Friday, 18 May 2012
Three good reasons why Germany should help Greece
There's a currency crisis going on, apparently. Well. Who knew? Regular readers, you'll know that I've long prophesied that Greece can and will default, and at the beginning of the year I said there was a 50/ 50 chance that Greece would also leave the Euro. Make that about 75 to 80 per cent now.
But whatever happens, northern Europeans should put their current fury about Greek corruption, 'laziness' and 'lack of competitiveness' to one side. Why? Well, it's an absurd caricature, for one thing, born partly of understandable annoyance among Germans when they see their national name and flag insulted by a country they've poured money into.
But - and this is the most important point - in it's in all our self-interest that Greece doesn't collapse altogether. Even if it leaves the Euro - and at this late hour, it could still be pulled back from the brink by a big enough cash injection - we're all going to have to meet its debts.
Why? Well, consider these three points.
1. All our banks are exposed. Who do you think is going to lose money if Greece leaves and defaults from its debts at the same time? Er, you. Through your banks. Through your governments' loans to the IMF. If you're a citizen of a Euro-area country, through the loans you've made via the European Central Bank. You're never going to see a cent of that again if the Greeks leave in a disorderly or a chaotic manner. Want to lose your shirt? Go ahead, force the Greeks into penury and then push them out. See just how much good it'll do you. They're not going to pay much anyway, it's true. But this way, they'll pay nothing.
2. Greece (and the other so-called PIGs - Portugal and Ireland, but increasingly Spain as the 'S' too) have been artificially devaluing the German currency. Do you wonder at all those washing machines, dishwashers and cars pouring out of Germany? Ask yourself why they're so competitive? Well, one of the reasons is that the Euro is worth much, much less than the Deutschmark would be. If the Euro area breaks up, a new German currency will shoot up, and the so-called 'export miracle' all those Bavarian businessmen boast about all the time will dissolve. A new D-Mark? Sure, be our guest - make everyone else's day.
3. We can all give ourselves a great big holiday. As Paul Krugman has been pointing out, what the Greeks, Irish, Spanish and Portuguese need is a great big shot of competitiveness, without being able to devalue their currencies. So let's have a big party. So let's print more cash. Let's have some inflation. Let's take more time off - especially in Germany. Northern Europeans should get their feet up while patting themselves on the back for being such good Europeans, if that's not anatomically impossible.
So there are three reasons there no-one should gloat about the crisis that's unfolding. In any case, who thinks that structural economic reform will occur with most the Euro-zone's periphery flat on its economic back? Hands up... Oh, I can't see any.
Greece is probably going to leave. But all the people who've been riding on its back won't be cheering for very long.