September 11, 2011
Michael Lewis in It’s the Economy, Dummkopf! in Vanity Fair says with respect to Greek crisis and the European Union says that from the German perspective if the Greeks and the Germans are to coexist in a currency union, the Greeks need to change who they are. It is an article based on national stereotypes or the idea of national character.
Lewis says of the German expectation that the Greeks need to change who they are that:
This is unlikely to happen soon enough to matter. The Greeks not only have massive debts but are still running big deficits. Trapped by an artificially strong currency, they cannot turn these deficits into surpluses, even if they do everything that outsiders ask them to do. Their exports, priced in euros, remain expensive. The German government wants the Greeks to slash the size of their government, but that will also slow economic growth and reduce tax revenues. And so one of two things must happen. Either Germans must agree to a new system in which they would be fiscally integrated with other European countries as Indiana is integrated with Mississippi: the tax dollars of ordinary Germans would go into a common coffer and be used to pay for the lifestyle of ordinary Greeks. Or the Greeks (and probably, eventually, every non-German) must introduce “structural reform,” a euphemism for magically and radically transforming themselves into a people as efficient and productive as the Germans. The first solution is pleasant for Greeks but painful for Germans. The second solution is pleasant for Germans but painful, even suicidal, for Greeks.
The only economically plausible scenario, Lewis adds, is that Germans, with a bit of help from a rapidly shrinking population of solvent European countries, suck it up, work harder, and pay for everyone else. But what is economically plausible appears to be politically unacceptable.
The currency union always implied that entire peoples had to change their ways of life. Conceived as a tool for integrating Germany into Europe, and preventing Germans from dominating others, it has become the opposite. For better or for worse, the Germans now own Europe. If the rest of Europe is to continue to enjoy the benefits of what is essentially a German currency, they, especially the the deadbeat countries—Greece, Portugal, Spain, Italy---need to become more German.
At the moment the German government gives money to the European Union rescue fund so that it can give money to the Irish government so that the Irish government can give money to Irish banks so the Irish banks can repay their loans to the German banks. The reason is that the German banks lent a lot of money to finance dodgy deals:
They lent money to American subprime borrowers, to Irish real-estate barons, to Icelandic banking tycoons to do things that no German would ever do. The German losses are still being toted up, but at last count they stand at $21 billion in the Icelandic banks, $100 billion in Irish banks, $60 billion in various U.S. subprime-backed bonds, and some yet-to-be-determined amount in Greek bonds.
The German banks were blind to the possibility that the Americans on Wall Street, with their collateralized debt obligations (C.D.O.’s), were playing the game by something other than the official rules. They accepted the official story that triple-A-rated bonds were completely risk-free.