With Greece at the brink of insolvency, Germany balks

With Greece at the brink of insolvency, Germany balks
DOUG SAUNDERS

LONDON— From Tuesday's Globe and Mail
Published Monday, Sep. 12, 2011 8:42PM EDT
Last updated Monday, Sep. 12, 2011 8:53PM EDT

As Greece teeters on the edge of insolvency this week, worries about Europe’s ability to hold its currency union together have shifted from a debt-crippled Greek economy to a German government that appears to be withdrawing from its economic responsibilities.

News on Monday that Greece is within weeks of running out of cash, and that Berlin is increasingly willing to allow Athens to fail, sent both the euro and European markets tumbling, with the German DAX down more than 2 per cent, France’s Cac falling 4 per cent and the euro falling to a 10-year low against the yen.

MORE RELATED TO THIS STORY
Greece's debt woes have Merkel pleading for patience
Premarket: Roiled by Greek debt default fears
Streetwise Video: Europe in crisis?

VIDEO
Greek default worries hit markets
Greece is preparing last-ditch emergency measures this week, including a one-shot property tax, in a desperate bid to prevent an insolvency when the country runs out of cash in mid-October, and appears unlikely to meet the conditions for its next emergency loan.

Berlin has chosen this awkward moment to become embroiled in a highly charged political crisis over its response.

The shift was signalled on Friday, when Gunther Oettinger, the top German representative in the European Union, proposed that a bureaucratic invasion force be sent from Brussels to Greece to seize the struggling country’s assets “without regard to resistance.” (Mr. Oettinger also suggested that Greece and other debtors be forced to fly their flags at half-mast in Brussels.) Berlin papers characterized the proposal as a UN-style “blue helmet” operation; Greeks likened it to Germany’s Second World War invasion.

The same day, the German representative on the European Central Bank resigned, apparently in protest against emergency bailout purchases of troubled countries’ bonds. Most economists agree that far more such purchases are needed to stabilize the euro – along with a far looser interest-rate policy, something Germany has also resisted.

Then, on Sunday, officials close to Chancellor Angela Merkel’s Finance Minister, Wolfgang Schauble, suggested the forced “drachma-ization” of Greece – removing the country from the 17-nation euro bloc and reverting it to its former currency – was a plausible solution, even though such a move at this moment would devastate Greece and its neighbours and damage European banks.

On Monday, Ms. Merkel’s Economy Minister, Philipp Rosler, said “an orderly bankruptcy of Greece” should be considered – a day after Greek Prime Minister George Papandreou stood up to 20,000 protesters and vowed to do everything necessary to keep his country in the euro.

It is now apparent that many German leaders have given up on the project of keeping the euro together. This is deeply inconvenient timing, at a moment when most economists agree that any stable solution to the euro would require a far deeper engagement by Germany and other major economies, including big initiatives to share debt and fiscal instruments with their euro zone neighbours.

“It is not very helpful if German government members start talking out loud about a Greek insolvency,” the German edition of the Financial Times warned on Monday. “Even those members of the coalition who are skeptical … should have realized by now that such debates produce exactly the opposite of stability in the euro zone.”

While Ms. Merkel made efforts on Monday to tone down the increasingly hostile rhetoric of her colleagues, the core issue remains her government’s lack of political will. It is a problem that has persisted from the beginning, when Europe issued a €110-billion bailout to Greece early last year. Germans, and sometimes also French, insist on seeing the crisis as one of irresponsible southern countries imposing themselves on their wealthy neighbours.

By choosing to punish Greece rather than helping build a sustainable economy within the 17-nation currency union, Ms. Merkel’s colleagues would be denying their own deep responsibility in the crisis.

From the beginning, Germany used the initial strength of the deutschmark to position itself as the chief exporter and lender to its poorer neighbours, creating a situation where debt and obligations were piling up in the periphery.

Greece will never be able to escape the cycle of deepening debt and austerity measures until it is able to return to economic growth, or at least to stability. Instead, the opposite is happening: Rather than contracting by 3.8 per cent this year – the number upon which bailout plans were based – Greece’s economy is projected to plummet 5.3 per cent.

The large and patient investments required to turn Greece around would allow Mr. Papandreou to finish restructuring the economy without facing an immanent collapse. They would shore up the finances of neighbouring countries and reassure investors. And they would stabilize German banks and allow the euro’s members to find a path to stability and recovery some day.

“What was ignored for 10 years can’t be fixed overnight,” Ms. Merkel said Monday in a moment of considerable wisdom. “That means that we have to be patient.”

But, in general, large and patient investments are falling away from Berlin’s vision. The mood has turned to quick and decisive punishments, damn the consequences.

 

typical germans-always run away when when a crises is on

 

http://www.youtube.com/watch?v=UAFzjHZlOQ0

 

why should germany bail greece out? PIIGS should not be bailed out at all!

 

Sure, you are going to borrow your neighbor 50k because he has run out of money. But the years before that, you saw him driving a BMW and laughing at you how "economical" you were?!

The Germanz are not stupid. Greece has fabricated for years their deficit numbers through "imaginative accounting methods". Everybody in Ireland did know that the real estate sector was spurred with "cheap bank loans".

Now, these very same countries are praying for a bail out?

Well, no problem dear neighbor. First thing I ask from you:

Sell your BMW.

 

every society who has a central bank is stupid.
morover, when the central bank is borrowing tens of billions euro to lazy liars...

the masses can swallow anything. as long as you give them wurste, fernsehen, new bmw model and some sport events.