So, you are basically proposing that Germany should ruin its own economy just because some countries irresponsibly spent more money than they had, and are now in debt?
That would make crisis even worse for everyone, and I can't see why Germany would do something like that.
Just note a pattern. There are some countries that were spending more than they have, and those countries are in big problems. Just take a look at Greece, Italy, Ireland, and, to some extent Spain. Then, there are countries that didn't spend more than they were able to service, and they are doing fine. Take a look at Germany, Austria, Netherlands, Sweden, Slovakia, Poland. Then, there are some countries in between, that are neither too good, nor bad.
It's easy to draw a conclusion what is the way out of crisis, and I hope Germany will be able to lead a way.
markokocic: when you say that some countries "spent more than they have," what do you mean?
I ask because, with the exception of Greece, the governments of countries in the Euro zone's periphery were not profligate prior to the crisis. That's right, their governments were not profligate. Look at the data, not at the propaganda.[1]
The private sectors of those countries, however, borrowed aggressively from the likes of German banks to finance unsustainable consumption and housing bubbles. And German bankers aggressively financed those bubbles.
> Just note a pattern. There are some countries that were spending more than they have, and those countries are in big problems.
Italy has had a massive government debt for the last 30 years, and has not changed much. And very little private debt.
Spain has had a lot of private debt only lately, but a very low public debt.
Greece _cooked the books_.
Netherlands have one of the highest mortgage debt in the world and a resounding AAA rating.
What's the pattern here?
Oversimplification and overgeneralization is always wrong for everyone.
"...some countries irresponsibly spent more money than they had, and are now in debt?"
German (and French) banks provided loans which inflated bubbles in the periphery. The profligate countries had to borrow from someone. This is largely absent from the discussion of the bailouts. No bubbles, no painful contractions. So the "core" isn't entirely blameless.
It's a little unfair to lump Ireland and Spain into the "PIIGS" group. Both countries are being blamed as if they ran up huge public expenditure deficits during the good times, when most of the problems lie with their banks going mad with construction loans.
In Ireland for example, our debt to GDP ratio would be something like 80% (high without being utterly unsustainable) without the bank bailouts, and it's 120% (unsustainable) including the bank bailouts. It's not like the ordinary people see any of the bailout funds either, just our banks. We do get austerity though.
At least the Spainish had more sense than to lump the bank bailout debt in with their sovereign debt:
An analogy is when the young United States federalised "war debts of the ex-colonies, issued new national bonds backed by direct taxes and minted its own currency. Hamilton’s new financial system helped transform the young republic from a basket-case into an economic powerhouse." [1] The argument is that the short-term costs will be outweighed by long-run benefits; similar logic allowed for the Deutsch reunification.
One doesn't hear much about how Texas and New York are transferring wealth to keep Alabama et al floating because everyone is stronger for being part of the United States (and have an American identity superior to their state identities).
This is a just-world way of thinking. Those peripheral countries were irresponsible, people say. They should be like the Germans! So the proposed solution is to fix their economic problems, grow some responsibility, and act the way fiscal conservatives want them to.
This is an old way of thinking--it's popped up every time there's been a recession coupled with a fiscal crisis. The results have almost always been bad.
The Euro crisis is macroecon 101. The periphery cannot manage their money supply to match demand. So you get deflation, unemployment, sticky-price stagnation, capital flight. People who knew their economics could have called this as it happened. Many did. Many were calling it when the Euro even began.
It's true that those with unstable debt situations have suffered more, but it's not caused by having an unstable economy, it's caused by having an unstable economy while on the Euro. "Fiscal responsibility" will only make things worse. The respective stories of Euro and non-Euro countries should make this obvious--consider Iceland, who suffered a debt crisis that caused their entire financial system to fail, yet are expected to recover better than the Euro periphery.
I do not like your line of thinking. It's moralizing in an odious way. Even worse, it's wrong.
DOWNVOTERS: please express your disagreement by telling me what's wrong with this post. I believe everything I'm saying here is factually correct. I furthermore think that this line of false moralizing, alive in the minds of central European politicians, is a major part of this crisis and a major cause of the resultant suffering. I will not run from it because I rubbed HN conventional wisdom the wrong way.
cynicalkane: I suspect many readers here agree with much of what you wrote, but nonetheless feel the tone of your comment doesn't quite meet HN guidelines: http://ycombinator.com/newsguidelines.html
That would make crisis even worse for everyone, and I can't see why Germany would do something like that.
Just note a pattern. There are some countries that were spending more than they have, and those countries are in big problems. Just take a look at Greece, Italy, Ireland, and, to some extent Spain. Then, there are countries that didn't spend more than they were able to service, and they are doing fine. Take a look at Germany, Austria, Netherlands, Sweden, Slovakia, Poland. Then, there are some countries in between, that are neither too good, nor bad.
It's easy to draw a conclusion what is the way out of crisis, and I hope Germany will be able to lead a way.