Comment by mrich | Hacker News Reader

Comment by mrich | Hacker News Reader

I have been trying to understand why German politicians are willing to throw so much money at this problem, clearly against the will of the majority of the electorate. Here is the best theory I can come up with: Germany relies on exports. They need countries which buy them - having everybody use the same currency benefits trade. But more importantly, banks of strong countries like Germany, France are lending money to the fiscally weak countries so that they can import the goods they produce. This benefits their industries. However, why would the banks take on credit when they can be quite sure that these countries will default sooner or later? Well, there has to be some guarantee/assumption that they will be bailed out by the central bank/governments. And of course this happened.

So German banks and the export industry, the two entities with the biggest lobbies, get subsidized with tax money. The weak countries won't ever develop their industries and become competitive.

What is your view?

I believe the mainstream view is that Germany is willing to do this because having weak countries like Greece and Portugal share the same country weakens the euro, making Germany's exports better priced.

If Germany was to revert to the Deutsche Mark, or a Euro made up of strong European economies (for example, Scandinavia, Germany, Low Countries, Austria) their currency would appreciate and hurt exports and industry.

German politicians simply think the cost of bailing out Greece will be less than the cost of a strong currency.

So this is the only solution to weaken the currency? Why not spend the money on Germany instead of Greek? (things like Aerospace, Crazy Arts, Free public goodies...) Won't this make the same effect for the currency?

I don't know economics, I'm really asking.

This would only help when it benefits external currencies (e.g. imports). Otherwise it may help the GDP and economy, but won't lower the value of the Deutsche Mark.

You know, the spectrum of human words and the syntax of sentences does not provide enough power to describe nor to solve the problems of today. But even if you call me a nazi or racist, just answer me this, do you really think Germany can hold up such a strong currency and economy if 65% of all kids here are not German?

Also, with all the cuts in education going on, do you think there will be enough qualified people to keep up the quality of engineering/manufacturing? Sure, you can always allow foreigners in. But who wants to come to a country with high taxes and bad outlook due to high debts and bad politics?

Because german banks have been benefiting from the usurious interest rates being charged to the southern european countries. If Greece defaults several german banks go bankrupt.

Banksters have played it like drug dealers: "Have a loan" . "Buy our stuff" . "Interest rate is now 30%" . "Tut-tut, we have to call Bruno" .

True, but what sane bank would take on the risk (=higher interest) without knowing that it is worth it? So I assume there was some background deal, an assumption that governments will cover for defaults.

"Bankruptcy of Lehman Brothers" - http://en.wikipedia.org/wiki/Bankruptcy_of_Lehman_Brothers

The banks take this risk not just because they expect that there will be a bailout but also because the Basel Accords allow them to treat sovereign bonds as riskless when calculating their Capital Adequacy Ratio, making those bonds look like a better deal relative to other bonds of equal risk.

I suspect there are a couple reasons. First, having unprincipled economies in the Euro zone helps keep exchange rates low, which can be good for exports. Second, realistically no matter how strong Germany's economy is locally if the weaker European economies started collapsing there would be a lot of pain throughout Europe economically. Germany would rather try to delay that as long as possible.

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