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June 22, 2012 8:35 AM Our German Masters

By Ed Kilgore

So here’s WaPo’s Anthony Faiola on where the Europeans are in dealing with their, which may soon be our, financial crisis:

The leaders of Germany, France, Italy and Spain were gathering in Rome Friday for crucial talks aimed at reaching a compromise on short- and long-term fixes for the region’s worsening financial crisis, ahead of a European Union summit in Brussels next week.
The meeting came as the fallout of Europe’s crisis was spreading beyond the borders of the 17-nation euro zone, with the Moody’s rating agency downgrading 15 global banks including Bank of America and Citigroup, as well as four of Britain’s largest financial institutions, citing worries about their exposure to now-volatile world markets…
The Rome talks were hinging on the ability of a trio of leaders — French President Francois Hollande, Italian Prime Minister Mario Monti and Spanish Prime Minister Mariano Rajoy — to convince the reluctant German Chancellor Angela Merkel to take a more aggressive stance in fighting the crisis.

So what’s Merkel up to? Ezra Klein suggests a very scary possibility today: The Germans and their northern European allies (no longer including France) are not really interested in helping Greece meet its obligations, despite all the happy talk about what would happen if the “right” people won the recent elections:

You might ask why they [the Germans and their allies] seem so intent on cracking Greece in half. One plausible story I’ve begun to hear is that an increasing number in the euro zone actually want to drive Greece out. The idea, basically, is that Greece is such an unsalvageable basket case, and its economy is so much weaker than anyone else’s, and its governments have been so much more dishonest and difficult to deal with, that solving Greece’s problems would mean rewarding irresponsibility while not solving them would mean an endless cycle of crisis. At some point, it’s better just to cut them off and cauterize the wound.
At that point, having shown how serious they are about punishing wayward members, the euro zone can extend more support to the remaining, and more responsible, countries in the currency union. Having made an example out of Greece, and forced everyone to stare into the abyss, they will both have more support for saving the rest of the periphery and less fear that other countries will think they can flout the rules without consequences.
But, of course, the euro zone can’t be seen to actually cut any countries off. All they can do is make it impossible for Greece to remain. Which appears to be what they’re doing. It almost goes without saying, of course, that if this is the plan, the chances for it to go awry and wreck the world economy as the euro zone collapses under a series of unmanageable runs are very, very high.

That’s comforting. Our own immediate economic future could be largely in the hands of people who are recklessly committed to austerity no matter what—austerity right up to and including the point it’s wrecking the European and global economies.

Let’s hope the French, Italians and Spaniards are very persuasive today. If not, I may spend the weekend watching bad World War II movies with villains from you-know-where.

Ed Kilgore is a contributing writer to the Washington Monthly. He is managing editor for The Democratic Strategist and a senior fellow at the Progressive Policy Institute. Find him on Twitter: @ed_kilgore.

Comments

  • Anonymous on June 22, 2012 8:48 AM:

    Let's see.."citing worries about their exposure to now-volatile world markets…". Day before yesterday they weren't volatile? This is the casino, the one where JP Morgan Chase just lost some unknown number of billions. Who really cares if all the debt insurance exceeds by a lot the amount of debt, so no one will be able to pay it, certainly not Bank of America. They are too big to fail. The money cannon will rescue them. I doubt it will even lower next year's increase in their executive pay. They are probably buying Spanish bonds as I write this.

  • rbe1 on June 22, 2012 8:53 AM:

    Ed, perhaps you should be looking for better ways to highlight the hijinks of our own criminal classes on Wall St and in Washington in placing in this vulnerable position in the first place.

  • stormskies on June 22, 2012 8:55 AM:

    This analysis, regarding the French part in it all, is simply fucking wrong. France just elected a 'socialist' to head their government, and now have the largest socialist government in their history. Hollande in fact want to invest in the french people, the country itself. His is the antithesis of austerity.

    As a result he is in opposition to Merkel and those who do want austerity only. Even Britain has not introduced a new stimulus bill for their own economy.

    Socialism combined with regulated capitalism is indeed the way out not only for Europe, but for our own country.

  • martin on June 22, 2012 8:59 AM:

    NOW, they are worried about rewarding irresponsibility??


    "moreso and" comments Mr Captcha

  • LaFollette Progressive on June 22, 2012 9:13 AM:

    "But, of course, the euro zone can’t be seen to actually cut any countries off. All they can do is make it impossible for Greece to remain."

    Self-deportation! Now THAT is a Eurozone policy the Fox News crowd can understand.

  • c u n d gulag on June 22, 2012 9:15 AM:

    Poor Angela Merkel.

    All it took was one touch from "Baby Doc" Bush, and she was tainted for life.

    W's back-rub apparently sucked her brains right out of her skull.

    And even with her brains, that Zombie Bush didn't have enough - he kept looking for more, "Brains... Brains... Need brains... BRAINS!"

    All of everyone's speculation here is that, outside of a few people, the rest really do care!

    In reality, they don't give a sh*t!

    World-wide "Austerity" is being done to make it easier to siphon money up to the rich and corporations, by BSing people into eliminating unions, workers rights and benefits, and social services, like retirement plans and health benefits. All to pay-down deficits for "The sake of the children."

    This is ALL being done on purpose.

    There, and here!

    ALL OF IT!!!

  • low-tech cyclist on June 22, 2012 9:35 AM:

    I may spend the weekend watching bad World War II movies with villains from you-know-where.

    Capt. Renault: The Euro has been shot.

    (pause)

    Round up the usual suspects!

  • berttheclock on June 22, 2012 9:35 AM:

    A friend sent me a political cartoon from England. It shows a group of birds perched on limbs of a tree. Germany was alone at the top. France and England were below on the next lower limbs. Below them were several other "birds" and the Grecian bird was at the bottom with three other country birds. All of the "birds" below the German "bird" had white coverings atop their respective heads and backs. Ye olde "Schiesse Down" theory of economics.

  • AL on June 22, 2012 10:09 AM:

    Is Germany the bad guy here really?

    I've read several CONTRADICTORY analysis pieces regarding that, they say in a nutshell

    a) Germany has managed its economy responsibly, and thus now gets to set the rules.
    b) Countries like Germany CAUSED this crisis and are making patsies like Greece pay for them, and accomplish by finance what they couldn't by force in WWII (as in PAYBACK TIME).

    Which is it?

    I really want to know...

  • T-Rex on June 22, 2012 10:25 AM:

    Yesterday's NYTimes says that some of the economic pain is starting to come home to Germany. I don't wish ill on anyone, but maybe this is what they need to shake them out of their complacency against the economic disaster that the Euro has turned out to be. If they do push Greece into "self deportation," let's hope everyone else follows them out that door in very short order.

    Oh, this is a cute one! Captcha now has given me two words, the first of which is almost entirely out of the frame. All I can see is a couple of serifs. Well, I'll give it a shot and see what happens.

  • Butch on June 22, 2012 11:45 AM:

    With the notable exception of Greece, most of the EU countries BUDGETS weren't in that bad a shape.

    What is causing the crisis is the BANKS lending irresponsibly into what they should have known (since that's their damn job) was an unsustainable property bubble followed by the European version of TBTF "so we have to save them". Lacking a true central bank like the US, instead of spreading the pain over the federation as a whole, the German (and other banks) want to screw over the borrowers instead of their share and bond holders (and their incompetent management who should be fired en mass).

    Of course, the austerity the Germans want to impose is already creating "death spirals" in the countries trying it, precisely as predicted by Keynes. If they keep on this course, a good chunk of Germany's exports will start to dry up and they'll get to join the austerity circus.

  • PrahaPartizan on June 22, 2012 12:10 PM:

    OK, here's an alternative reason for why Merkel and the Germans appear so intransigent about the Greeks. The Germans want Turkey, clearly a rising economic power with ties to the Middle East, in the EU and the euro-zone and they can't get that so long as Greece is in the EU and the euro-zone. Long run, Turkey would make a much better fit for Germany's idea of what "Europe" should look like. Lots of Turks already live in Germany. It's a win-win-win from the German's point of view. Of course, my concept could be at direct loggerheads with the German conservative's intentions, but it sure gives them a smattering of plausibility for why they're being such dicks.

  • Foster Boondoggle on June 22, 2012 12:14 PM:

    Ed, I don't really understand what you think should happen with respect to Greece. The Greeks have had a series of governments engaged in patronage on a massive scale, alongside a private-sector economy built on rent-seeking closed service sectors and tax avoidance. If they aren't forced - in some way - to reform, why would the other peripheral countries do so?

  • Roddy McCorley on June 22, 2012 12:14 PM:

    ...people who are recklessly committed to austerity no matter what—austerity right up to and including the point it’s wrecking the European and global economies.

    This is about destroying the welfare state, every last vestige of it, even the idea of it. To do that, they are willing to smash the state itself. It really is that simple.

  • Northzax on June 22, 2012 12:45 PM:

    The peasants must take their medicine, before the illness spreads. Sure, it'll be painful for the little folk, but just like children, they don't know what's best for them, the grownups have to administer it, forcing it down their throats, if need be. Trust us, we know what we're doing, and we know what's good for you, and really, this is going to hurt us more than it hurts you.

  • TCinLA on June 22, 2012 12:53 PM:

    The Germans appear to be as good at running finances as they are at winning wars.

    Typical German idea: the beatings will continue until morale improves.

  • boatboy_srq on June 22, 2012 2:51 PM:

    @TCinLA: I hear the Greeks (and Portugese and Spaniards and...) have started saying that the last time Germany tried to take over Europe they brought tanks and Stukas - this time they brought briefcases...

  • Doug on June 22, 2012 8:42 PM:

    I don't know about the validity of the idea that Germany is trying to force Greece out of the Eurozone. If I understand Krugman correctly, should Greece leave the Eurozone and re-instate the drachma, many of its' problems would be eased considerably. As in "throw me in that briar patch" considerably. THIS is how Germany is going to "punish" Greece?
    My understanding of the major causes of Greece's economic problems are that there are two: Germany's determination to protect the idiotic loans their "TBTF" banks SHOULD have known better than to make and Greece not being in control of its' own currency. Remove either cause and the economic situation immediately improves.
    If the banks fail, the national government(s) can immediately "nationalize" them, write off, or down, the bad loans and go on from there. The losers would be the banks themselves and anyone who purchased those bonds from the banks. Conversely, if Greece should leave the Eurozone, it could then inflate the value of the restored drachma and continue to pay its' debts. Of course, those debts wouldn't be worth quite as much, what with the inflation, but they'd probably be worth (a lot) more than bonds issued by banks that have collapsed.
    Which leads to the rather obvious conclusion that, in order to protect the CURRENT value of various bonds held by its' banks, Germany is willing to risk another 1931 scale banking European banking collapse.
    Just reeks of "responsibility", doesn't it?

  • Mark on June 23, 2012 8:51 PM:

    AL is right - Germany's economy continues to grow while surrounded by failure, and many forget that Greece has already had a massive bailout, which it promptly paid into pension raises and most of the rest fled the country. Greece is not going to act responsibly, and in another 3 or 5 years they'll be back, grinning sheepishly and asking for another bailout.

    The European Central Bank has no power to raise funds, and is financed solely by member states, most of them a couple of years in advance. Germany has been basically propping it up since the Euro began to go sour, and Germans are sick of paying taxes so their money can be appropriated to be blown by the Greeks. Germany is essentially being punished for its success. Merkel came to the G8 summit talking austerity, but was bullied by the rest into going home talking growth. She's paying for it now in anger among her own constituents, and those who would like to replace her don't have a better plan. Why should Germany save Europe single-handedly?

  • canada goose on November 09, 2012 9:04 AM: