Why Germany seems not to want a quick fix for the euro crisis • Hacker News Board

Re: Why Germany seems not to want a quick fix for the euro crisis

#21

Post by _delirium » Wed, Oct 05, 2011, 1:48 PM UTC

mtts wrote: post #16

paulkoer wrote: post #5

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 (B…

While morally entirely correct (IMHO, I'm Dutch, we also use the same word for guilt as we do for debt) I doubt the Germans can hold on to this position for very long. Apparently the German "Landesbanken" are heavily invested in Greek and other crappy debt, which is a problem because these banks also fund a large part of the "real" German economy. So Germany probably has no choice but to prop up the lousy debt.

That's the main quandary that the politicians/economists appreciate but the general public doesn't, I think: either way Germany is stuck bailing out this debt, because in large part it's not really bailing out Greece, but bailing out German banks. The main choice is whether to pay the banks directly (let Greece default on the bonds, then cover the losses to keep banks solvent), or to pay them indirectly (send Greece enough money for it to keep servicing the bonds).

Re: Why Germany seems not to want a quick fix for the euro crisis

#22

Post by 64ways » Wed, Oct 05, 2011, 2:05 PM UTC

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.

Re: Why Germany seems not to want a quick fix for the euro crisis

#23

Post by yequalsx » Wed, Oct 05, 2011, 2:07 PM UTC

zerostar07 wrote: post #14

harryf wrote: post #8

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 f…

Others will jump in to say that markets are not predictable like chemical bonds, but i would counter-argue that they should be more predictable and less fear-and-rumour-driven

A great quote from Galbraith is appropriate here. "The markets can stay irrational a lot longer than you can stay solvent."

I don't know exactly what you mean by should but whether or not fear and rumor should drive markets the fact remains that they do sometimes drive markets.

Re: Why Germany seems not to want a quick fix for the euro crisis

#24

Post by HSO » Wed, Oct 05, 2011, 2:13 PM UTC

zerostar07 wrote: post #9

paulkoer wrote: post #5

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 (B…

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 muc…

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.

Re: Why Germany seems not to want a quick fix for the euro crisis

#25

Post by vsl2 » Wed, Oct 05, 2011, 2:17 PM UTC

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...

Re: Why Germany seems not to want a quick fix for the euro crisis

#26

Post by gibsonf1 » Wed, Oct 05, 2011, 2:18 PM UTC

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?

Re: Why Germany seems not to want a quick fix for the euro crisis

#27

Post by yequalsx » Wed, Oct 05, 2011, 2:19 PM UTC

_delirium wrote: post #21

mtts wrote: post #16

Earlier quoted context omitted.

While morally entirely correct (IMHO, I'm Dutch, we also use the same word for guilt as we do for debt) I doubt the Germans can hold on to this position for very long. Apparently the German "Landesbanken" are heavily invested in Greek and other crappy debt, which is a problem because these banks also fund a large part of the "real" German economy. So Germany probably has no choice but to prop up the lousy debt.

That's the main quandary that the politicians/economists appreciate but the general public doesn't, I think: either way Germany is stuck bailing out this debt, because in large part it's not really bailing out Greece , but bailing out German banks . The main choice is whether to pay the banks directly (let Greece default on the bonds, then cover the losses to keep banks solvent), or to pay them indirectly (send Greec…

I've said this over and over again to Germans that I know and they simply don't believe what you say. They really think that they are bailing out profligate Greeks and that there is no benefit to them. Politically, it isn't feasible for Merkel to come out and say that German banks need to be bailed out. It's much easier to talk about European unity and solidarity as the reason for "bailing" out Greece.

Germans pride themselves on their fiscal restraint. They save and abhor debt in their personal lives. I think it would shock them to know that their banks are close to insolvency because they took German savings and lent the money to Greeks and Portuguese. If the German government were honest about the poor state of their banks then the government would not survive.

Re: Why Germany seems not to want a quick fix for the euro crisis

#28

Post by HSO » Wed, Oct 05, 2011, 2:19 PM UTC

harryf wrote: post #8

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 f…

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.

Re: Why Germany seems not to want a quick fix for the euro crisis

#29

Post by JimmyMiller » Wed, Oct 05, 2011, 2:23 PM UTC

Regulation is not the answer. Intervention by well meaning governments into the market is what has landed us in this mess. Instead of rushing in to save the large banks and other institutions on the backs of the tax payers these institutions should be allowed to fail so that more prudent, efficient mechanisms can take their place.

Re: Why Germany seems not to want a quick fix for the euro crisis

#30

Post by dageshi » Wed, Oct 05, 2011, 2:23 PM UTC

zerostar07 wrote: post #9

paulkoer wrote: post #5

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 (B…

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 muc…

Greece is simply the tip of the iceberg, the bit above the sea which you can see, whatever solution is eventually found for Greece will likely be taken as precedent for the rest of southern europe.