- (july 2010)
When the tide recedes... we find out which countries were swimming naked.
The quasi-bankruptcy of Greece was narrowly avoided (so far) by massive
European intervention.
Germany could easily have solved the Greek crisis, but it deliberately
prolonged the agony. The longer it takes to solve a financial problem, the more
pessimistic the observers become. Analysts started forecasting the end of the
euro, the collapse of the European Union, the end of the world as we know it.
What did Germany stand to gain from amplifying the
Greek crisis to almost apocalyptic proportions? At least three things:
1. Germany's economy is stagnating. It is an exporting economy. It needs
a much lower euro. The euro goes down if there is trouble in the eurozone.
Merkel publicly cries, but in private probably smiles.
2. When Germany finally did rescue Greece, the speculators who bet against Greece
were severely punished. This taught speculators a lesson: do not
mess with the eurozone. Portugal is next, and Spain is in a much much worse
situation than Greece and Portugal. Germany does not want to fight the
same war over and over again: break the spine of speculators now, so that
they will never dare stick up their neck again.
3. The more Germany hesitates the more Europeans understand Germany's power.
Had Germany intervened immediately, very few Europeans would have realized
how powerful this country has become. When the eurozone leaders convene
again, there will be one that stands a lot taller than the others, and
will be able to dictate its own terms.
De facto Germany is laying the foundations for a new German empire.
Is the Greek crisis serious? Of course. It's a signal that something is out
of control. Greece can easily be rescued, but what comes next is a much
bigger problem: Spain. Greece is a symptom that some Western countries have
been allowed to borrow beyond their means, just like home buyers in the USA were
allowed to borrow beyond their means. The result will inevitably be some kind
of default on repaying debts, a default that will have to be absorbed by
the eurozone in some way. Spain actually has two crises in one: the financial
crisis and the housing crisis. There are one million empty homes in Spain.
Tens of thousands of builders are losing money on unsold and under-rented
properties. When interest rates go up, these builders will go down, and the
banks that loaned them money will go down with them. The Spanish government
will have to intervene, thus further inflating its public debt.
Everybody will again look to Germany for help.
Germany is indeed doing a lot better than the rest of Europe. The reasons are
that Merkel's government has not wasted money the way other governments did,
and that German businesses have been better than others at making products
that the world wants, no matter the price.
The euro leveled the field. When Italy had its own lira, Italy would simply
lower the value of the lira to compete with German products: German products
were better, but Italian products were cheaper. Now that they both use the
same currency, Italian businesses must compete with German businesses on
quality, and they lose. So do businesses in all other euro-economies.
The euro clarified that Germany is the real economic superpower of Europe
for those who never looked close.
Germany has proven its worth, but Germany too faces a serious backlash from
a general European crisis. If the other econmies collapse,
its customers in southern Europe won't have money to buy its products.
If the other governments go bust,
its banks will lose the money they loaned to southern Europe.
If southern Europe exits the eurozone,
its competitors in southern Europe will become more competitive.
Last but not least, Germany is a country split in two: on one side the
right-wing politicians and the business world, on the other side the
majority of Germans and the left-wing politicians. Germany's performance
has been due to the former. The latter, however, is unhappy. Germany's most
dangerous enemy is inside. If the enemy wins, they will undo everything that
Merkel has done and return Germany to the mediocre economy of the Schroeder
years.
And, if not even Germany is left with the cash, who will save the rest of Europe?
TM, ®, Copyright © 2010 Piero Scaruffi All rights reserved.
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