Saturday, September 03, 2011


From Michael Lewis's "It's the Economy, Dummkopf!" in the September Vanity Fair (at 4-5):
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 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. . .

At the bottom of this unholy mess, from the point of view of the German Finance Ministry, is the unwillingness, or inability, of the Greeks to change their behavior.

That was what the currency union always implied: 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 need to become more German. And so, once again, all sorts of people who would rather not think about what it means to be "German" are compelled to do so.
The most interesting idea in Lewis's piece is that unsophisticated German bankers were the cause of the credit meltdown. They didn't know how to assess risk, and so were happy to buy the credit default swaps Wall Street packaged--even ones Wall Street knew were "dogs." By this view, it wasn't Wall Street crooks, but Deutsche Dummkopfs who caused the meltdown.

(via Ace)


Anonymous said...

"Trapped by an artificially strong currency"? Nicht wahr. Es kann nicht sein.

I don't buy the limit of the two alternatives: dumb German bankers or crooked Americans.

I do buy the conclusion that politicos will have to face reality. Their "free lunches" creation can avoid payments only so long.

OBloodyHell said...

The printing press does a remarkable job of collecting funds for those "free lunches".

One way or another, I suspect that's the technique which will be applied.

Whitehall said...

Wait a minute!

"The German government wants the Greeks to slash the size of their government, but that will also slow economic growth and reduce tax revenues."

How does a smaller Greek government slow growth and reduce tax collection?

As the author notes, the current "crisis" is really a spending problem at root. For the press to continue to focus on the monentary aspects is to displace the proper focus.