|Graphic "When Greece falls" presented by Dutch government on 21 June 2011, speaking of European sovereign debt crisis (Photo credit: Wikipedia)|
Germany tried three times to destroy Europe: the first was in 1870 when they entered Paris. They tried again in the First and Second World War. And now it looks like they'll make it! Indeed, they talk about Grexit - the exit of Greece out of the Eurozone - as something to look forward to. They're damned if they're going to bail out Southern Europe. The Spaniards, the Italians are lazy profligates and deserve all that's happening to them.
The Germans have confidence in themselves. They've made it, the others haven't and they can go get lost. Will Germany pay up in the end in order to avoid Euro collapse? Some believe they will, spurred on by a feeling of guilt (see historian Marcus Ferrar's article below).
I used to think they would see the light and pay up. I no longer think so. Okay, I'm very pessimistic but the signs are there. Germans have become exceedingly full of themselves. When Moody's lowered its outlook for Germany, putting government debt under negative watch on Monday last, that didn't really bother them, they hardly took notice. Investors continue to accept negative rates on German bonds, so why should they bother? Moreover, the economic outlook for next year isn't (yet) negative, a more modest growth (1%?) but still growth...
This overconfidence could be the downfall of Europe. Why? Because the German authorities, starting with the Bundesbank, are not serious about how to handle the Euro crisis. They seem to think that it is a good strategy to pull the oars in, refusing to increase bailout funding and tell the others to tighten their belt. Toe the line of fiscal discipline or else, raus!
But is Germany really immune to a downfall of the Euro? Can it survive the collapse of European markets for its exports? Does it really think that it's enough to sell to China, India and the US to survive the Euro crisis? Moody's begs to differ and for once, it may be onto something. Yesterday it lowered the outlook on 17 German banks, hitting the landsbanks in particular (the state-backed regional banks) that have been suffering since the 2008 crisis. The motivation? No one's immune from contagion, and the cost of bailouts might be too great for Germany to bear...
This is a warning that Germany would do well to heed. Time is running out on the Euro and while a fiscal union is the right solution, the problem is that it is a long-term solution. It can't happen overnight, there are too many political obstacles to surmount. So what is needed in the meantime to keep the Euro afloat, is a quick financial fix. It doesn't matter whether you resort to "quantitative easing" from the European Central Bank, or "eurobonds" backed by Eurozone governments, Germany included. But something needs to be done fast!
Alternatively, Greece will exit the Euro, Spain and Italy will sink under their debt load and no bailout mechanism can keep them afloat. In short, the Euro collapses along with the whole of Europe, Germany included. A return to national currencies may help some countries, but one thing is certain, it won't help Germany that will see its Deutschmark rise and become the most expensive currency in Europe. Good-bye exports!