Germany, Not Greece, Should Leave the Eurozone

Why should Germany continue to pay for the fiscal mistakes of other countries?

There's much talk of Greece leaving the euro. The current Greek government has almost certainly failed to implement the austerity measures necessary for future bailouts, and the left-leaning parties of Greece continue to cling to the myth of eurozone membership without austerity. Italian and Spanish membership of the euro is also increasingly in doubt, thanks to record levels of borrowing and government spending.

Germany, one of the only countries that has enjoyed any growth recently, has been the main source for much of the financial assistance enjoyed by so many of its European neighbors. Although Chancellor Angela Merkel is against any country exiting the euro, some of her colleagues are not so committed to the single currency. Some members of the coalition government have openly said that if Greece is unable to implement the necessary austerity measures, then Germany should veto any further assistance. Such a move would force Greece out of the eurozone, setting a worrying precedent for countries like Italy, Spain, and Ireland.

Despite all the talk of eurozone exits, one possibility hasn't been raised nearly enough: the possibility of a German exit. Such a move would not only be economically advantageous to Germany and the rest of Europe in the long run, it would also be one of the few morally justified exit strategies available.

Since the euro crisis began, Germans have been paying for the irresponsibility of other foreign governments. Early this year the European Stability Mechanism was set up to coordinate future bailout efforts. Despite its namesake the mechanism has not provided much stability and its constitutionality is currently being considered by the Federal Constitutional Court of Germany. It is worthwhile for the German senior judiciary to examine the ESM closely, especially given that Germany is providing 27 percent of the funds.

There is only so long that Germans will put up with being the go-to bailout source for Europe, and it seems that German politicians are slowly coming around to accepting that bailouts can be politically as well as financially costly. No responsibility is being felt by those responsible for the crisis. As Germany’s deputy finance minister said in June, “debt is a national responsibility.” A German exit from the euro would help address the question of culpability.

As Citadel founder Kenneth Griffin and University of Chicago economist Anil Kashyap wrote in The New York Times, with Germany resorting back to the mark the rest of Europe would enjoy a devalued euro, allowing the countries left in the single currency more flexibility in managing their finances. Such a move, while by no means popular, has been discussed in the Times, Time, and Harvard Business Review, where such benefits have been outlined. Without Germany in the single currency many of the countries that currently rely on German generosity will have to implement lasting fiscal reforms. A German euro exit would not be comfortable in the short term, but in the long term at least the countries that have been suffering humiliation on an international scale will be able to gradually regain some semblance of dignity.

Morally, such a move is also desirable. For the last few years those with no attachment to the stupidity of European politics have been asked to come to the rescue of governments whose members have not had any costs to bear. The proposals being considered do not accept that it might be seen publically as the right thing for Greece and/or Germany to step out of the crisis. No one can fault Greeks for deciding to embrace default or a devalued currency, nor can anyone fault Germans for wanting to stop paying for mistakes that were not theirs.

The toxic commitment to the eurozone that seems to have possessed most of Europe is having a disastrous effect on not only the economies of Europe, but also on the notion of moral responsibility. Were Germany to exit the Euro there would be some hope for Europe’s economy, but perhaps more important, a German exit would stop other countries assuming bailouts are as good as guaranteed. 

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  • Gladstone||

    What is the SDP's view on the bailouts? Anti or Pro?

  • Craig K||

    Germany might have another plan...

    "Ms. Katseli, an economist who was labor minister in the government of George Papandreou until she left in a cabinet reshuffle last June, was also upset that Greece’s lenders will have the right to seize the gold reserves in the Bank of Greece under the terms of the new deal."

    http://www.zerohedge.com/news/.....-cash-gold

  • Brutus||

    The Greeks could always back the drachma with grape leaves, olive oil and feta cheese.

  • ||

    Why is the debt of some states in anyway connected with a shared currency?

    California is broke...should the rest of the county leave the dollar?

    This is idiotic and only plays into the misconception that the central bank is the economy, or is the arbiter of over spending.

  • Johnimo||

    The Europeans are trying, as a group, to have their cake and eat it too. They're being pressured by bankers and bondholders to "do something" to prevent default on the debt of the PIIGS. The Germans have come to the point where they're saying, by their actions: "We're not going to further bail you out with more money." However, with their words, the Germans are continuing to play the polite game of: "We're continuing to seek a solution to the crisis." When they find the intellectual courage to say firmly that structural change is required, then perhaps the debtors will begin to change. Why leave the Euro? Germany should just tell them the jigs up and high yeilding bonds are a really good deal, if you trust PIIGS.

  • Sevo||

    The problem here is Germany's export economy; pretty sure most of the exports go to other Euro countries. If the PIIGS leave the Euro (and the customs relief), Germany's exports to those countries are going to fall like a rock.
    Like it or not, it becomes a question of cutting nose/saving face for the Germans.

  • ||

    SO Germany should reallocate it's capital towards making other products.
    If you have to pay other people to keep buying your products, you are doing it wrong.

  • ||

    Without Germany in the single currency many of the countries that currently rely on German generosity will have to implement lasting fiscal reforms. A German euro exit would not be comfortable in the short term, but in the long term at least the countries that have been suffering humiliation on an international scale will be able to gradually regain some semblance of dignity.

    You're assuming these people prefer dignity and fiscal responsibility to more bailouts. They don't. That's why Germany has to leave the Euro. It is the only way to force them to reform.

  • ||

    huh?

    How does simply not bailing them out not achieve the same goal?

    Do the negatives in that sentence confuse you?

  • ||

    When the ECB decides that it's going to start printing more Euros, do you think Germany is going to have the clout to stop them?

    Germany can say no, but the ECB will not. And Germany is outnumbered and outvoted by the debtor nations of Europe.

  • ||

    When the ECB decides that it's going to start printing more Euros, do you think Germany is going to have the clout to stop them?

    Why has that not happened already?

    The ECB so far has not gone that route. One would assume it is off the table.

    Anyway i think if the ECB tried something like that then there would be a case for Germany to leave.

    Feeney's hand waving did not make that case.

  • ||

    You have not been following the news.

    http://online.wsj.com/article/.....58228.html

    European Central Bank President Mario Draghi sent the strongest signal to date that the ECB was willing to use its power to print money to preserve the euro, giving investors hope that the bank was poised to undertake massive purchases in euro-zone bond markets if the region's crisis worsens.

  • ||

    I don't think the ECB president is like our Fed chairman. He can't just do it on a whim. He needs permission.

    Right now there are some nations that want Germany to bail out other nations. I suspect they are pushing this because they do not want to inflate the Euro.

    I do not think printing money is an option. If it was they would have done it by now.

  • ||

    That's why there is a move to give the ECB more power. And who will control that power? Germany has a lot, but it's by no means a majority of Europe. When you have France, Italy, and Spain lined up on the side of more bailouts, there's very little that Germany will be able to do to stop it.

  • ant1sthenes||

    Staying and saying nein is a sheep and several wolves (well, carnivorous piigs) voting on what's for dinner. Leaving is the sheep getting the heck out of dodge while it can.

  • ||

    As Germany’s deputy finance minister said in June, “debt is a national responsibility.” A German exit from the euro would help address the question of culpability.

    What the fuck?!?!

    How about simply not bailing them out? That would put the culpable on the spot. Why should Germany punish itself by putting itself through a cataclysm of changing its currency?

    Jesus Christ Feeney why don't you just recommend that Germany nuke itself while you are at it.

  • johnl||

    Greece goes bust the day the bailout stops. They have a budget deficit even if they renounce their debt. The bailouts have been a bribe from the Germans for the Greeks to undertake reforms. Unfortunately, devaluation is the only reform the Greeks know how to pull off.

    The Germans (with NL, PL, AT, CZ, ...) are in good shape. For them, pulling out of the euro will be an investment in their future, not a calamity. Cutting your losses is not nuking yourself.

  • ||

    Greece goes bust the day the bailout stops.

    Not true. They could cut spending. Are you saying the interest on their debt is more then their revenues? Cuz that is the only way what you are claiming can be true.

    For them, pulling out of the euro will be an investment in their future, not a calamity. Cutting your losses is not nuking yourself.

    Yeah cuz switching to a new currency for no reason but some utopian fapping session by Feeney is costless.

    Give me a break.

  • Sevo||

    joshua corning| 8.15.12 @ 8:54PM |#
    "Greece goes bust the day the bailout stops.
    --------
    Not true. They could cut spending. Are you saying the interest on their debt is more then their revenues? Cuz that is the only way what you are claiming can be true."
    Nope. If they used all the revenues to cover interest/debt, the Greeks would find out what "austerity" means. And the riots would keep any Greek government from doing so.

    "For them, pulling out of the euro will be an investment in their future, not a calamity. Cutting your losses is not nuking yourself.
    ------
    Yeah cuz switching to a new currency for no reason but some utopian fapping session by Feeney is costless.
    Give me a break."
    Agreed. Leaving the Euro /= 'cutting losses', it means you have no chance of borrowing more, since the interest will log-up.

  • ||

    Greece is heading in the direction of Zimbabwe.

    Seriously.

    You have serious political forces that refuse to accept that the game is up. They are out of other people's money, but they rae not yet out of other countries money.

    If Germany doesn't want to get dragged along on the road to Zimbabwe with them, it has no other choice.

  • Sevo||

    HazelMeade| 8.15.12 @ 10:01PM |#
    "Greece is heading in the direction of Zimbabwe."

    Except the can't print the stuff.
    I have no doubt they would if they could; the Greek politicos have spent their entire careers promising money for nothing.

  • ||

    They can't print the stuff because they can't print Euros. As soon as they leave the Eurozone they will.

    Or, if they stay in the Euro they (and the other debtor states( will drag Europe down.And Europe will drag Germany down. Thing is that I don't see any of the debtor states changing their policies until they run out of other people's money.

  • johnl||

    But Germany doesn't need to borrow. They need to cut their losses and quitting the Euro is the first step.

  • johnl||

    No they can't cut spending. They have never cut spending before. The only way they know to resolve a fiscal crisis is to print their way out. So let them print.

  • ||

    The ECB is preparing to bail them out. They are going to start devaluing the Euro, and they will go over Germany's head to do it.

  • ||

    I don't think you are right. Show me.

    Also Feeney did not make that case.

  • ||

  • johnl||

    This makes sense. A devaluation is hardly a panacea but in low-trust societies it's the only tool available to renegotiate unsustainable obligations. The Euro needs to devalue because that's the only way budgets can be cut. The high-trust societies don't want to be part of that so they should leave the Euro.

  • Sevo||

    "The current Greek government has almost certainly failed to implement the austerity measures"

    Sorry, "reality" is not "austerity".
    They have failed to deal with the reality of their former spending.

  • ||

    They have failed to deal with the reality of their former spending.

    Actually they have failed to deal with the reality of the their current spending.

    If they had dealt with it then they would not be on the verge of default.

    Why is this so hard for people to grasp?

    Greece gets tax revenues that are greater then its debt payments...just pay the debt payments and they are golden....people with a highschool education do this at their kitchen table every friggin day.

  • Sevo||

    "Actually they have failed to deal with the reality of the their current spending."
    I stand corrected. Greece's current spending doesn't get close to current revenues, *including* the bailout dough.

    "Greece gets tax revenues that are greater then its debt payments"
    Not by much, and imagine the screams if they used the revenues totally to pay down the debt. The Greeks have no idea of what the term "austerity" means.

  • ||

    They don't have to pay down the debt. They could probably simply make interest payments and a little bit of principle then grow themselves out of the problem over 10 years or so.

    The Greeks have no idea of what the term "austerity" means.

    True but that is not Germany's problem nor is it a good reason for Germany to leave the euro.

  • Sevo||

    joshua corning| 8.15.12 @ 9:20PM |#
    "They don't have to pay down the debt. They could probably simply make interest payments and a little bit of principle then grow themselves out of the problem over 10 years or so."
    You're kinda stuck with the Keynesian presumption that a (*any*) government will reverse course and actually use revenues to, well, not buy votes.
    It's possible, but then the Cubs could win the World Series, too. I'll short Greece and the Cubs.

    "The Greeks have no idea of what the term "austerity" means.
    --------
    True but that is not Germany's problem nor is it a good reason for Germany to leave the euro."
    It is Germany's problem, since the German economy is based on export, and Greece leaving the Euro (and the customs relief) is in all likelihood the first domino, which would certainly harm the German economy.
    The economic calcs on the issue are probably causing chips to smoke all over Europe as we post; I'd hate to base my future employment on the outcome, but Merkel et al are doing exactly that:
    How much nose are we willing to cut to save the face?

  • ||

    theoretically Greece could leave the Euro but still be part of the European Union like the UK. ie the customs relief would still be in place.

    Of course Greece's new currency would be worth crap compared to the euro so that would hurt German exports to Greece.

    Anyway Greece is in an economic black hole...i don't think Germany is all that dependent on exports to Greece right now.

  • Sevo||

    joshua corning| 8.15.12 @ 10:21PM |#
    "theoretically Greece could leave the Euro but still be part of the European Union like the UK. ie the customs relief would still be in place."

    Well, the customs relief between the UK and the Euro nations ain't really customs relief. Our Euro customers would rather pay shipping and buy from the US than buy from our distributor in England.
    And then England is (considered to be) a 'responsible nation', and may well be compared to anyplace other than Germany.
    --------------
    "Anyway Greece is in an economic black hole...i don't think Germany is all that dependent on exports to Greece right now."

    I don't think the issue is Greece qua Greece; it's what Greece's activities and fate means to the Euro fantasy in general.
    If the man behind the curtain becomes visible, why, who knows what happens?

  • GILMORE||

    How much nose are we willing to cut to save the face?

    Damn, Sevo... I made identical point below. Funny.

  • Emperor Wears No Clothes||

    "They don't have to pay down the debt. They could probably simply make interest payments and a little bit of principle then grow themselves out of the problem over 10 years or so."

    Lefties never tire of this, do they?
    Then, when interest rates rise and the structural deficit turns into crippling debts, they blame "greedy bankers."

  • ||

    Greece problem is much like Americas. If there is any slight uptick in revenues or "savings" anywhere in the budget, you know it will NOT get spent to pay for a penny of the debt. It will be spent on doling out more goodies for someone's favorite constituency.

    Greece is politically incapable of running a balanced budget and continuing to bail them out does nothing to change their minds.

  • Sevo||

    "Greece is politically incapable of running a balanced budget"

    This.
    The Greeks riot and change governments when a current government tries to conform the the minimal requirements of the bailout.
    If a Greek government actually tried to even cover the interest and the current expenditures, there'd be front page coverage for weeks!

  • Drake||

    I shocked the Germans haven't bailed already. Has to be WWII guilt keeping them in the Euro. It's a bad deal for them and they know it.

  • Sevo||

    Drake| 8.15.12 @ 10:10PM |#
    "I shocked the Germans haven't bailed already. Has to be WWII guilt keeping them in the Euro. It's a bad deal for them and they know it."

    Nope. The German economy is based on (largely Euro) exports. They were hoping the other Euro countries might not be so lazy.
    They were wrong. And now they get to figure out what to do.

  • Drake||

    I guessing the answer involves Deutsche Marks.

  • ||

    You know, I fundamentally don't buy the "we have to keep bailing them out so they can keep buying our shit" argument.

    It is, effectively, the Keynesian stimulus argument. By bailing out Greece they'll be increasing aggregate demand.

    But isn't it really just a round about way of giving away your products for free?

    Why should Germany keep giving away their products? Sure, yes, should Greece Italy etc stop buying German cars, there will be some restructuring in the German economy. By all means. But that's just capitalism reallocating resources to better uses. Making shit to sell to people who have nothing to give in return is not a productive use. The Germans could be turning that capital towards improving German quality of life, seeking other markets, or other products.

  • Sevo||

    HazelMeade| 8.15.12 @ 10:57PM |#
    "You know, I fundamentally don't buy the "we have to keep bailing them out so they can keep buying our shit" argument.
    It is, effectively, the Keynesian stimulus argument. By bailing out Greece they'll be increasing aggregate demand.
    But isn't it really just a round about way of giving away your products for free?"

    I'd say so, but Merkle is a politico, and she's got the German rent-seekers to answer to.
    I'm not suggesting it's what *should* be done, only what will.
    Until the music stops and there's one less chair than there are players.

  • johnl||

    They are bailing them out so they do not have to realize the losses on the money they have already lent them. It's still a mistake. But Germany has lost a lot of money in Greece, and the reality of that loss is a tough pill to swallow. Germany needs to stop papering over its mistakes. Step one is for them to quit the Euro.

  • TangaBooo||

    Sometimes you jsut have to take it and run dude.

    www.Anon-at.tk

  • dennis bausch||

    it looks like germany is getting the same treatment from the eec., as the u. s. is getting from the u.n.

    footing the bill for policies against their national interests.

  • GILMORE||

    with Germany resorting back to the mark the rest of Europe would enjoy a devalued euro, allowing the countries left in the single currency more flexibility in managing their finances.

    This is insane. Are you suggesting that all their massive loans will now be 'paid back' to them (if at all) in a currency not worth wiping your ass with? Germans lent a lot of money, and they will want it back. Leaving the Euro effectively destroys any chance of that.

    Secondly, they're an export economy, and their primary customers are their neighbors. Leaving the Euro would cause the mark to skyrocket, and the euro to crash - the opposite situation they'd need in order to maintain a healthy export balance.

    I also don't think the word 'moral' is really necessary in a piece like this. One can sit on a high horse and sniff at the profligacy of the Euro states, but from the POV of German, their problem is a shared one, regardless of culpability. Countries should not 'cut off their nose to spite their face'.

  • johnl||

    The money the Germans lent to Greece is lost and they are never getting it back. It doesn't help Germany to pretend.

  • Fredda Cusack||

    Despite its namesake the mechanism has not provided much stability and its constitutionality is currently being considered by the Federal Constitutional Court of Germany. It is worthwhile for the German senior judiciary to examine the ESM closely, especially given that Germany is providing 27 percent of the funds.

  • Ardelle||

    Despite all the talk of eurozone exits, one possibility hasn't been raised nearly enough: the possibility of a German exit. Such a move would not only be economically advantageous to Germany and the rest of Europe in the long run, it would also be one of the few morally justified exit strategies available.

  • Nate D||

    http://www.bbc.co.uk/news/world-europe-19295351

    "The German military will in future be able to use its weapons on German streets in an extreme situation, the Federal Constitutional Court says."

    Interesting ...

  • jdgalt||

    Britain never joined the euro, but that hasn't kept them from having to contribute to the bailouts. Likewise the somewhat-more-responsible Danes and Swedes.

    The real problem faced by the EU is the same as that faced by the US under the Articles of Confederation: the central authority (whatever you call it) has enacted common policies, including the promises up front that no bailouts would ever occur and that euro members would have to limit their deficits to 2% or be kicked out; but the last few years have shown that Brussels doesn't have any ability to enforce those promises.

    If the EU countries (or a subset) want to actually unite, then unite. But the current half-baked mess needs to be put out of its misery.

  • jason||

    Some of the European countries are doing good in the zone that is why euro is rising, Germany is one of them.

  • MSimon||

    Why should Germany Pay? If she doesn't pay she runs out of customers.

  • numnumnum||

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