Economics

Why France Favors Bailing Out Greece. And Why Germany Doesn't.

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Writing in The New York Times, Reason columnist and Mercatus Center economist Veronique de Rugy discusses why a split between France and Germany is pending with regard to bailing out European Union members and inducing inflation. French native de Rugy notes that part of Germany's official national story is that hyper-inflation in the 1920s paved the way for the Nazi regime in the '30s. As a result, Germans are particularly reluctant to inflate away debt. France, says de Rugy, has a substantially different take on printing money. Moreover,

The official government debt and deficit numbers of France and Germany are substantially different. The Organization for Economic Cooperation and Development projects Germany's debt at 87.3 percent of G.D.P. with a deficit of 2.1 percent of G.D.P. —possibly sustainable levels. However, France's levels of debt and deficit are higher and unsustainable (debt of 97.3 percent of G.D.P. and a deficit of 5.6 percent of G.D.P.).

…attitudes toward reforming social programs differ too: in recent years. Germany has engaged in significant structural reforms to tackle the rigidity in the labor market as well as demographic pressure on the private and public pension system. France, however, has been reluctant to change any "acquis sociaux," France's famous social entitlements.

With higher levels of debts and no will to reform entitlement programs, sooner or later France is likely to need a European Central Bank "bailout" to keep paying its bills (and French banks may also be in big trouble). The need for a rescue plan makes France more inclined to set a precedent [for a bailout]. However, Germany, after 60 years of desperately trying to avoid inflation, is reluctant to pay that bill.

Whole thing here.

De Rugy's piece is part of a "Room for Debate" discussion of the matter. For the other contributions, go here.

For de Rugy's Reason archive, including a year's worth of "Reality Checks" done for Bloomberg TV, go here.

Follow her on Twitter here.

Back when President Obama was touting all things French, de Rugy explained why the U.S. economic model was the better pick.

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  1. With higher levels of debts and no will to reform entitlement programs, sooner or later France is likely to need a European Central Bank “bailout” to keep paying its bills (and French banks may also be in big trouble).

    If France ends up needing a bailout, where the hell is the money going to come from? I mean, besides Germany, what other large, powerful member of the EU is relatively solvent? No wonder Germany is against all this. Outside of all the other obvious problems, they probably realize they’ll be the last nation standing.

    1. Germany needs to give up on its belief that it can save the EU. Maybe join the UK in a Anglo-Saxon partnership. Screw the Normans!

      1. The problem is that Germany supports its socialist handouts through export trade and I believe the largest market is other EU members.
        If they can’t buy, the Germans will have to deal with reality measures (sometimes called ‘austerity’)

    2. Actually, Sweden is currently about to be in budget surplus. They also happen to be outside the euro. Sure they are smaller than Germany, but they are also much more solvent.

  2. The Organization for Economic Cooperation and Development projects Germany’s debt at 87.3 percent of G.D.P. with a deficit of 2.1 percent of G.D.P. ?possibly sustainable levels.

    Constantly increasing debt is by definition unsustainable. You cannot increase the amount you owe forever. At some point, you either have to (a) pay it off or (b) default.

    1. While I agree with your general point a debt increase that stays at or below the rate of increase of GDP is sustainable.

      1. You would be right, in theory, if GDP did nothing but go up, AND if GDP growth consistently outpaced the interest on sovereign debt.

        But neither of these is true. GDP growth is typically less than the interest rate, and GDP periodically contracts.

        Both these facts mean that GDP will eventually lose the race with the growth of sovereign debt.

  3. No secret that France has always been more willing than Germany to fudge the numbers. Unsurprisingly (except for the hardcore leftists) it is France that has a weaker economy.

    Also the reluctance to inflate away debt and money is not only past experiences, it is also the simple fact that Germany is the one that will have to pay the most for the socialist greed of other European nations.

    1. Nothing mention has anything to do with Socialist greed.

      1. “Nothing mention has anything to do with Socialist greed.”

        You think all that debt came about because of defense spending?

        1. The French Space Program – duh!

          1. No, it’s obviously because the small-government types who have been in charge of France for generations haven’t raised taxes high enough.

        2. Maybe you should go to France or Germany and take a look around. You will start to wonder why you do not feel like you are in a developing country anymore. Compared to the leading European countries, the US looks more and more like some Banana Republic in terms of infrastructure.

          1. You bet Sven. Why, we haven’t even begun to throw money down the rat hole like the Euros!

          2. Sven, I’m game. I’ve been living in Europe for 15 years so perhaps you would like to provide some examples?

            Europe is much smaller and more dense than the US, and it correspondingly lacks the wide open spaces.

            I doubt you’ve spent much time in a real banana republic nor much time in America.

  4. It’s the Nein! Nein! Nein! plan.

      1. Thanks to you, I now know about this insufferable 10 minute loop meme.

        1. Rebecca Black says “Friday” for 10 minutes. Now I’ve REALLY lived!

  5. Back when The Economist wasn’t PC and actually had something interesting to say, they talked about the wine/beer dichotomy of corruption in Europe. One can argue about it’s origins and extant but it certainly exists.

  6. Alt-text win in this one. LOL

    The euro is clearly doomed, and probably was from the start.

    1. “We’ll always have Paris…”

  7. Say, where’s Sarkozy’s left hand in that picture?

    1. Rummaging through her purse for loose change.

      1. Yeah, I don’t think so. Her smile looks. . .responsive.

  8. Because when we think about Europe…we recall about Greece, Rome, France, Spain and much less about Germany..Europe has not a short History.

  9. So France’s plan to finally defeat Germany was to have them pay for their shit? It makes sense, really. If you’re gonna get fucked hard twice, at least get dinner.

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