Don’t think for a minute that what Merkel decides to do is of academic interest only. The U.S. will be affected. Europe buys a lot of stuff from us. They won’t be buying much if they go off the cliff.
Pity German chancellor Angela Merkel. She is in an impossible spot. If Germany continues to bail out Greece, Ireland, Spain, Portugal, Italy, and soon maybe France, she is going to be back teaching quantum mechanics in dreary Mecklenburg, the ego trip of running her country a distant and not altogether pleasant memory. Her constituents are getting tired of rescuing the rest of Europe from its profligate ways. Germany has already transferred enough money to its EU partners to fund even Goldman Sachs’ bonuses for a year or two. We are talking close to a trillion dollars.
If Germany turns off the spigot, the Euro will go the way of the Florin, Milli Vanilli, the Edsel and New Coke. The problem is that Germany will go down with it. The old adage — if you owe the bank a million dollars, the bank owns you, but if you owe the bank a billion dollars, you own the bank — applies here. Unlike the sinking U.S. economy, the thrifty Germans do not rely on consumer spending financed by the illusion of increasing wealth extracted from home equity loans squeezed out of ever-rising property values (now a dim memory). Instead, Germany depends on exports for its economic growth. The only problem is that their EU partners won’t be able to buy BMWs, glockenspiels, St. Pauli Girl beer, und brats mit senf if they are cut off from German money with which to buy German goods.
What we have here is Germany transferring its citizens’ tax dollars to German business, with a side trip to Athens and Madrid where some of it stays as the vig in the deal, before the remainder returns to Berlin. But that’s a tough concept to sell to an exasperated public that thought that it was doing all the right things while the rest of Europe (and the U.S.) went off partying like there was no tomorrow. Germans worked hard, saved money, did not obtain liar loans to buy houses they could not possibly afford, did not invade other countries that were no threat to them, did not cut taxes for their millionaires, and did not pay their CEOs 500 times more than the guys and gals who work for them on the factory floor. Yet, after all of that good behavior, they find themselves in the same fix as those drunken American sailors across the pond.
That can tend to peeve an electorate big time. And the Germans are sorely peeved. In their recent provincial elections, they took it out on Merkel’s party, sending her a clear message that they want her to stop responding to the undisciplined, spendthrift Greeks, Italians, Portuguese and Spaniards’ pleas to be saved from themselves.
Worse, she now has to deal with a newly-elected, utterly delusional French president Hollande whose policies are destined to accelerate his country’s decline into the same situation as its Mediterranean mates. The first thing Hollande is doing is hiring 60,000 additional government employees. He also wants to get rid of the recent retirement age uptick from 60 to 62. Both lunatic policies are guaranteed to bankrupt his country more quickly.
Page 2 of 2 - Don’t think for a minute that what Merkel decides to do is of academic interest only. The U.S. will be affected. Europe buys a lot of stuff from us. They won’t be buying much if they go off the cliff. Moreover, the five largest U.S. banks currently hold more than $6 trillion in European sovereign debt, factoids that are buried deep down in the fine print of their Form 10-K filings with the Securities and Exchange Commission. It is not too extreme to think that, if Merkel lets Europe go down, the U.S. will be back in another Great Recession with all of the delights of the first one, plus.
Life was a lot easier for Angela when all she had to do was stand up before her classes and talk about wormholes and relativity. Stick around. If you liked 2008, you are going to love 2013.
“Rants” is an occasional series of observations written by part-time Canandaigua resident and Canandaigua Academy graduate Richard Hermann.