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Trying to put Germany on the Wrong Spot
Dialogue on examples of false Euro-Bond Reasoning, first drafted on May 25, published on May 26, 2012

Here are some of the arguments that are being offered these days to convince Germany of its moral and
historical obligation to accept the issuance of Euro-bonds even before the hand-over of fiscal sovereignty to
Brussels has been completed. To be better able to answer these arguments we have constructed our text in the
form of a dialogue. Let’s go:

  • Argument 1: Greece or Portugal, for instance, are small countries whose economies are so different from
    that of Germany that it is simply wrong to expect that said countries only have to adopt the Schroeder
    government reform measures to regain their competitive edge.

  • Reply: Well, Peru, South Korea, Taiwan, Hong Kong, Singapore and, yes, China were, at one time, small
    and negligible economies too. And yet, reality has it that they no longer count among the losers of this
    world. In fact, they have been able to reinvent themselves to such an extent that mature economies
    elsewhere are meanwhile quite afraid of the economic cloud which the above mentioned countries can
    bring to bear.

  • Argument 2: It, nevertheless, takes decades to reinvent an economy. Take the case of Peru. Fiscal
    discipline, there, started to be implemented in the middle of the 90s. And it is only now, 20 years later that
    this country is beginning to reap the fruits of its reform effort. In the case of Greece and Portugal we cannot
    wait twenty more years to achieve that kind of turnaround.

  • Reply: Well, they won´t have to wait twenty years to get access to the much coveted Euro-bonds. All they
    have to do in the short run is to get their country behind a national effort to accept the tough global reality
    and adjust their own economic situation accordingly. Unfortunately, however, most of these countries are
    far away from reaching that kind of national consensus. Instead they continue to be heavily steeped into
    old-style socialist thinking. And so they fight every little reform step which their governments propose to
    them rather than embracing the undeniable need for change.

  • Argument 3: It is not true that the general public in Greece and elsewhere has been unwilling to accept the
    need for change. To the contrary, it needs to be acknowledged that people in these countries have been
    surprisingly cooperative when it came to subjecting themselves to a tremendous amount of cuts.

  • Reply: Well, we are somewhat familiar with the situation in Spain. And it hasn’t escaped our attention that
    both, the PSOE and El País, have unanimously rejected most, if not all, of the Rajoy government reform
    programs. They were against the new changes in the labor law, against the introduction of co-financing
    schemes in the health services, against an amnesty for repentant tax evaders and so on. All this
    resistance, obviously, doesn’t help to turn a country around, does it?

  • Argument 4: Turnarounds are never easy. And it is natural that there would be a huge national debate over
    whether or not this and that reform proposal is really necessary. Germany should understand that. But
    because of the fact that it doesn’t feel the pain of the recession at this time, it can afford to be void of
    compassion for the plight of its Southern neighbors.

  • Reply: Germany is not standing by and watching idly how others get their act together. Instead, Germany is
    contributing heavily to the rescue facilities, that shield Europe from total chaos; it is footing the majority of
    the bill which makes the ECB’s bond buying program possible; it has accepted that there should be not
    automatic sanctioning mechanism in case countries violate their contractual Golden Rule obligation.
    Additionally, Germany is now raising its wage levels. And it still has a large segment of its own population in
    underemployed and badly payed jobs.

  • Argument 5: Okay, but at the end of the day, the Euro exists only because of Germany’s capricious desire
    to form an unwanted, unified nation in the center of the European continent. And since its mere existence
    has wreaked havoc in the past on all its neighbors (and in deed the world), Germany has a special
    responsibility to do what is necessary to make this Euro project work.

  • Reply: Germany is completely committed to the Euro. And that is why it isn’t succumbing to cheap populism
    here but defending bitterly what it considers plain and simple economic reason. Is it, for instance, not true
    that old-style Keynesian measures do not work anymore? Is it not true that bureaucrats have a bad track
    record in making business type of investment decisions? Is it not true that Lisbon agenda failed miserably?
    And, finally, is it also not true all countries are by now so indebted that they simply cannot afford to waste
    their money anymore?

  • Argument 6: Germany is paying negative interest rates on its newly issued debt these days. Should that not
    be reason enough for this country, to share some of its over-hyped credibility with those who badly need a
    helping hand at this time?

  • Reply: Again, Germany is not against the issuance of Euro bonds. All it needs to see is that its neighbors
    actually embrace the need for supply side reform rather than fight that.

  • Argument 7: But time is running out on Europe. Does Germany truly want to be responsible for another
    spectacular disaster on our continent?

  • Reply:  So you are saying that it is Germany’s responsibility if countries such as Greece and Portugal dug a
    hole for themselves?

  • Argument 8: No, but it’s Germany’s historical obligation to help them come out of their hole.

  • Reply: And the best way to do that is to be gentle and soothing so that they can stay a little longer in their

  • Argument 9: Well, in this case, patience is of the essence.

  • Reply: That is not the approach that Mrs. Thatcher adopted when reforming the UK back in the 80s.  And
    yet, it is precisely due to Mrs. Thatcher’s steadfastness that the necessary changes became possible.

  • Argument 10:  Mrs. Thatcher had won a national mandate to bring about these reforms. No one in Greece,
    Portugal or elsewhere, however, has voted to bring in the dictatorship of Ms. Merkel and the IMF.

  • Reply: Back in the 80s, Mrs. Thatcher’s steadfastness brought the country close to civil war.  It didn’t seem
    to us, at the time, as if the people really were behind her when she took on the year-long miners’ strike.
    The fact of the matter simply is that sometimes, governments have to confront public sentiment rather than
    to cave into that.

  • Argument 11: Again, it isn’t for Germany to decide how others want to manage their economy.

  • Reply: So you are saying that Germany should simply shut up and pay? – That hardly seems a reasonable
    position to take.

  • Argument 12: Well, the least one can say at this time, is that this isn’t the moment for ideological supply
    side versus Keynesian warfare. There is so much at stake here, that everyone should feel encouraged to
    look for a safe, middle ground.

  • Reply: There would be a lot more at stake here, if we weren’t to battle this out properly. Because it should
    be clear to everyone that Keynesian philosophy has reached its limits. In other words, we shouldn’t waste
    this precious moment in time by looking for a cheap and ultimately untenable compromise. It would be too
    costly to let this opportunity pass without taking due advantage of it.
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German diktat, politics of austerity, future of the EURO, Euro crisis, Euro-Bonds, issuance of
Euro Bonds, supply side theory versus Keynesian theory, Germany's role in Europe, Germany's position in
Europe, Germany's isolation in Europe, Germany's historical obligation in Europe, managing the Euro crisis,
structural reform in Europe