Is Germany to blame for the Euro Crisis?

RP578

LE
Book Reviewer
#1
I have no real advanced understanding of economics and have had trouble making sense of the financial news, especially these past few years. One thing that has struck me as a hot topic is who has been to blame for the mess that the Euro is in. The balance of the articles I have read, (and dare probably the balance of ARRSE posts on the subject) seem to suggest it was the feckless southern Europeans with their louche attitudes to fiscal probity that have been at the heart of the problem. Recent lecturing from various German media to their southern neighbours about everything from work ethics to correct ship disembarkation drills seem to be tinged with this sense of blame.

In light of all this, this recent BBC article makes interesting reading. My big question is, does anyone actually recall this being flagged up or being made an issue of at the time?

BBC News - Did Germany sow the seeds of the eurozone debt crisis?

Did Germany sow the seeds of the eurozone debt crisis?

It was not the behaviour of the eurozone's southern members that first plunged the single currency into crisis. There was, from the beginning, a way for the EU to police the economies of member states by following the rules that had been laid down for the single currency in the Maastricht Treaty. It was called the Stability and Growth Pact, and it was not Italy or Greece that torpedoed it - it was Germany.


In 2003, France and Germany had both overspent, and their budget deficits had exceeded the 3% of GDP limit to which they were legally bound. The Commission - then led by the former Italian Prime Minister Romano Prodi - had the power to fine them. But the finance ministers of what was then the 15 eurozone member countries gathered in Brussels and voted the Commission down. They voted to let France and Germany off. They voted not to enforce the rules they had signed-up to and which were designed to protect the stability of the single currency.


Britain's then-Chancellor, Gordon Brown - still at this stage committing sterling to its love affair with prudence - voted with the French and German position. The EU is often criticised for the power wielded by the unelected and allegedly unaccountable European Commission. On this vital and, as it would turn out, pivotal occasion, the Commission ran up against something much more powerful - the combined will of the democratically elected governments.

"Clearly," Romano Prodi told me, "I had not enough power.

"I tried and they [the finance ministers] told me to shut up."
...
 
#2
Yes, they failed to meet the euro entry criteria having pegged up too much new debt, but they carried on regardless. Britain met the criteria, had printed the euros etc. but the failure of the other major players to play by the rules rang alarm bells which even the BliarBroon political trolley dash couldn't ignore. There followed the most profitable spat dummy in British history.
 
#3
Is there a sweepstake on how long the Finnish euro-enforcer will survive his imminent deployment to Athens on behalf of the ECB? As soon as the Germans start dictating fiscal probity terms to the Greek government, I reckon he's dead or severely injured.
 
#4
I also saw this earlier today .... the BBC Link details a series of three Programmes by Allan Litttle on R4 ... I missed the first but intend to download them all from the BBC Podcast site ... I think they could prove interesting listening .
I am sure it was in the headlines at the time it happened but to no avail ... nothing seems to stop the Euro Project ... well that may no longer be absolutely correct .
 
#5
Flaming bullshit. The insinuation here seems to be not that countries overspent (which they did, hugely) or failed to collect billions in tax (Greece) but that the EU was not powerful enough. Rubbish. It's an argument for arrogating yet more power to Brussels and an attempt to deny the the fiscal incontinence that led us here.
 
#6
The euro was all smoke and mirrors from the very outset.

Right from the beginning, there were various loopholes in the Maastricht Treaty that were exploited by practically all parties to the agreement. The five rules laid down for accession to the euro club were insisted upon only on paper and were in any case no longer applicable once the euro became the official legal tender in Europe. All of the nations taking part made use of some very dodgy accounting to fulfil the two most important criteria, which were to keep the national deficit below three percent of GDP and to maintain a public sector debt lower than 60 percent of GDP. The Italian government under Romano Prodi levied a repayable tax that took the country’s national deficit down to the three percent required, while its public-sector debt of (at the time) 115 percent of GDP was generously overlooked. The French also used some highly questionable financial cosmetic surgery when the government assumed the responsibilities for the pension payments of the privatised France Telecom and received a one-off payment of 37.5 billion francs in return with which it temporarily lowered its public-sector debt below 60 percent. Likewise, Germany was also guilty of a little fiscal trickery. The Finance Minister, Theo Waigel, ordered the Bundesbank to re-evaluate its gold reserves and credit the higher amount to the government to lower the total net-debt. At the same time, the government-held shares in the German Post Office and German Telekom were sold to the Credit Institute for Reconstruction – a government-owned enterprise. It was essentially just moving the same money around government accounts. But it helped to give the impression that the accession criteria were being adhered to. Belgium was also guilty of such financial shenanigans. There was no ultimate European financial authority overseeing the regulations to make sure that they were being adhered to; each country was responsible for reporting its own financial figures to the European Commission.

In the meantime, the combined euro nations have increased their total debt to almost nine trillion euro. That's besides the 980 billion euro in toxic non-assets that the greedy German banks have parked out of sight in their balance-sheets and which, at some stage, they'll have to write down. The "euro crisis" is a crisis because the European banks still haven't found a formula to rid themselves of their toxic, worthless assets without bankrupting themselves.

MsG
 
#7
The euro was all smoke and mirrors from the very outset.

Right from the beginning, there were various loopholes in the Maastricht Treaty that were exploited by practically all parties to the agreement. The five rules laid down for accession to the euro club were insisted upon only on paper and were in any case no longer applicable once the euro became the official legal tender in Europe. All of the nations taking part made use of some very dodgy accounting to fulfil the two most important criteria, which were to keep the national deficit below three percent of GDP and to maintain a public sector debt lower than 60 percent of GDP. The Italian government under Romano Prodi levied a repayable tax that took the country’s national deficit down to the three percent required, while its public-sector debt of (at the time) 115 percent of GDP was generously overlooked. The French also used some highly questionable financial cosmetic surgery when the government assumed the responsibilities for the pension payments of the privatised France Telecom and received a one-off payment of 37.5 billion francs in return with which it temporarily lowered its public-sector debt below 60 percent. Likewise, Germany was also guilty of a little fiscal trickery. The Finance Minister, Theo Waigel, ordered the Bundesbank to re-evaluate its gold reserves and credit the higher amount to the government to lower the total net-debt. At the same time, the government-held shares in the German Post Office and German Telekom were sold to the Credit Institute for Reconstruction – a government-owned enterprise. It was essentially just moving the same money around government accounts. But it helped to give the impression that the accession criteria were being adhered to. Belgium was also guilty of such financial shenanigans. There was no ultimate European financial authority overseeing the regulations to make sure that they were being adhered to; each country was responsible for reporting its own financial figures to the European Commission.

In the meantime, the combined euro nations have increased their total debt to almost nine trillion euro. That's besides the 980 billion euro in toxic non-assets that the greedy German banks have parked out of sight in their balance-sheets and which, at some stage, they'll have to write down. The "euro crisis" is a crisis because the European banks still haven't found a formula to rid themselves of their toxic, worthless assets without bankrupting themselves.

MsG
Do you think the Greeks will default and/or revert to the drachma?
 
#8
Flaming bullshit. The insinuation here seems to be not that countries overspent (which they did, hugely) or failed to collect billions in tax (Greece) but that the EU was not powerful enough. Rubbish. It's an argument for arrogating yet more power to Brussels and an attempt to deny the the fiscal incontinence that led us here.
Yes, there is that aspect, "Oops, we've****ed it all up, now grant us draconian powers to mess with everyone's trainsets without noticing our smokescreen, then we can really **** things up!"
 
#9
Do you think the Greeks will default and/or revert to the drachma?
I don't see that they've any other choice but to do both, bluntslane (sorry for spelling your name wrong in that other post). Whatever they decide to call their new currency, they'll have to devalue it by at least by 45 percent if they want to be in with a shout. However, even that's better than the draconian measures Mario Draghi wants to introduce to all euro states and with which Greece has no hope of every paying off its massive debts. With their own currency, at least the Greeks have a chance of influencing the outcome and possibly injecting a bit of growth into their economy. We live in interesting times.

MsG
 
#10
So the crisis has been going on for some time now. The question is how to remedy the situation. There are two possiblescenarios. The simplest remedy– as most of the experts have noted – would be for the European Central Bank tostep in as the lender of last resort and buy enough Italian and Spanish debt tokeep interest rates at a manageable level. That, in turn, would put a floorunder the value of the assets on banks balance sheets, so they wouldn't be draggedany deeper into the red. And that’s exactly what new European Central Bankchief Mario Draghi – a former managing director of Goldman Sachs and formerpresident of the Italian National Bank – intends to do, as soon as he creates abig enough crisis for him to impose the terms of the settlement on the memberstates.

That’s the real goal, toreshape the eurozone so it best fits the objectives of finance capital. Hewants his ministers to control national budgets, he wants more money divertedfrom working people into an over-bloated financial system, he wants his ownappointments in positions of power (which he already did with Italy andGreece’s new and unelected “technocratic” government leaders), he wants todictate economic policy, he wants to abolish the welfare state and the socialsafety net, he wants to keep Europe in a permanent state of depression(“austerity measures”) so more of the eurozone’s wealth flows to the onepercent at the top.

So if all goes to plan forDraghi and the bankers, what will the new pan-European fiscal arrangements looklike?
1. All planned deficits inexcess of three percent of GDP should require unanimous approval across euroarea governments. All planned deficits in excess of a country’s medium termobjective (but less than three percent of GDP) have to be approved by qualifiedmajority.
2. A commitment to correctpast fiscal slippages with essentially no room for discretion: countries are toadopt national “debt brake” rules.
3. A country requiringassistance under the European Stability Mechanism, which would then become apermanent bailout facility, is placed in financial receivership if itsadjustment programme fails to remain on track, with the planning and executionof budgets requiring the agreement of the appointed financial receiver. Thatwould be necessary “where countries have no political consensus in support ofreforms” to mitigate risks of countries failing to comply or defaulting.
4. Automatic fines andsanctions upon breach of the three percent deficit limit.
5. All EU countriesintroduce an independent budget office to produce budgetary forecasts, createan independent entity at European level to monitor national policies andadminister ESM programmes.

If Draghi, and with him thebankers, gets his draconian way that’s the future of European democracy; onecountry after another stuffed into a fiscal straitjacket while their publicassets are privatised, their unions are crushed, and their sovereignty issurrendered to unelected bankers and eurocrats. That would hand Europe over to big finance on a silver platter. That’snot looking for a way out of the so-called crisis; it’s ****ing blackmail!

MsG
 
#11
It was Theo Waigel who demanded the 3% cap on spending as Germany was and still is still crapping itself over the hyperinflation of the 1930´s,however the rebuilding of East Germany wasn´t the walk over that most German politicians thought it would be,the then Chancellor Helmut Kohl proclaimed that `It won´t cost us a single Deutsch Mark´!!
It´s cost God knows how many billions and about 20-30% of that has dissappeared without trace!The overspending by Germany was seen by the rest of the EU as a result of that extra spending and was not viewed as dangerous as was seen as a glich.
The Greeks just kicked the arrse out of the Euro and kept up some unhealthy habits from the weak Drachma, one of which was to increase everybody´s wages by 5-10% pro year to keep up with the ever increasing costs and devaluation of the Drachma,the Euro being a strong currency didn´t need this sort of manipulation but that´s why some Greeks get 14 and sometimes 15 wage packets a year instead of 12!A school cleaning lady can retire at 55 and get a pension of €1,500 as she´s a civil servant,a German equivelent would be lucky to get €800 retiring at 65 or even 67,so of course It´s all the German´s fault!
 
#12
In light of all this, this recent BBC article makes interesting reading. My big question is, does anyone actually recall this being flagged up or being made an issue of at the time?
Yes.

And the response then gives away the lie in the BBC poorly thought through piece.

First, how can one point fingers solely at Germany, then write a piece clearly stating France and Germany. What happpened to France along the way? Did it sink into the Atlantic and disappear.

Secondly, the claim that that event is directly responsible/related to the current crisis seems to go unexplained. A bit like I got served a bad beer at the Red Lion in 2003 and then the trots for a week in 2008 so clearly one lead to the other!!!!

But finally, if anybody is to blame from 2003, then the article tells you exactly who it is: "...the finance ministers of what was then the 15 eurozone member countries gathered in Brussels and voted the Commission down. They voted to let France and Germany off. They voted not to enforce the rules they had signed-up to and which were designed to protect the stability of the single currency."
 
#13
every bank in the world fabricated its books ot fund a groth industry in debt creation for which there was no physical marker, the failure to get that debt repaid whils having warfed off hte markers ot other players (essentially getting money for nothing which has funded massive running cost rises and the universally unpopular bonus culture) means they had ot buy back those markers or go bust, most countries the banks were bailed out some how, some banks most notably german ones were sucessfull in flogging there debt bundels wholesale to other banks, for a fraction of the expected total income meaning that in the middle of the crisis they had litte lto worry about, rather like the german government which also had somehow managed to get itself out of needing ot fund bad debts.

on a global scale the debt portfolios were sold firstly to local banks and then onto investment groups, those investment groups bundeld up and pushed the debt packages around, some clearly sensing the problems at hand, lehmans ended up carrying the can and going pop loosing 775 billion $ of investors money but it was only the tip of the iceburg had the remainder of the world done the same at that time another 30trillion of investment money would of disapeared (thats savings and pensions mostly) the EU and some other areas knew htis and took action, it appears that the uk has been quietly buying back all its bad debt packages slowly hence the partial nationaliseations of uk banks and the so called Quantative Easing, the rest of europe cant do this and has effectivley printed new bonds to extend the life time of the bad debts but it cant print the money to make htem go away.

the problem greece has is its national debts are tied to the EU, if it pulled out of the Euro it would first need ot buy ts debt back off them, that would mean selling off pretty much every national asset and this would make any currency completly baseless in the future, the greek politico's and there advisers know this emphatically and aslo know that using existing EU rules they can have someone provided ot them to ensure the corrrect taxes are recoverd most importantly the unpaid stuff from the last 26 years. of course it means ceeding pretty much al fiscal powers to brussels and thats getting a lot of bad press, no doubt if one does it all will do the same as they get into trouble until such time as all of them are irovocably tied in, of course thats the goal though total union integration for all members, and then they can get on wiht the nitty gritty of printing there way of debt ...
 
#15
Kalle M,

Please credit the original author of your postings on this thread.

One Bank to Rule Them All » Counterpunch: Tells the Facts, Names the Names


The number of words in your post all bunched together justlooked a little too suss so i couldn't resist googling without the spaces ;)
Is that where it came from? I wasn't aware of that, since I got it from a fellow SWP member who gave a lecture on the euro crisis in London on 07 Jan this year and e-mailed me a copy. I thought it made a lot of sense, that's why I posted it, although I only noticed the bunching after I'd submitted it, but I thought that ARRSErs are intelligent enough to read it like that anyway.

So OK, you're right. CREDIT TO COUNTERPUNCH FOR MY LAST CONTRIBUTION. Will that do? Or would you like it in a different colour/larger font?

MsG
 
#16
Yes.

And the response then gives away the lie in the BBC poorly thought through piece.

First, how can one point fingers solely at Germany, then write a piece clearly stating France and Germany. What happpened to France along the way? Did it sink into the Atlantic and disappear.

Secondly, the claim that that event is directly responsible/related to the current crisis seems to go unexplained. A bit like I got served a bad beer at the Red Lion in 2003 and then the trots for a week in 2008 so clearly one lead to the other!!!!

But finally, if anybody is to blame from 2003, then the article tells you exactly who it is: "...the finance ministers of what was then the 15 eurozone member countries gathered in Brussels and voted the Commission down. They voted to let France and Germany off. They voted not to enforce the rules they had signed-up to and which were designed to protect the stability of the single currency."
you could also argue that the real damage to the system came much earlier than that, when the ERM was enacted and the way in which it was enacted, then you could also blame the odd valuations granted in the currency swap where relatively poor countryies became rather richer and relativly rich countries became instantly poorer, never mind the fact the 15 countries told the comission where to shove it, the euro comission had the power to enforce the policy but it didnt have the political will to override each of its member states wishes rather bizzare they bottled it in such an early time when iron inflexibility should of been the way, no wonder other countries opted not to jump in, still thankfully it was the prior tory govt that had elected not to go ahead with euro integration until the economic requirements were met by all members for a 2 year period, labour obviously didnt want to hold the referendum on it either as things were going down the toilet right from the off with all that book cooking god only knows why they tied us into proping the whole shenanigans up instead of remaining at our pre euro comitment level....
 
#17
Some very interesting and illuminating posts so far on this thread. I hope that I shall not lower the standard too drastically. I do not believe that a detailed knowledge of economics, fiscal and financial matters is required to apportion blame relating to the shambles that is due to the existence of the ill-fated Euro.

The blame? The deluded clowns who dreamt of a European Super State, founded on the existence of the 'Common Market' and various 'free trade' agreements. These faceless and unelected twerps had no concept that the Portuguese currency and the Danish currency could never 'marry'. They failed to notice that the German economy and currency and the Greek economy and currency were unlikely to synchronise.

In short, the establishment of the doomed Euro will be regarded in history as one of mankind's greatest errors and calamitous stupidities.

Let us thank God or Fate, that the failed oaf Brown's hatred of the grinning spiv Blair, kept us out of the Euro shambles.
 
#18
Some very interesting and illuminating posts so far on this thread. I hope that I shall not lower the standard too drastically. I do not believe that a detailed knowledge of economics, fiscal and financial matters is required to apportion blame relating to the shambles that is due to the existence of the ill-fated Euro.

The blame? The deluded clowns who dreamt of a European Super State, founded on the existence of the 'Common Market' and various 'free trade' agreements. These faceless and unelected twerps had no concept that the Portuguese currency and the Danish currency could never 'marry'. They failed to notice that the German economy and currency and the Greek economy and currency were unlikely to synchronise.

In short, the establishment of the doomed Euro will be regarded in history as one of mankind's greatest errors and calamitous stupidities.

Let us thank God or Fate, that the failed oaf Brown's hatred of the grinning spiv Blair, kept us out of the Euro shambles.
Yep Undoubtedly the sheer size of Europe or the euro zone makes it impossible for the Euro to be a stable currency. It only takes 2-3 member country's to have economy's running at different speeds to put things off balance.

The whole idea behind the common market (the old name I know but lets face it thats the only European entity this country elected to Join) was to trade cross border without barriers or tariff. When you go to a common currency you remove one of the benefits of cross border trade and that is enjoying the buying power of strong currency or selling power of low value currency.
 
#19
Euro Land will survive in some form. Even the 'Euro' (aka Eurine) will survive, iin some form. However, there have been 'rumours' that one or two EU States (Germany allegedly), has been printing up and stashing away large amounts of DMarks. The Euro could still be used by those EU states if Greece defaults (which is looking more than likely). We shall see what we shalls ee in due time.

(The Euro was ever a Political 'Thing', and never was created for good economic reasons. It was also forecast to fail years ago by some well known economist. I forget their names. the creators of the Euro cited the example of the USA with the currency, the Dollar. What the Eurocrats forgot was the USA during it's history only ever had one main language for government -- English. Also the American legal system was/is based loosely on English Common Law. Europe has different cultures, languages and legal systems -- so the Euro Project was a 'bummer' from the start)
 
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