Germany not Willing to Pool Eurozone Debt

Via the BBC:  German minister rejects plans to pool eurozone debt

Speaking exclusively to the BBC, Secretary of State Steffen Kampeter said "debt is a national responsibility".

"I don’t see any strategies where we socialise and redistribute the bad political decisions made by some who are over-indebted."

The German government has already ruled out full "eurobonds" for now.

[…]

Earlier, Chancellor Angela Merkel said world leaders should not "overestimate" Germany’s ability to resolve the eurozone debt crisis.

She told Germany’s parliament that the country’s options for rescuing the eurozone were "not unlimited".

On the one hand, I can certainly see why the German government is reticent to have to help foot someone else’s bill.  On the other, should the Eurozone start to collapse, it isn’t as if Germany will be spared the impact.  The issue then has to be one of balancing benefits and costs, both in the short and long term.

FILED UNDER: Europe, Quick Takes, World Politics
Steven L. Taylor
About Steven L. Taylor
Steven L. Taylor is a Professor of Political Science and a College of Arts and Sciences Dean. His main areas of expertise include parties, elections, and the institutional design of democracies. His most recent book is the co-authored A Different Democracy: American Government in a 31-Country Perspective. He earned his Ph.D. from the University of Texas and his BA from the University of California, Irvine. He has been blogging since 2003 (originally at the now defunct Poliblog). Follow Steven on Twitter

Comments

  1. Andre Kenji says:

    The problem is not whether Germany wants to pool Eurozone debt. The point is that Germany simply can´t do that.

  2. The question is whether pooling debt does anything but delay the inevitable. It’s been pretty well demonstrated the PIIGS are unlikely to resolve their issues unless forced to, and the breathing room offered by pooling debt with Germany would likely be used to just avoid the need for any reform.

    So Germany may see it as a choice between facing disaster from a strong position today or from a much weaker position tomorrow.

  3. I kind of wonder whether the Europeans themselves see a few countries leaving the Euro, but they want to play it slowly. Kabuki. There might be an argument for that kind of slow motion disaster being milder than a fast one. Many adjust, new paths are found, etc.

  4. MBunge says:

    “debt is a national responsibility”

    If that’s true, how the hell was the Eurozone ever supposed to work in the first place?

    Mike

  5. @MBunge:

    It works, in theory, if each nation is strong and prudent. It only fails, say, if a country increases spending while decreasing tax collection.

    (Our US tax policy may have problems, but our IRS is strong.)

  6. rudderpedals says:

    Germany’s exports are unduly cheap thanks to the presence of value-suppressing periphal states in ithe currency union. They can’t go back to the DM without killing exports. The banking union is inevitable.

  7. PJ says:

    I wonder what would happen if a number of US states would decide that they no longer would be willing to pay federal taxes if those would continue to be redistributed.

  8. @rudderpedals:

    There might be an argument that the banking union is rational, but there is too much “culture” to make it inevitable.

    Is there a banking union that can let Greeks be Greeks and Germans be Germans? No, they’d have to really all act as some sort of uniform Europeans for it to work.

    Despite the dream, I don’t think they really are that.

  9. @PJ:

    It is probably not a coincidence that the IRS does not report to Governors.

  10. Console says:

    @Stormy Dragon:

    What’s so off about this though is that reform isn’t the issue. At least not the reforms that are bandied around. The structural problems associated the Euro aren’t solved by “reforming” the PIIGS. Spain should strike fear in everyone in the Eurozone, because Spain’s debt load was never bad. Spain shows that everyone on the Euro is one bad recession away from a bankrun.

  11. grumpy realist says:

    What no one wants to admit is that Greece is a dead man walking, and will continue to be so until the government (if they ever manage to get one) cracks down on tax evasion, the bloated public sector, and the corruption that pervades the whole system.

  12. Console says:

    @grumpy realist:

    Doing those things will be essential for greece in the long run, but none of that stuff helps them in the short term. If they got rid of all that stuff tomorrow, they’d still have a shrinking economy, a trade deficit, and a debt load that’s greater than their yearly GDP

  13. Ben Wolf says:

    Four years into the euro crisis and the Germans still do not understand the nature of the problem. There was never any possibility of each nation being “prudent” in its spending when some are running trade deficits to other euro members. When your country is being drained of financial assets (euros) you can either replace them with government spending or watch the non-government sector become financially impoverished.

    The ECB has unlimited capacity to address the debt problems of the entire eurozone. Freeing it to do so would have no more impact on Germany’s balance sheet than any other member because their finances would be separate.

  14. PJ says:

    @john personna:
    My point here is that while there is redistribution among EU countries, it pales compared to the redistribution among US states.

  15. rudderpedals says:

    @john personna: I think you’re right about the culture standing in the way. I expect they’ll find adherance to be very costly.

  16. Dave Schuler says:

    How about an alternative plan? What if the Germans start importing much, much more from Greece, Spain, and Portugal? Enough that they’re importing more from those countries than they export to them?

  17. @Dave Schuler:

    What does Greece have that Germans would want? You can only eat so much olive oil.

  18. Jeremy R says:

    http://thecaucus.blogs.nytimes.com/2012/06/09/romney-adviser-takes-u-s-political-debate-overseas/

    A senior economic adviser to Mitt Romney criticized President Obama and his policy toward crisis-torn Europe, and Germany in particular, in an op-ed article in a leading German newspaper on Saturday, raising the question of the propriety of taking America’s political fights into international affairs.

    The article — written by R. Glenn Hubbard, the dean of the Columbia Business School and a former adviser in the Bush administration, and published in the business journal Handelsblatt — drew a rebuke from the Obama campaign.

    “In a foreign news outlet, Governor Romney’s top economic adviser both discouraged essential steps that need to be taken to promote economic recovery and attempted to undermine America’s foreign policy abroad,” said Ben LaBolt, press secretary for the president’s re-election campaign.

    “Unfortunately, the advice of the U.S. government regarding solutions to the crisis is misleading. For Europe and especially for Germany,” Mr. Hubbard wrote, according to a translation of his article from the Handelsblatt Web site.

    He opposed what he described as the Obama administration’s efforts “to persuade Germany to stand up financially weak governments and banks in the euro zone so that the Greek crisis would not spread to other states.”

    “These recommendations are not only unwise,” he added, “they also reveal ignorance of the causes of the crisis and of a growth trend in the future.”

    Mr. Hubbard proposed a classic conservative pro-austerity, anti-Keynesian approach, arguing that cutting government spending will restore public confidence, encourage growth and avert future tax increases.

    “Long-term confidence in solid government financing shores up growth and enables the same scope for short-term transitional assistance,” he said. “Mitt Romney, Obama’s Republican opponent, understands this very well and advises a gradual fiscal consolidation for the U.S.: structural reform to stimulate growth.”

    But, Mr. Hubbard wrote, “President Obama’s advice to the Germans and Europe has therefore the same flaws as his own economic policy — that it pays for itself over the long term if we focus on short-term business promotion.”

    Well sounds like things are going the direction the Romney campaign advocated. I wonder if they’ll take any credit if everything comes crashing down.

  19. Dave Schuler says:

    @Stormy Dragon:

    It doesn’t make a darned bit of difference. Unless there’s a balance of trade, Greece has little choice but to do just exactly what it has been doing. That’s the implication of abandoning monetary sovereignty.

  20. @Dave Schuler:

    It could be a campaign, but I have a hard time seeing it as a plan.

  21. Ben Wolf says:

    @Dave Schuler: Actually working to balance trade would be a big help, but that would mean the Germans would have to stop suppressing domestic demand and covertly subsidizing exports. I’m willing to give Chancellor Merkel a call if you are.

  22. grumpy realist says:

    @Console: Yes, but the fact that the Greeks aren’t doing anything to fix matters is making people even less willing to continue lending to them. I think that’s what’s really pissing off the Germans. Greece is like the younger brother that they’ve bailed out Yet Once AGAIN and the little twerp still insists on a right to fast cars, high-maintenance broads, and single-malt whisky on a McJobs budget.

  23. Ben Wolf says:

    @grumpy realist: You have to understand how constraining the situation is for Greece. It was spending almost exactly what was necessary to replace the money lost to its trade deficit. The money has to come from somewhere and that meant borrowing.

    German banks stepped up to make the loans, a move that was diabolically brilliant until it came crashing down. Think about it: German banks effectively pump money into the German economy and Greece is on the hook for repayment. The Greeks get loaded up with debt and Germany via the ECB funds its own trade surplus.

    Having said that yes, the quality of Greek spending has been nothing less than irresponsible. It might have spent in ways to enhance its productive capacity and perhaps have increased its competitiveness within the eurozone, but instead they expanded an already bloated public sector and paid politicians and bureaucrats far more than they were worth. Ultimately though it would have found itself right where it is unless it could have somehow eliminated its current account deficit.

  24. grumpy realist says:

    @Ben Wolf: Yah. Either you have to fix the matter or the whole mess comes crashing down at some point.

    What’s going to happen is that Greece will have to leave the Euro and a whole bunch of banks that lent to Greece are going to have to take whacking great losses. That includes the German and French banks….

    Ha!

  25. How about an alternative plan? What if the Germans start importing much, much more from Greece, Spain, and Portugal?

    That´s the main problem. These countries have no larger industries or commodities to export. As people say, they are Banana Republics without the Bananas.

  26. A more few things:

    1-) Most countries should be studying what Germany is doing, not using the country as political football. The United States, that has high labor costs, is a prime example.

    2-) Yes, Germany should be criticized(As well as the United Kingdom and France) for not allowing their companies to built factories or transfer production to other EU countries, but Germany simply does not have the money to bail out the entire continent.

    3-) Saying that Germany is Germany just because they have the Euro is nonsense.

    4-) Part of the problem is that countries like Portugal and Spain thought that just entering the Euro zone was enough to enter the so called First World.

  27. Console says:

    @André Kenji de Sousa:

    The Euro does help Germany, and the ECB favors monetary policy that helps countries like Germany and hurts places like Spain.

    Do we really need to doom Europe just so we can keep the stereotype of the prudent, cautious German alive? Because stereotypes won’t bail out German banks.

  28. “The Euro does help Germany, and the ECB favors monetary policy that helps countries like Germany and hurts places like Spain.”

    1-) No, that´s goes to the main point. Spain was helped by a devalued euro in the same way that Germany was because that helped their tourism industry. The problem of countries like Spain is that they don´t have other big sources of income.

    Monetary policy has the same effect to everyone. You can argue that the Deustche Mark would be a stronger and more expensive currency than the Euro is, but not that the ECB favors monetary policy that helps Germany(Besides that, the US does not make monetary policy thinking about helping Puerto Rico).

    2-) You can argue that the ECB should adopt a more expansionary monetary policy, but printing money specifically to pay for debt is a recipe for hyperinflation.

    3-) I dispute the point that the Euro is a devalued currency. The Euro lost value after 2008, but things like books were always fair more expensive to import from Europe than they were from the US.

    I bought some books and a CD from Amazon.fr some years ago. It was pretty expensive, much more than similar things from the Amazon.com. Portuguese editions of any book were always considered out of reach to most readers here in Brazil.

    4-) I find bizarre that so many people complains that Germany, that paid HUNDREDS OF BILLIONS to help their neighbors is not doing enough, but they don´t say how much their own countries should contribute to countries like Spain and Greece.

  29. Dave Anderson says:

    @john personna: that story only works for Greece. It does not work for Spain as Spain’s governmental finances were in better shape than Germany’s. The problem for the Euro is that it was perceived as risk free capital so Greek, Spanish and other peripheral economies had massive capital inflows (which benefited Germany as that capital came back out for the purchase of German made capital goods) without a means of rebalancing because the ECB is hyper scared of the mildest tick of German inflation AND the currency is a single currency so devaluation is not an option.

  30. Dave Anderson says:

    @Stormy Dragon: Summer vacations, shipping services and large cargo ship construction are all options for the Germans to buy from the Greeks or outsource production/low end professional services to Athens etc.

  31. @Dave Anderson:

    The Spanish problem is more complicated, yes.

    People worry about a cascade down the PIIGS, and that drives Spanish bonds higher than they would otherwise be.