Irresistible force, immovable object?

The head of a German economic research institute points to some staggering numbers in the NYT:

We are…in the fifth year of generous liquidity help to Europe’s uncompetitive members. Since late 2007, the European Central Bank has helped with an international shift of refinancing credit, also known as Target credit, from the core euro states to the periphery, to which the German Bundesbank has contributed $874 billion. Greece’s and Portugal’s entire current account deficits were financed that way. Moreover, since May 2010, the E.C.B. has bought more than $250 billion in government bonds, while nearly $500 billion has come from rescue programs and help from the I.M.F. Add to that two European rescue funds, and you have a total of $2.63 trillion.

It is unfair for critics to ask Germany to bear even more risk. Should Greece, Ireland, Italy, Portugal and Spain go bankrupt and repay nothing, while the euro survives, Germany would lose $899 billion. Should the euro fail, Germany would lose over $1.35 trillion, more than 40 percent of its G.D.P. Has the United States ever incurred a similar risk for helping other countries?

Some critics have argued that Germany, having benefited from the Marshall Plan, now owes it to Europe to undertake a similar rescue. Those critics should look at the numbers. Greece has received or been promised $575 billion through assistance efforts, including Target credit, E.C.B. bond purchases and a haircut after a debt moratorium. Compare this with the Marshall Plan, for which Germany is very grateful. It received 0.5 percent of its G.D.P. for four years, or 2 percent in total. Applied to the Greek G.D.P., this would be about $5 billion today. In other words, Greece has received a staggering 115 Marshall plans, 29 from Germany alone, and yet the situation has not improved.

Meanwhile, from Nouriel Roubini and Niall Ferguson: “The failure of German public opinion to grasp the dire state of affairs in Europe today is inviting a repeat of precisely the crisis of the mid 20th century that European integration was designed to avoid.”

One Response to “Irresistible force, immovable object?”

  1. feeblemind Says:

    $899 billion is an eye popping number.

    And they are not going to get paid back. Wait until German public opinion grasps that! How will they feel when they find out that the deficits that could have been run up to pay their pensions has already been blown on the Greeks? What happens when the financial markets decide Germany is no longer a good risk?

    As much as I like Ferguson, I saw no mention of where the money would come from to fund his proposed fixes and the, ‘something must be done to keep countries from leaving..” struck me as little more than a platitude.

    I don’t see any viable fixes left at this point. I fear things are too far gone.

    My crystal ball says the Greeks will vote to stay in the EU. For now. Greeks must decide whether they want a smaller paycheck that will actually by things or a full paycheck made with worthless currency. Which would you choose?

    But Greece staying is not going to solve anything.

    Sooner or later money will no longer be loaned to entities that can’t possibly pay it back.

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