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Comment by biot | Hacker News Reader

I'm annoyed by this quote:

   > "There is frustration with Germany," says André Sapir, a senior fellow
   > at Bruegel, a Brussels-based think tank. "Germany is moving ahead,
   > but what are they doing for the rest of Europe?"

I'm having a hard time reading this as anything but "Where's our handout?".

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I understand the sentiment, but you're overlooking one big factor.

In a true free market scenario with freely floating currencies, currencies in countries like Spain, Italy, Ireland, Greece would have devalued. Germany's currency would have strengthened. This would have made German exports (to other EU countries) much less competitive than they currently are.

However, the Euro tightly integrates these other countries with Germany and makes it very difficult for them to revive their economies.

Using a single currency without a single federal government was a risk for all countries involved. Germany has a huge interest in keeping the Euro alive and the EU as a single unit. It shouldn't be surprising that many people in other European countries expect something in return (for having given up the options that they had before the Euro)

people in germany are very pissed about the "rettungsschirm" which guarantees in principle the bail-out of all the other euro countries (PIIGS, portugal, italy, ireland, greece, spain) because it is german money that is given to the other countries. if there would be a referendum about the euro, german people would vote for leaving the euro zone. they want their deutschmarks back. the euro is a political instrument and was never welcome by the people in euroland.

This is absolutely true. I would personally like few things more than to see the Euro gotten rid of (though that's nearly impossible at this point thanks to speculators).

thanks to speculators?!

try politicians, imposing their priorities on the population. soeculation has about zero relevance to this question. it's a matter of political will.

No, the issue is that which ever country steps out of the Euro first is going to be hammered by speculators. Personally, I would expect countries getting back to their own fiat currency to do better but the currency itself will certainly be worth less. And no matter how much money I had I wouldn't be willing to bet against everyone else' shorting.

Don't use terms as "people in Germany" (implying all), "german people would vote" and "was never welcome (sic) by the people".

I'm from Germany, I'm not pissed. I wouldn't vote against the currency and was actually glad when it was introduced. qed.

http://www.manager-magazin.de/politik/deutschland/0,2828,736...

Jeder Zweite will zurück zur D-Mark

Every second german wants the D-mark back

Date: 27.12.2010

From this follows that every second german doesn't want the D-mark back. Far from "people in Germany". Also, this poll was done after a big campaign by BILD (german tabloid) that other european countries are bleeding Germany, which probably skewed results in favor of abandoning the Euro.

Telling people the facts "skewed" results in favor of abandoning the Euro?

How do you conflate a tabloid campaign with "telling facts"?

Sgift described the campaign as informing readers that other countries are "bleeding Germany" (presumably money, not literal blood).

That doesn't sound inaccurate. Tabloid != incorrect, you know. Tabloid is merely a pejorative label applied to newspapers which don't attempt to hide their opinions.

Biggest newspaper, heavily self-opinionated. Even _if_ (big if, I don't buy it) the "the Euro is costing us poor Germans too much" would be right: What do you think what would be the outcome of a report like this for the following survey?

They reach (according to Wikipedia. YMMV) > 12 million readers. If after their anti Euro campaign (again, ignoring the facts at all) still 50% of the population are in favor, how does this even remotely make the non-supporters a majority?

Having done the numbers: The track record for facts from that specific newspaper is poor. Even if you like their agenda in this point, please don't implicate that they are NOT largely misleading (to avoid harsher terms).

I'm German and am very happy with the Euro and don't want the mark back. the problem ist that many people kind of understand the "Rettungsschirm" but don't understand the benefits of the Euro, especially that other European countries can't devalue their currency withe respect to Germany. This is a HUGE benefit for the German economy and therefore it makes sense that Germany pays more than other countries.

By "kind of understand", I think "don't understand" is most common. Knowledge that the "parachute"/"bailout" is refinancing as opposed to assuming the debts doesn't seem to be widely spread.

Likewise the German opposition to default is not widely examined: weak German banks, esp. the Landesbanken, are heavily exposed to peripheral Euro debt (who was better placed to offer loans for those shiny German exports?), and the farce that was the stress tests would quickly be exposed if there were defaults in Greece, Ireland, let alone Spain. Why was the Germany finance ministry to openness about the stress tests.

The problem is a hangover from a slack money culture that existed before the crash, and slack money requires more than feckless borrowers, it also requires irresponsible lenders. There may be a morality tale in here somewhere, but it's not the simple good country bad country one from the Bild.

Without the Euro Germany wouldn't be quite the exporter it is now. Italians can buy German products because of the Euro. Initially Germany wanted to keep Italy out of the Euro but the Italians pointed out that they would devalue their currency and then German milk, cars, etc. would not be able to be bought in Italy.

The Euro may not have been welcomed by the people but it was welcomed by corporations and banks. Corporations and banks had (have) more power.

would it be bad, if italian people would by milk, cars, etc from their own (italian) producers?

I don't think so but the Italian government at the time wanted to be part of the Euro. I happen to think trade barriers are good (at some level). I'm opposed to free trade because there is no agency to regulate against negative externalities.

Huh, you'd think they'd be used to bailing everyone else out after the massive devaluation to their Deutschmark retirement savings after monetary union.

Personally, I find the success of Germany not terribly surprising given that they were going okay before union. The thing that perplexes me is these other countries that are falling apart, as they didn't strike me as so terribly fragile either.

People say "oh, they are lazy", but laziness creates a vacuum, and somebody will step in to take advantage of the opportunities.

I don't get this argument. Doesn't that mean that Germany are currently selling their stuff for cheap, and buying for too much?

Exactly! this means that german workers cannot get an increase of their salaries but some multi-national banks and cooperations earn billions. At the moment the european economy is more neo-con that the american ever was.

> In a true free market scenario with freely floating currencies, currencies in countries like Spain, Italy, Ireland, Greece would have devalued. Germany's currency would have strengthened. This would have made German exports (to other EU countries) much less competitive than they currently are.

Well, even without free-floating currencies, countries like Greece could just lower the wages, which would in turn reduce the price-level of Greek products, making them more competitive.

Yes, but this would not help the debt of the people (and government). In fact, it would make things worse. This is the problem that Greece and Ireland are facing. Those governments are reducing expenditures but their debt payments remain the same. They are getting squeezed.

In a truly free market situation the bond market likely would have stopped buying Greek bonds because of the fear of currency devaluation long before their structural problems became overwhelming. Sometimes though the bond markets make a bad bet and currency devaluation becomes necessary. That's the free market. There's risk in buying bonds. However, in the EU the bonds have an implicit guarantee from the ECB, Germany, and France.

the bond market likely would have stopped buying Greek bonds because of the fear of currency devaluation

There's a reason why this kind of thing might be true, because bond holders might hope for intervention, as indeed happened. But I doubt it in this case: (i) the Euro treaty forbade intervention, and (ii) the CDS markets, which one would think would be very sensitive to risk of default, were not worried until shortly before the bond markets proper were.

I was talking about a scenario in which Greece wasn't part of the Euro. The bond market would have attempted to factor in the risk of default or currency devaluation in its purchases of Greek bonds.

Ah, I misunderstood: by free market you meant exchange rates, not the bond market.

But note that the Euro is for the purposes of this situation equivalent to the gold standard. Fixing exchange rates means trading the risk of currency depreciation for an increased risk of default, as we seem to be assuming the bonds are issued in the local currency.

The issue here seems to have been ignorance on the part of bind investors to the reality of the Greek situation.

I agree with your point, but doesn't this analogy extend to the states too? I don't know which states import more than they export, but should they be saying "Where's the handout?"

Ironically the states most in need of help have been saying "Nope, don't give me any stimulus money. Don't give me money for high speed rail"

Indeed and that's exactly what it is.

And (stupid?) sources of these commentaries keep forgetting that Germany and France (but AFAIK mostly Germany) are footing majority of "european" expenses. German workers are the ones willing to tolerate lower wages so that others will be able to develop and compete with them easier.

I mean think of it - these guys dug themselves out of shit, while bailing out the rest of Europe. Using mostly common sense and hard work. They also had a retirement plan reforms, which changed retirement from 65 to 67 (!!!!!) for men and they took it with grace, no riots no thrashing of commonwealth (Greece? France??).

Disclaimer: I am not German, but I wish that my national leaders would have the integrity and vision of German leaders.

Most of the time they do have the vision, but the problem is that every proposed reform is heavily objected to by the unions, pensioners, students and so on. For example, flat tax rate reform proposal under previous government, then the pension reform last year. It's always the same: large population groups (pensioners, students, state-payroll workers) do not want to give up those privileges ...

Leaders != politicians

unions, pensioners, students, etc... got their own leaders which are defrauding the people they should lead.

Thats the difference between Germany and the rest of the Europe. Maybe in industry the fact that workers get to share the board with investors help, I don't know. But I know that Germans manage to not shit in their plate time and again.

Edit: Why am I getting down voted on this?

I don't know why you are down-voted. Here is my upvote and try not to care too much about votes :)

Nah I don't care for downvotes - go look through my comment history if you think otherwise :D.

What I care for is the counterview or an explanation that might help me perfect my worldview :).

Be careful what you wish for. Not only lasts the current German boom on the shoulders of Spain, Greece and so on but also on millions of workers whose salery has to be filled with federal money each month. Which means none other that the current earnings of companies are subsidized by taxes or better: social welfare.

The attitude expressed in that quote is indeed pretty ridiculous, but it's not as simple as asking for a handout. The ongoing debate is about German consumers not consuming enough and saving too much. And because Germans are saving so much they tend to be very aggressive inflation hawks, which led to the ECB _raising_ interst rates in 2008.

Still, I think, it is deplorable how little respect the Germans get for simply making what others want. They're doing that very well and other European nations should ask themselves how they do it instead of complaining about a two speed economy. Get up to speed guys!

The quote is quite harsh, but hides a real problem of our (I am from Germany) economic model: Export only works if other countries import. If all countries in the EU would follow the german model and maximized export, while ignoring their home markets Germany's economic growth would be a thing of past.

It is also out of self interest that Germany pumps money back to the European rescue funds from their trade surplus with these less-than-stellar European economies. It's not altogether unlike how China finances the US debts by selling more stuff to it. So in the end, it just leads to more co-dependence.

Germany isn't doing anything to maximize exports. Its just a net lender to the world. It has more savers and policies that don't incent its citizens to borrow too much.

It isn't paper that the world is borrowing from Germany; its the labor of Germans.

If the rest of the world stops subsidizing credit and balanced their budgets, the principle effect will be a decline in interest rates in Germany. And Germans will find it more reasonable to consume more or start new companies at home.

Its not a problem. Germany wins either way.

And those that keep consuming more than they produce will continue to lose, just as individuals do that behave unwisely.

The last page of the article highlights a problem with your line of thought: Wages didn't profit (much) from the economic growth of the last years. And without money germans cannot consume more. This is a problem for an ever increasing part of the work force as cost of living is on the rise.

(There were people who benefited from the economic growth - I count myself among them - but that doesn't invalidate the argument regarding the whole work force)

Wages rose quite a bit in countries that were net borrowers. All the extra cash bid wages up and the higher wages even caused many to move to those countries to get those higher wages. Importing goods is not the only way to import labor.

The net lender countries didn't experience the same wage growth. But they didn't see their currencies inflate either. Except for those otherwise soundly managed countries that for some reason share a currency with a bunch of poorly managed countries. These countries got the stable wages and the privilege of subsidizing their partners.

> And those that keep consuming more than they produce will continue to lose, just as individuals do that behave unwisely.

The comparision between private households and state households is invalid. That's on of the main errors of Neo capitalism. What is wise for individuals is dumb for states.

Because states households are circuits. They press and rotate money. The money they spend comes back partially.

Private individuals households are linear they receive and spend money. The money they spend is lost forever for them.

Money spent by government comes back as tax income by stimulated economic growth.

> Money spent by government comes back as tax income by stimulated economic growth.

You're ignoring the fact that said money was stimulating economic growth before govt took it.

Govt spending is not stimulating. Stimulating spending is stimulating, regardless of who does it. Unstimulating spending is unstimulation, regardless of who does it.

The difference between private spending and public spending is that private spending is usually an attempt to make money while public spending is a combination of keeping govt employees happy and buying votes. (Yes, the two are related.)

Taking money from individuals and using it for politically popular "investments" usually winds up destroying the capital. Politicians don't usually care if its paid back, as long they can claim credit for giving it away.

Private investors are much more likely to earn a return on an investment. Which means they can keep re-investing it.

Yes, you get all the "stimulating" effect without destroying wealth. Of course, its been that way wherever societies become wealthy.

And government handles all of the "investments" wherever societies become poor.

I wonder at what point does a household magically transform into a state that suddenly lives by different rules. When you add the tenth individual? The hundredth?

Of course, the answer is whenever the group becomes large enough so that people lose track of who's taking what.

Government likes to make waves on the pond, point out the highs and distract you from the lows and how much disruption is created.

When the group is small, its a lot easier to identify someone that's just splashing around and claiming to create value.

No, this is not a zero sum game. Germany just makes better stuff. It's not cheating. If everybody else did the same, the world as a whole would be wealthier and the imbalances you're talking about would smooth out.

Care to elaborate why this would be the case? I mean, it sounds great and I know the usual arguments that economy is not a zero-sum game, but this sounds way too much like "Hey, it works great in the short run and for one country - let us all do this and hope that it works in the long run!" to me.

Do you really believe that making better stuff more productively is something that only works for one country in the short run? Sure, there are always factors like exchange rates and interest rates that skew the whole thing a little bit one way or the other, but the reality is that Germany is not cheating, they are simply better and them being better does not cause others to fail, it just highlights that fact.

If other nations became more productive, the German current account surplus would shrink and the global productivity level, by implication, would be higher than now. My argument rests on a simple assumption: Higher productivity equals greater wealth. This can of course be questioned on a philosophical level, but not on the basis of mainstream economics.

> Do you really believe that making better stuff more productively is something that only works for one country in the short run?

I don't, but I believe someone has to buy this production or increased productivity doesn't help anyone.

Your assumption sounds correct, but isn't the base of Germany's economic growth in the last years: Germany didn't increase productivity (at least not by a significant margin), but decreased wages (compared with it's neighbors). And this decreased wealth.

Inflation adjusted wages in the US are pretty much unchanged for over a decade as well. Yet, the US has a massive current account deficit whilst Germany, a welfare state, has a current account surplus even with China, a low wage export oriented economy. So wages cannnot possibly be the reason for their success.

I don't deny at all that there are many short term effects and flucuations that have nothing to do with productivity. But we're talking about the different speeds of European economies and those different speeds correlate very well with different levels of productivity.

And look at the Greek stock market. The biggest non financial companies there are a Coke bottling company and the lottery. The biggest German listed company (I believe) is Siemens, which makes high tech industrial equipment like power plants or health care equipment. The Chinese want that. They need energy, they don't want to play in the Greek lottery and they can bottle their own Coke. That's the reason for the two speed economy.

> Higher productivity equals greater wealth

I agree with your argument -- IIUC you're invoking comparative advantage. But the two concepts above are fundamentally different. Wealth is a stock, while productivity is a flow multiplier (e.g. A(t) in Solow model: http://en.wikipedia.org/wiki/Solow_residual). Saying "equals" is a bit adventurous, IMHO. Probably a bit pedantic, but then you do stress that that statement is on the basis of "mainstream economics".

Right. Higher productivity _causes_ greater wealth is what I wanted to express.

Comparative advantage:

http://en.wikipedia.org/wiki/Comparative_advantage

If everybody just made better stuff they would not need imports from germany anymore. The motivation of trade has always been imbalance. I fail to see how those imbalances would smooth out. (Leaving out the perfect world scenario that every country would have some unique, equally valued tradeable thing/service/whatever, a fair starting situation so to speak. This would be ideology)

If everybody made better stuff (and did not need foreign imports), the world would just have a lot of better stuff (i.e., everyone would be wealthier).

The motivation of trade is simply comparative advantage. Trade is beneficial regardless of whether the products being traded have equal value.

Greece, Ireland, etc. are not being bailed out. Duetsche Bank is being bailed out. Greece and Ireland have been given guaranteed loans at high interest rates. It's money that they are paying back (provided they don't default). Germany is propping up its banks that made bad bets.

You sure they are going to pay that money back? I would not bet on it.

The subsidy is in the form of a shared currency, and Germany is the primary beneficiary. With Germany running a large current account surplus, its currency should be appreciating drastically, and that of its trading partners depreciating. Because the currency is shared, and the exchange rate locked in, this can't happen, so in effect Germany is running a mercantilist beggar-thy-neighbour strategy.

But since Italy, Spain and Greece run the same currency - why don't they use the same strategy? Are you saying that they are more "ethical" and don't have the stomach for such an evil deed?

Edit: I apologize to readers and commenters - I got out of context, I'm not referring only to the current monetary/fiscal position of Germany, but to the whole process that got everybody where they are.

Because they don't have a surplus? The issue is multiple drastically different economies trying to use the same currency. All the reasons you try to appreciate or depreciate your currency are not available to most EU countries.

This is not only a fiscal issue.

This ruin was in the making for decades. While germans were busy figuring out how to produce better stuff for cheaper PIIGS were busy figuring out how to sell shit for more.

One strategy is hard short term, but bears long term dividends - the other is awesome short term but spells ruin in the long term and the ruin came.

And now the Germany is at fault for all the years of support, encouragement, warnings and leading by example to these countries? I don't buy it :)

You're right that it's not only a fiscal issue; it's a monetary issue. Ireland was ruined by low German-style interest rates making money far cheaper than it was before; that fueled a property bubble.

The gains to Ireland from 1990-2000 or so were real; the Celtic Tiger wasn't hype. Much of the gains in the past decade, however, were from too low an interest rate.

They cannot all run current account surpluses with one another; it's a mathematical impossibility. Germany's current account surplus with other Euro-zone members corresponds exactly to a current account deficit; the sum of the two is zero in this zero-sum game.

The monetary union is voluntary and some European nations used it to load up on cheap debt that they are now asking the Germans to help pay down. Using a common currency always means that interest rates and exchange rates will not be equally appropriate for everybody. It's the same in the US.

The debt was cheap because the interest rate was too low. The ECB ran rates low to help Germany's sclerotic economy, and those low rates fueled borrowing elsewhere.

As to the idea that the monetary union was voluntary: the monetary union was a political project, not an economic one. By opting out, nations were to some degree dissenting against the entire EU project. Without some degree of fiscal union, it was probably a mistake; but it's unlikely such a union could have ever occurred without a monetary crisis. In many ways, the monetary union was a leap of faith into greater union, with the idea that we could sort out the problems later (never let a good crisis go to waste, etc.).

But it has always been the Germans who kept asking for higher interest rates and a harder currency. The monetary union, as you surely know, does not include the UK, Denmark or Sweden. That's because these countries opted out. No one forced the Greek into the MU. They cheated their way into it by falsifying their accounts.

You are simply wrong.

I remember the discussion over Greece at the time - about how extra leeway was made to squeeze Greece in a couple of years late. Everybody knew about it. The explicit extent of it was in the news not long after:

Sep 2004 http://euobserver.com/?aid=17351 : "Greece was in breach of the euro rules at the time it joined the single currency, according to new figures produced today by the Greek government."

Re Germany - it was at risk of deflation! German politicians were constantly moaning about how high ECB rates were, and how they had to be lowered, and that was the wide consensus of economists too:

Apr 2003 https://www.economist.com/node/1695123 : "Most economists agree interest rates are too high for Germany"

Jun 2003 http://www.wsws.org/articles/2003/jun2003/doll-j04.shtml : "German Finance Minister Hans Eichel said that the strong euro gave the ECB the opportunity to cut interest rates"

Apr 2004 http://www.economist.com/node/2608090 "Even if Mr Schröder does not get the interest-rate cut he wants [...]"

Aug 2004 http://www.telegraph.co.uk/finance/economics/2893715/Economi... "It is widely appreciated that rates haven't been cut far or fast enough for Germany."

No-one forced Germany into the monetary union either...

The links you provide are mostly from the previous recession. In a recession politicians demand rate cuts everywhere, even in Germany. What I'm saying is that compared to other European countries the Germans have always been on the hawkish side. They were the ones who made sure that the mandate of the ECB did not include fighting unemployment (contrary to the US Fed). They were the ones who wanted the "no bailout" clause in the treaties. They faught the French "economic government" idea tooth and nails. Their ECB members are the greatest hawks. The Germans have always been scared of importing Italian style economic policy and they made sure the ECB's only mandate was fighting inflation.

The Greek were not forced or pressured to join the MU. The article does not say that at all. They wanted to join and the other countries didn't want to block them even though they suspected the numbers weren't quite right. The full extent of Greek book cooking was only revealed in 2010 (or 2009?).

Ireland wasn't in a recession - that's the point.

The point is that I'm describing a bias of German policy, not some kind of hard and fast rule that holds without exception. Spain would be another example similar to Ireland. But that's all temporary and doesn't change the fundamental bias of Germans to fight inflation first and foremost.

Yes, and my point is that the ECB was therefore be stuck: too high a rate and Germany suffers, too low a rate and places like Ireland suffer. Ultimately the ECB chose a rate which was better for Germany than for Ireland, in the balance of things, and now Germany is very unhappy that it got such a good deal.

You're absolutely right that the rate was totally inappropriate for Ireland at that point in time. Today, it is more appropriate for Ireland than it is for Germany. These issues are inevitable in any currency area. The benefits are also well known.

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