggesting it, but it is a reasonable worry. Not in
the near term of course, say over the next 20 years or so. Within that time
frame, a war within Europe is almost unthinkable. However, combine the
geopolitical situation in Europe with a new generation or two for whom the
disintegration of the Euro is the defining event in their perception of
Europe, and mindsets will change.

In the face of declining European integration, our best long-term hope against
wars would be the declining size of populations combined with a relative
dearth of resources. Some people are hopelessly optimistic that this is
enough, but I personally wouldn't count on it.

~~~
yummyfajitas
Any war-related worries one might have if Germany leaves the currency union or
the EU should also apply to Norway [edited] and Switzerland (not in the EU at
all), as well as the UK, the Czech Republic and Hungary (in the EU, but not
Euro nations).

So is a war between the Czech Republic and Hungary, or Finland and Sweden a
reasonable worry over your 20 year timeframe?

[edit: confused Finland with Norway.]

~~~
EdiX
7% of Greeks voted for a party under the slogan "so we can rid this land of
filth", here is their flag:

<http://en.wikipedia.org/wiki/File:Meandros_flag.svg>

I wouldn't be so optimist.

------
markessien
This euro debates show the silliness of countries dismantling their factories:
Germany has a social market economy with high taxes and large social
contributions. It also has a highly skilled knowledge-based economy. In spite
of that, it retains manufacturing ability and continues to develop and export
machinery - having moved from simple machines to more high tech machines.

That's what countries should do - continue building machines right at home.
When there is competition from other cheaper countries, build more complex or
better functioning machines.

The countries in the south of europe have not done that, and so they cannot
export, irrespective of what the euro value is. Devaluation hardly makes any
sense for these countries that don't earn their money by exporting.

~~~
gaius
_The countries in the south of europe have not done that_

Except that they have. Machine tools is one of Italy's major industries.

~~~
riffraff
it's tipically meaningless to conflate "countries of southern europe" together
because they have basically zero in common economy-wise.

But, hey, who wants to get in the way of some good ole' rethoric?

~~~
excuse-me
It doesn't even make sense inside a country. The economy of Milan has nothing
to do with Sicily.

That was one of the UK's arguments against the Euro - that the economy of
different Eu countries was far too different to have a single currency. And
yet it was perfectly reasonable that the city of London had exactly the same
financial needs as an ex-mining village in the North of England.

------
j_col
A strong Deutsche Mark would make Germany's exports more expensive, last thing
they want (see what's happening to Switzerland right now for example).

~~~
mtgx
I remember a lot of Germans were very upset about switching to Euro from the
Mark, because for example if before a cup of coffee was 1 Mark, after that it
would've become 1 Euro (~2 Marks at the time). I don't remember if they
converted everyone's salaries 1:1 to Euro, too, though. If they did, I guess
that worry didn't make much sense.

~~~
megablast
This is a ridiculous statement, there were lots of measures in place to ensure
that exactly this did not happen, with huge fines for anyone who tried to
overcharge once the changeover happened.

~~~
icebraining
Agreed, 'though people here (Portugal) will still tell you that stuff is now
much more expensive due to the Euro. They don't seem to grasp the concept of
inflation.

------
bking
Whether or not I agree or disagree with the argument of this artice, it has
made me ponder momentarily Europe. If my college history serves me right, it
looks like the floundering countries might vilify Germany and a few of the
other more secure nations. War is usually brought about by a large group being
in a bad situation, finding common ground from which their pain stems, and
finding a common "enemy" to blame. The better question is whether or not the
Eurozone tension will diffuse before any charismatic leader can rally the
troops...

~~~
tomjen3
Ha, there isn't going to be another war in Europa proper. Trust me, no
european wants another war.

You can have that in the US because the US doesn't typically pay the price of
war, and the country knows it. The greek people know they will pay the price
for invading Germany. And that price is enormous.

~~~
waterlesscloud
WWI exacted a high price that people never wanted to pay again.

The fact that it is now named with a number tells you how that worked out.

Europe needs to go more than a few decades before it can declare itself the
kingdom of peace.

~~~
tomjen3
And everybody tried to run WWII in such a way that we would never end up like
WWI.

We now know that that isn't possible. We know that the cost of bombed cities,
etc is prohibitily high.

------
DasIch
Germany's economy depends a lot on exports by exiting the Euro Germany would
take a huge hit in that regard possibly causing a recession. That along with
the obvious conflict in political goals makes this a scenario that no one in
Germany will ever seriously consider.

Besides at the moment Germany is one of the most if not actually the most
powerful country in the world (economically speaking). Germany currently
controls the future of the Euro and with that a big part of the future of the
EU and the world economy. Why give up that power?

~~~
lispm
And I was under the impression that the US has much more economic power than
German. Or China with its billion+ people market.

The Euro is the attempt to balance this power with an European currency. The
market of the Eurozone is the sum of the countries and Germany is a part of
that. Germany alone is relatively small (a market of just 80+ million people -
compare that to the US, China, ...).

------
EdiX
What would be Germany's incentive to exit given they benefit from euro's low
valuation?

~~~
JamisonM
If the Germans do nothing at this point the Euro collapse will take down their
banks as well.

The other incentive as I see it is that this could also be argued as a more
politically palatable solution for the ruling party since they have been
(rather disingenuously) selling the line that only the Germans were
responsible in the run up to the crisis and pulling out of the Euro fits
rather neatly into that model of the world. My understanding is that most
Germans that support the ruling party see inflation as something that is bad
for them and erodes their savings and they link Euro-bonds and Euro QE with
that. Bringing back a strong Mark that does not devalue would present a facade
of non-inflation since there would be no QE for the Germans and no German-
sponsored Euro-bonds but the new Mark would bring _actual_ inflation because
the Euro would immediately devalue.

As has been pointed out elsewhere the big problem is that the Germans pulling
out of the common currency would be a step backwards in the political union
objectives. If you believe that there is even a remote chance of a European
war between major powers then this is a bad thing (I do not).

I think it is clear that the better solution is more political union in Europe
instead of trying to drag the current arrangement through the crisis as-is. We
have unfortunately seen a real rise of an "I got mine jack" voting all over
the western world and this crisis is really not being dealt with precisely
because that philosophy is tied to the right-wing parties that have risen to
power (and are now maybe starting to fall) in Europe.

~~~
EdiX
> If the Germans do nothing at this point the Euro collapse will take down
> their banks as well.

Agreed, but leaving would be a big blow to their export market. Their best
interest would be for the PIGS to stick around as weak as possible (to keep
the euro devaluated) but still (mostly) solvent.

> The other incentive as I see it is that this could also be argued as a more
> politically palatable solution for the ruling party since they have been
> (rather disingenuously) selling the line that only the Germans were
> responsible in the run up to the crisis and pulling out of the Euro fits
> rather neatly into that model of the world.

Maybe, but I'm not seeing a strong push to leave from Germany. And let's not
forget that there isn't any opt out procedure from the euro: do other
countries have a say?

> I think it is clear that the better solution is more political union in
> Europe instead of trying to drag the current arrangement through the crisis
> as-is. We have unfortunately seen a real rise of an "I got mine jack" voting
> all over the western world and this crisis is really not being dealt with
> precisely because that philosophy is tied to the right-wing parties that
> have risen to power (and are now maybe starting to fall) in Europe.

I wholeheartedly agree with every single word of this, my fear is that we
European aren't really ready to be that united and we'd all rather die leaving
than get hurt to save another country in the "union" and as a result the EU
will fail the only way it can: spectacularly.

------
ticks
I don't know where I read this, but I always thought the EC/EU/Euro was an
effort by the allied countries to tame a future German economy. _If_ that's
true, then Germany distancing themselves would surely defeat the purpose of
the union.

~~~
myspy
Don't be afraid, we have no interest in fighting wars and shit. I don't think
this will happen. Europe has a more social view on the world than the rest,
especially the US.

~~~
Nrsolis
I think this viewpoint represents the best example of the triumph of hope over
experience.

European history has been littered with examples of bitter and costly wars
between nations and states. We (the world) are still resolving the aftermath
of the Bosnian conflict.

There are very smart people wringing their hands over the collapse of the EU
and the kind of social turmoil that might develop if the economies of these
nations fail. The riots we saw in Greece and Italy were just a teaser.

In 2008, when the US was looking at its own financial crisis, one of the items
on the minds of the policymakers was the very real prospects of riots in US
cities. There were stories of financiers packing up and leaving the country in
anticipation of what might happen.

The biggest mistake you can make is to think your country is immune to ruin.
History has shown us many times that it comes quickly and with little or no
warning.

~~~
pnathan
Nrsolis has read his/her history. In addition, I'd like to point out that
humans are still humans, and cultures can change very fast given a
precipitating crisis.

~~~
Nrsolis
I'd offer the opinion that "people" haven't changed much over the centuries.

The fact that we still have the same problems across cultures, genders, races,
and geography seems to bolster this view.

Things change, but not nearly as much as we might like, and only at the
margins.

------
RivieraKid
_All the debate about the pros and cons of a Greek exit from the euro area is
missing the point: A German exit might be better for all concerned._

No, this idea has been part of the debate for months, if not years. I hate
that he makes it sound like it's his idea.

Germany is partially benefiting from current situation because capital is
moving from Greece, Spain, etc. to Germany. Also, cheap Euro helps German
exports. If Germany switches to Mark it would hurt exporters a lot.

~~~
RivieraKid
Why the downvote?

~~~
danmaz74
No idea. I upvoted; that has been part of the debate here at least for months.

------
danmaz74
The article isn't totally unreasonable, but there would be a much safer
solution to the current crisis: Converting the BCE to a normal central bank,
just like the Fed, Bank of England, etc. etc, ie a lender of last resort.
<http://en.wikipedia.org/wiki/Lender_of_last_resort>

Of course this would require a much tighter central control on each Euro
country balance, one that would make it impossible for any one country to
cheat the others (as unfortunately happened with Greece). But I think that all
the EU countries would accept this right now to save themselves from a
potentially catastrofic crisis.

Greece is for now the only failed state in the EU, but it has such a tiny
economy (3% of the EU GDP) that it would be much lest expensive to bail it out
now, with a decisive move, than try to punish it for its mistakes and, in
doing so, prolonging the crisis. Fixing the other imbalances in the EU would
still require a lot of work, but it would be definitely be possible if the
interest rates for the countries at the center of the crisis went back to
normal (as it would happen with a Fed-like BCE).

------
nickik
Guys the Euro is not the problem. Under the (real not brandon woods BS)
Goldstandard countrys had the same currency for a long time and it worked
quite well. ECB buying tons of debt and exepting bad papers as colatoral shoud
of course be stoped.

These countrys should default (get ride of the debt), balance the buget (you
cant live of other people forever). Iceland has done that (the stumbeld into
it).

If your smart you are going to put in place a new constitution and a new
democratic system too.

------
damian2000
I don't know if this is a good idea, but its surely better than waiting around
for a death by a thousand cuts, which is all that seems to be happening right
now.

------
gpvos
> Other relatively strong euro-area nations, such as the Netherlands, would
> probably pause before following Germany’s lead.

This would probably be true for most of these countries; however, the
Netherlands would probably just adopt the new Deutschmark. The Dutch guilder
used to be practically tied to the Mark for several decades before the Euro
was introduced.

------
tobias3
We all know the Euro is a sinking ship. The idea is now to take the engine of
that ship (Germany) and put it into another smaller ship. Replacing the engine
by... a new one that is yet to be build.

That will surely safe the Euro ship... I for one, would panic and try to get
to the new currency.

~~~
planetguy
Sometimes analogies, like ships, break down quicker than you'd like.

~~~
tobias3
My internal critique couldn't find a counterexample for this one.

------
aseembehl
At first, I thought the article is about the soccer tournament. :)

------
excuse-me
And it's obvious that Wall St should exit the Dollar for the same reasons

------
soc88
Interesting, but not much different from the age-old concept of a "North"-Euro
and a "South"-Euro.

