The US and UK are pressuring Germany to print Euros and guarantee Greek Debt

Posted by PITHOCRATES - May 20th, 2012

Week in Review

Greece is in a world of hurt.  Their government spends too much money.  And their people answer calls for austerity with riots.  They simply refuse to address the problem that got them where they are.  Too much spending.  If they continue to reject austerity measures to bring their spending in line with their ability to pay for it they’re going to be cut off from future loans.  And broomed out of the Eurozone.  That won’t be pretty.  Because if others don’t prop them up they simply won’t be able to service their debt.  They will default on their sovereign debt obligations.  And the banks who have loaned large sums of Euros to them will struggle to recover from these losses.  Many of them simply won’t be able to.  Once the banks start failing the contagion will spread throughout Europe.  And the world.  Bringing on a worldwide recession.  That could easily slide into a depression.  And all of this because of excessive government spending.  There’s a lesson to learn here.  STOP SPENDING SO MUCH.  But no one ever learns this lesson.  Especially when Keynesians are running the government.

They’re talking about your typical Keynesian solutions.  More of the same that got Greece into the trouble they’re in.  Quantitative easing.  Printing money.  To stimulate these troubled economies with…wait for it…more government spending.  As if they can fix their debt troubles with higher consumer prices.  Which is what you get when you print more money.  Especially when the supply of money grows at a rate greater than its economy grows.  So prices will rise while the value of the Euro will fall.  It’ll make their exports cheaper.  But it’ll also make the value of all those outstanding sovereign Euro bonds worth less.  Those bonds all those banks are holding.  Giving them a negative return on their investment.  Pushing these banks closer to insolvency.

And it doesn’t end there.  The strongest economy in the Eurozone is Germany.  They know a thing or two about inflation thanks to the hyperinflation in Weimar Germany that gave the world Adolf Hitler.  So the Germans have governed responsibly.  By living within their means.  And their people have been paying a lot of taxes to pay for all of those Eurozone bailouts.  A nation that has truly gone above and beyond.  Their reward for responsible governing and selfless sacrifice?  They’re asking the German taxpayer to assume the Greek debt (see David Cameron and Barack Obama lead charge to save the eurozone by James Kirkup posted 5/19/2012 on The Telegraph).

Angela Merkel of Germany came under intense pressure to do more to support the struggling currency by putting German economic credibility behind the debts of weaker economies like Greece…

There is growing agreement among G8 leaders that the answer to the eurozone crisis is for members of the single currency to “mutualise” their debts, meaning strong members like Germany partly guarantee the debts of weaker ones like Greece.

Mrs Merkel has resisted any such plans, reluctant to ask German taxpayers – who already resent the bill for helping other eurozone countries – to underwrite the budgets of indebted southern Europeans…

That’s fair.  Except to the Germans, of course.  The problem is if the Greeks don’t reduce their government spending the underlying problem will remain.  Excessive spending.  Which means they will need bailout after bailout.  One or two or three just won’t do it.  And it will delay the inevitable.  And take more people with them when this Keynesian house of cards implodes.

Giving people benefits is easy.  People love you for your generosity.  Taking benefits away is very, very difficult.  People will hate you.  The longer you wait to start the more difficult it will be to cut these benefits.  And the more the people will hate you.  Which is why it is so difficult to govern responsibly.  Because politicians find it is easier to buy votes with generous benefits than it is win votes with good ideology.  This is why governments everywhere embrace the failed policies of Keynesian economics.  Because it gives legitimacy for the easy way of winning elections.  Buying votes with excessive government spending.

And this is the ultimate problem in the Eurozone.  Keynesian economics.  For if governments did not deficit spend or ‘stimulate’ their economies with monetary policy there would be no Eurozone sovereign debt crisis.  Being debt free makes everything easier.  Because you don’t have to borrow.  Service your debt.  Or roll it over.  You have none of those headaches when you live within your means.  Just look at the Germans.

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The Eurozone Debt Crisis gets Ugly as the Greeks call their German Benefactors Nazis

Posted by PITHOCRATES - February 18th, 2012

Week in Review

Germany is the strongest nation in the Eurozone.  While they retain their triple-A credit rating other countries face credit rating downgrades.  Or warnings about future downgrades.  Which puts the Germans in the Euro driver seat.  Because they’re shouldering the biggest share of this Eurozone financial burden.  One would almost say they are doing the other Eurozone members a favor.  But the Greeks sure don’t feel this way (see Greeks brand Germans ‘Nazis’ for driving through painful cuts and ‘taking control of their economy’ posted 2/15/2012 on the Daily Mail).

Greek anger with the way they believe Germany has taken over their economy is boiling over on the country’s streets.

In recent days, protesters have burned German flags and defaced the Bank of Greece’s headquarters to make it look like the Bank of Berlin.

German chancellor Angela Merkel has also been depicted in Nazi uniform on the front page of right-wing newspaper Democracy above a headline alluding to Auschwitz.

Granted, Hitler did conquer Greece.  And he did so ruthlessly.  But not because he wanted to.  Mussolini attacked Greece.  And was humiliated.  This blunder threatened Barbarossa.  The Nazi invasion of the Soviet Union.  Hitler had to save Mussolini to keep the British (in and around the Mediterranean) off their southern flank.  While preparing the Greek invasion Yugoslavia threw a wrench into the plans with a military coup.  Shut down his free passage through Yugoslavia.  Threw Hitler in a rage.  So he was going to teach them a lesson.  And did.  He ruthlessly attacked Yugoslavia.  And kept his army rolling all the way through Greece.  But to do this he had to delay Barbarossa by about a month.  Which stalled his armies in the god-awful Russian winter at the gates of Moscow.  The same god-awful winter that destroyed Napoleon’s Grande Armée.  And sent the Nazis in retreat.  For the very first time.  Had it not been for the Greece ‘problem’ Hitler may have conquered the Soviet Union.  And won World War II.  So Hitler had little love for Greece.  Which may have made the Greece occupation a cruel one.

High levels of government spending in Greece to support a very comfortable and growing public sector created large deficits.  They had to finance these growing deficits with growing government debt.  Soon their debt grew so large they could no longer sell new debt to retire old debt.  Because few believed that they would be able to repay this new debt.  Which brought them to this crisis where they needed help from others to finance their debt.  Because they could no longer take care of themselves.

So there’s a bit of difference between the current debt crisis and 1941 Greece.  In 1941 the Greeks were victims of Nazi oppression.  In the current debt crisis Greece’s troubles are self-inflicted.  So comparing Merkel’s Germany to Nazi Germany is a bit unfair to say the least.  And unjust. 

The Eurozone was an ill-conceived plan to begin with.  A currency unity with no political unity?  What did they expect?  No nation wants to take orders from another nation.  Any who tries may be called, well, a Nazi.  And this is why the Eurozone was ill-conceived.  Because no nation wants to take orders from another nation.  They just want to keep on doing their own thing.  Like the Greeks did.  And now Greece’s problem is everyone’s problem in the Eurozone.  Because of that common currency.

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