Monthly Archives: June 2015

Germany vs Greece. The end game?

It looks like it’s crunch time. Either there will be some last minute cobbled together agreement to prolong the agony, or Greece will be forced to leave the Eurozone. Most neo-liberals take the simplistic view that Greece borrowed the money and has an obligation to repay come what may.

When bankers issue loans they have to be sensible and only issue loans to creditworthy customers. If the customer cannot repay the days when they were placed in a debtors prison are long gone. In any case we should not look at macroeconomic problems in microeconomic  terms. Germany has a net annual surplus of over €200 billion which, by definition, it is not re-spending. Another few billion euros, extracted under duress from Greece, would make no difference whatever to the living standard of German workers – many of whom are not at all well paid.

It would make much more difference if Germany moved to abolish its trade surplus. That would certainly increase living standards in Germany and also allow Greece and others to trade their way out of their debt problem.

Germany has been foolish in several ways. Foolish to lend the money, but also foolish in not understanding the basics of macroeconomics. Prof. Yanis Varoufakis reports that he’s done his best to explain some basic theory to their supposed brightest and best but the more he tries the more upset they become!

Simply, they don’t understand that there are consequences to running an annual surplus of over €200 billion. Where do the Germans think those euros come from? They cannot print them themselves like they could with the DM. They cannot come from the UK or USA. They pay for German exports in £ and $.

They have to come from other euro using countries which means they don’t have enough euros left to run their economies properly. It’s not just Greece. Albeit to a slightly lesser extent it’s Italy, Spain, France etc too.

Alternatively, they have to be created by the ECB or by the Bundesbank  with ECB approval. So if the ECB can do that for Germany, why not for Greece?

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