Sunday, February 21, 2010
Germany and the Euro: Let the Greeks Ruin Themselves
The Greek economy is in trouble and the nations involved in the European monetary union are left with two unfavorable options. They could let Greece default on its loans, panicking other countries with large deficits. Or, bail Greece out (in violation of the euro's founding treaty) which would weaken the currency. Germany was the most reluctant of the founding members of the monetary union, but is the strongest economy and most able to help Greece. Germany has worked hard to become a strong economy and has always said that it would not suffer to pay for the mismanagement of other economies. It is unclear as to what will happen next.
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3) The bailout of Greece by the EU would significantly reduce the Euro in the world market. Greece has fallen victim to the sanction set by the EMU. This organization would certainly lose respect and clout by bailing Greece out. The other point raised is why should Germany foot the bailout of another country? Unfortunately, this is what Germany unwillingly signed up for and has been roped into this Greek Tragedy.
The article mentioned that the founding of the euro system was largely contested by the Germans, and they entered reluctantly on the premise that they would not have to bailout mismanaged economies. A little over ten years later, this is what many are calling for. One thing about this article that I found interesting is that Germany is so unwilling to bailout Greece but for the past decade Germany has also been willing to accumulate large current account surpluses because of its relative strength in the EU economy. If other Europeans had been able to devalue their currencies in order to become more competitive, Germany may not have gained such an advantage.
Greece's debt reaches the 300 billion euro mark, and accounts for about 120 percent of the country's gross domestic product in 2010. This causes huge concern because here are fears that financial doubts will infect other nations as well.
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