The Greek crisis: blame Germany, too
Greece itself is the main culprit in Greece’s financial disaster. For too long, that country has lived beyond its means, running up huge deficits to pay for lavish public sector wages and benefits and then fudging official statistics to cover up its profligacy. Small wonder that the taxpayers of fiscally sound Germany bristle at bailing the Greeks out, making it politically difficult, if not impossible, for Chancellor Angela Merkel to lead a rescue.
Still, German indignation is just a tad hypocritical. The fact is that Germany stood by for years and did nothing about Greece’s obvious mismanagement. Instead, German firms enabled and profited from the Greeks’ overspending. When and if a bailout comes, in fact, much of the money will wind up right back in Germany.
Including Greece in the Euro zone ten years ago amounted to a massive credit subsidy to that sunny but not terribly efficient Balkan nation. The Greek government acquired the capacity to sell bonds to Greek banks, which could then use them as collateral to obtain fresh euros from the European Central Bank. Taking their cue from the ECB, private-sector creditors viewed Greece's euro-denominated debt as nearly interchangeable with that of other, better-managed countries, like Germany.
And what did the Greeks do with all this cheap money? There were supposed to invest it boosting their competitiveness. Instead, they blew some of it on the 2004 Summer Olympics and spent much of the rest on imported products, especially from their long-time trading partners in Germany. In 2008, Greeks bought 8.3 billion euros worth of German goods, or 830 Euros for every Greek man, woman and child -- shiny new cars and other machinery, mostly. Meanwhile, Germany bought only 1.9 billion euros worth of stuff from Greece -- mostly textiles, olive oil, tomatoes and similar low-value-added products.
By the way, Germany repeated this pattern across Spain, Portugal and the rest of the indebted southern tier of Europe, which takes in about 12 percent of all German exports. “These bubbles that have been growing on the periphery are a mirror image of that surplus that Germany produces,” Erik Berglöf, chief economist at the European Bank for Reconstruction and Development in London recently told the New York Times. “It’s roughly akin to China and the U.S. It gives rise to many tensions.”
Selling to the captive Greek market was a great deal for Germany’s large and politically connected export industries, and the Germans who work for them.
And it was sustainable as long as German (and other European) banks were willing to purchase Greek debt -- which German banks, especially government-owned banks, duly did, much as China’s banks are piling up U.S. debt to fund that country’s trade surplus with us. Today, German banks, pension funds and insurance companies hold about $36 billion worth of Greek government bonds.
These institutions are the ones who will get paid off by the bailout. Indeed, if they don’t, then they’ll go under, with God knows what consequences for the German economy and German taxpayers.
The Germans can bail Greece out or not, as they see fit. But whatever they decide to do, they should stop being so high and mighty about it. Instead of lecturing everyone else, Germans should be treating this as a learning experience for them, too. The lesson is that Europe can sustain neither an economically out-of-shape southern tier nor a Germany addicted to export-led growth.
| April 29, 2010; 1:36 PM ET
Categories: Lane | Tags: Charles Lane
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