Monday, July 06, 2015

Germany, Not Greece Should Leave the Euro

I had faced a problem.

The new laptop I got SPECIFICALLY for being able to conduct business whilst adventuring was not recognizing the videos from the sim card I used with my camcorder.  This was quite problematic as the majority of my consulting division's business is via video and not e-mail. I then started calculating how many hours it would take to trouble shoot this problem (do I download a codec, how long is it going to take to find the answer on google, what if nobody has had this problem before), until it dawned on me that the solution was NOT to somehow force my current system to work, but to simply use the built in camcorder that came with my new laptop. 

Another instance, I was at a swing dance joint.  I was feeling pretty good about myself, dapperly dressed in a suit fresh from my banking gig, and with no commitments for the weekend, was quite sure I'd land a couple phone numbers, perhaps even a girl back at my home that evening.  However, there were very few attractive women at the club and those that were, were very stingy with the dancing.  Even those that said yes were a bit standoffish.  At first I thought maybe it was my approach or I had bad breath or something to do with me.  But then I realized it may just be the joint and not me.  I soon left to go salsa dancing and met a Russian ballet dancer (which is another story for another time).

I could go on, but there have been instances in my life where the solution is NOT the one you think you should be looking for, but one where you need to step back, take off the horse blinders, look at the problem from a wider scope and realize there is usually a much simpler, better, efficient, and cheaper solution.

And thus is the case with the current soap opera surrounding Greece.

Recently Greece voted to reject austerity measures that were insisted upon by the EU in order to continue to have the right to suck the blood out of hard working Europeans receive a bail out and further financial assistance.  However, polls also showed 74% of Greeks wanted to remain in the Euro so they can continue to parasite off of other countries for reasons that are not too clear and ironic.

Naturally, the balless EU and its largely pansified, socialist member nations didn't dare play hardball, delivering rightly-due punishment to the communist Greek government.  They instead said the door "still remained open for negotiations" which will continue to go forever and ultimately be like collecting on a mortgage of a $30,000-naire "Dudebro" and "Ditzytrophywife" American couple who bought a McMansion in 2006 on an adjustable ARM with their "part time sales" and "hair stylist" jobs.

So what is the solution my fine aspiring, young, deputy economists?

Is it to kick the can down the road again (and again, and again ^n x infinity?)
Is it to kick Greece out of the EU, forcing it to print off quintillion of "drachmas" and have the idiot bankers who lent them the money bite the bullet?
Should you send in tanks as would have been the norm back in 1800's?

How about something much simpler?

How about Germany leaves the EU?

While everybody is focusing on the screaming spoiled brat child in Europe, throwing its temper tantrums (that would be "Greece" if you didn't know), nobody is focusing on the one sole adult in the room, and that would be Germany.  Germany, by nearly all measures is a superior, more responsible, more productive, and more intelligent country when it comes to economics than Greece is.  It has only ran a deficit of 2% GDP the past 15 years (while recently balancing it) while Greece has ran a deficit averaging around 10% (halving it to "only" 5% today).  Germany's labor force participation rate is (a still laughable) 60.3% today, while Greece barely has half it's able bodied people LOOKING for work (52%).  And Germany's government spends (again "only") 44% GDP while Greece's spends 59% (while still screaming bloody murder over the "draconian" calls for austerity). 

We could go on, but you get the point.  You can look at nearly every economic measure at the OECD comparing Germany against Greece and see that one country is a reliable, responsible, productive adult and the other is a petulant little spoiled child.

However, there's another interesting thing about Germany.

Germany, is the ONLY adult in this daycare center euphemistically called the EU.  Again, Greece is merely the loudest child, but if you look at the finances of nearly every other EU member, they're no better than Greece.  France, Italy, Portugal, you name it.  They all have debts approaching the point of being unpayable and populations that are just as delusional and just as entitled as their Greek siblings.  And what this ultimately means is that the only real net-economic producer in this Euro-zone is Germany, making it the host to all the other parasite nations.

Alas, the solution is clear.

We can focus all the attention and negotiations and can-kicking and bail outs on Greece all we want.  But Greece is merely one of many more countries that will be going through the same thing.  It would be much easier for the EU's sole economic producer to abandon it's position of "host to the parasites," and let a Germanyless EU suffer its own fate.  Germany could start the printing presses tomorrow, re-releasing the Deutschmark and at a rate I'd say around 2 Euros to 1 DM.  There'd be international demand for it, and given German speed, intelligence and efficiency, they would lose at MOST 1% of GDP making the adjustment (which would save them the roughly 3-5% GDP the Greeks have been leeching off of them via bailouts).

But most importantly of all,

We Americans would no longer have to listen to this BS, soap opera drama where you European idiots ACTUALLY LENT MONEY to a socialist nation and thought they'd pay you back.

We can get on to much more important things like talking about Bruce Jenner or the Kardashians.

As they say "Auf Deutsch"

"Genie├čen Sie den Niedergang!"
_________________________________________
http://aaron-clarey.podomatic.com/
http://www.assholeconsulting.com
https://www.youtube.com/user/AaronClarey
https://twitter.com/aaron_clarey
http://www.amazon.com/Aaron-Clarey/e/B00J1ZC350/


17 comments:

Hate Monger said...

Interesting post and I agree with your conclusion.

However one point most commentators missed is that the Euro was a transfer of wealth away from poorer, lower productivity countries to rich, higher productivity countries.

If Germany had remained on the DM, its currency value would have risen with its productivity and so exports would have become less competitive on the international market.

However, by joining the Euro, where most countries are less productive (all except the Germanic area), Germany was selling at an artificially deflated price. Those less productive countries were selling at an artificially inflated price.

While euro values could change within europe to account for this (so Portugal was no less competitive versus Germany in 2005 than in 1995), it could not change for the international market: a German car would sell for the same price as the Portuguese one, because the Germans could sell it at an artificially cheaper price (because, had it not been in the Euro, it the DM would have been valued higher and so the BMW would have cost more to buy). The euro subsidised, through the exchange rate, more productive countries at the expense of less productive countries, when it came to international exports.

I am no expert but I'd guess this was at least in the hundreds of billions of euros over the years.

If there was a global single currency (hint: gold) then this would not be a problem but having a single fiat currency for several different economies is a recipe for disaster.

In a way, the Greeks are getting back what they subsidised to the Germans. The Germans were duplicitous, and clever, enough to eat the cake, but you can't have the cake and eat it too. The reason their political leadership was so willing to bail people out (despite it's own population's false moral superiority) is because they realised that the Euro is a massive boon to Germany - without it, it would not be the super-advanced country that it is today. There is no reason to suppose Germany would have leapt forward without it, considering that Germany is still a social-democratic hell. I'd argue that it's unemployment rate has gone since the joined the Euro (and not before) because of this mechanism.

Much respect to your posts CC but I think on this one the Germans are as wrong as the Greeks - they were just smart enough to see which side their bread was buttered, unlike the dumbass commy Southern European economies.

Hate Monger said...

Interesting post and I agree with your conclusion.

However one point most commentators missed is that the Euro was a transfer of wealth away from poorer, lower productivity countries to rich, higher productivity countries.

If Germany had remained on the DM, its currency value would have risen with its productivity and so exports would have become less competitive on the international market.

However, by joining the Euro, where most countries are less productive (all except the Germanic area), Germany was selling at an artificially deflated price. Those less productive countries were selling at an artificially inflated price.

While euro values could change within europe to account for this (so Portugal was no less competitive versus Germany in 2005 than in 1995), it could not change for the international market: a German car would sell for the same price as the Portuguese one, because the Germans could sell it at an artificially cheaper price (because, had it not been in the Euro, it the DM would have been valued higher and so the BMW would have cost more to buy). The euro subsidised, through the exchange rate, more productive countries at the expense of less productive countries, when it came to international exports.

I am no expert but I'd guess this was at least in the hundreds of billions of euros over the years.

If there was a global single currency (hint: gold) then this would not be a problem but having a single fiat currency for several different economies is a recipe for disaster.

In a way, the Greeks are getting back what they subsidised to the Germans. The Germans were duplicitous, and clever, enough to eat the cake, but you can't have the cake and eat it too. The reason their political leadership was so willing to bail people out (despite it's own population's false moral superiority) is because they realised that the Euro is a massive boon to Germany - without it, it would not be the super-advanced country that it is today. There is no reason to suppose Germany would have leapt forward without it, considering that Germany is still a social-democratic hell. I'd argue that it's unemployment rate has gone since the joined the Euro (and not before) because of this mechanism.

Much respect to your posts CC but I think on this one the Germans are as wrong as the Greeks - they were just smart enough to see which side their bread was buttered, unlike the dumbass commy Southern European economies.

Stats said...

Yes but with lowest birthrate in the world and a soaring Muslim population how long will Germany stay productive? Pretty soon more people will be sucking off government tit and they will end up like the Med countries or worse.

Anonymous said...

What about Britain in this? Would you still consider them a child?

Anonymous said...

What about Britain in all of this?

A.B. Prosper said...

I agree.

Germany won't leave the Euro though but if they were to leave the Euro they might find the markets for their goods greatly diminished from the D-Mark making German goods no longer affordable and from outright protectionism.

China and Russia don't make tools and technology as well but they do make things that are good enough and will happily take over the market on affordable terms for nations like Greece.

Also Germany is no model for well anything, even the most socialist countries have a higher fertility rates and White Germans so caught up in the rat race they have a lower birth rate than Japan by some measures. Even the highly natal foreigners aren't having kids. Even the Socialists and Communists are doing better than that

So yeah Germany can still make great stuff and can play slave master to its debtors till Kingdom Come they aren't doing the one thing that matters, bothering to have Germans any better than poverty stricken Greece is.

Also the idea that Greeks are lazy is just wrong. The OECD notes via the Greek Reporter here http://greece.greekreporter.com/2015/04/21/oecd-greeks-are-hardest-working-people-in-europe/ That Greeks work more hours than anyone in Europe.

What they are somewhat crooked, tax adverse and under developed, not lazy.

The last thing, really what the world should do is say "no." to cheap labor imports and net goods exports and make countries like Germany and China live within their means instead of propping up their backs by as in the case in Germany exporting an extra 25% of their GDP .


Anonymous said...

The irresponsibility of Greece and it's population just blows me away.

They voted "no" not because they want to be independent and support themselves as a country separate from the Euro. They voted no because they will avoid austerity at any cost, BUT they would still like to be in the EU, you know, because of free money.

LOL. That's just so fucking insulting to the other EU countries, I don't know why they put up with it.

I wonder when this global credit crunch will finally happen, annihilating most of the central banking system, and destroying their attempt at Keynesian economics.

Bottom line is production has stagnated, and the political elite are panicking. So the solution in their mind, is to print more money. As you would say Cappy, why work hard?

Arthur Isaac said...

Austerity in Greece is the equivalent to shutting off QE here. The minute the money tap runs dry anywhere the worldwide Ponzi scheme is up. Force austerity and they'll wind up with a collapsing currency instead of an inflating one. They've already proven they prefer inflation to ANY type of deflation. Next will be the moral hazards of Spain, Portugal and Italy as the commie pols win in the elections as Europe raises to the EURO teats.

Robert What? said...

It really does mystify me. Do the Germans actually believe the Greeks are ever going to pay their debts? If so, what could cause such delusionary thinking for so long?

C.J. Caswell said...

HM and A.B., you guys amaze me.

If Germany wanted to maintain preeminence in trade after leaving the Euro, all they would have to do is the same thing China is doing to keep the value of its currency down: sell the DM in currency markets. Quite easy, and quite profitable.

There are plenty of other options for the efficient Krauts, too. Why, in the event the DM is reinstated and depreciates, with all that productive infrastructure lying around, they could make all sorts of things. Like an entirely new military, or a space program.

There is no universe in which superior productivity is a bad thing, requiring one find parasites that can "help" you by soaking up all your excess output in exchange for money your own banking system loans out, knowing it will never be repaid, due to default or inflation. Germoney has everything going for it, except the pangs of Christian guilt heaped on it for making the sad competition feel bad about itself.

Good thinking, Cap.

Anonymous said...


Why should those not at all responsible for the mess suffer just so that some banks and bondholders could get paid? After all, that's who really got bailed out. Greece was not aided in the least.
Read more at http://globaleconomicanalysis.blogspot.com/2015/07/email-from-greek-voter-with-no-dreams.html#8omjlIcCE45w7zoT.99

Hate Monger said...

The DM would appreciate, not depreciate. I I had to make a guess, I'd say by at least 25-40% more than the Euro. The result would be falling German exports and competitiveness.

The Euro, by giving Germany false international competitiveness through an artificially lower currency value, means that Germany can essentially outsell all of it's Euro partners internationally.

If they wanted to maintain their advantage, they'd have to impose strict capital controls like the Chinese and have an official exchange rate regime with dollar / remnibi pegging. This would seriously reduce its efficiency. And, unless they got rid of open borders too (unlikely because their economy has become addicted to cheap Polish / Czech etc labour) those capital controls would not be effective.

Thus I agree with CC's conclusion: Germany should leave the Euro. Then we'll see how long it's economic boom lasts.

Anonymous said...

C.J Caswell, have a look at what has happened to the Swiss Franc recently, a similar example of a successful European country creating a currency haven for investors. Even with negative interest rates and such chicanery they've been unable to keep it in check in a sustainable way.

There was a very good article in the economist about this but I've lost it. This will have to do

http://www.straitstimes.com/opinion/swiss-franc-conundrum-exhausts-policy-toolbox

Anonymous said...

That actually begs the very interesting question of whether Germany is holding the EU together just to get access to a good export currency.

Anonymous said...

Hate monger is correct... very spot on comments. DM would be worth over 2 USD by now if Germany didnt have the Euro. Germany's trade surplus is bigger than China's. All thoses Bimmers,Audis, Benzes would be way to expensive for the 329 a month lease deals they're going for in the US these days.

Anonymous said...

CC, you seem to forget that in 1953 all German debts that the allied nations put upon Germany after WW2 were forgiven. The largest debt write off in history, to prevent the rise of another Hitler, because without the treaty of Versailles Hitler wouldnt have risen to power.

Anonymous said...

^ was about to point that out too, Germany was once an indebted nation on its knees and is only where it is because its external debts were forgiven some decades ago. Amusing.

That aside, its current financial position is heavily entwined with the fate of the EU/Euro project. They do so well because through sheer landmass, population, and a little luck they are the heart of the new European empire. Any success in breaking up the European project will hurt Germany far more than any other nation inside it. The illusion of German economic smarts would fade - the truth being the richer EU countries have merely farmed poorer members states for cheap labour and resources while providing a paper thin facade of prosperity and democracy. Which is why Germany will never leave by choice, and why they will do anything they can to keep Greece in - they don't want anyone else getting any ideas.