As mentioned in the previous blog post, Greece—Whats the next step?, Greece’s economy has shrunk over 25% in the last 5 years. This blog post laid out a few options for Greece to get back on their feet. The first option was a 2.8 Billion Euro loan and the other option is for Greece to leave the Eurozone completely. In the Economist article, Don’tmake us Fuhrer, Michael Burda states, “the bigget risk for the euro right now is not that Greece leaves, it’s that Germany leaves.”
The article explains how Germany is beginning to feel upset with being deemed the Eruo zone’s scapegoat. This nickname comes about because some believe that Germany had veto power over Greece, Cyprus, Spain and Portugal’s euro zone membership but chose to allow them into the euro zone knowing that they were not qualified to join. Germans feel the have already shown solidarity, they bear much of the risk of the euro bail-outs, they undertook painful reforms decades ago that are now paying off and Germans think that the euro crisis was caused largely from rule-breaking which much not be repeated. The German people fear that the rescue money they are putting fourth could cause these crisis countries to bypass their reforms and not take responsibility for their actions. The question that arises from this article is, can Germany use its power by unapologetically leading?
The blog post, Will Austerity Save the Eurozone?, brought up some interesting predictions about the fate of Germany. Billionaire George Soros predicts that Germany would be in a recession by the end of the year. Soros claims that Germany is pulling the rest of the Eurozone down with its instance on strict monetary policy and austerity. However according to Don’t make us Fuhrer, Poland’s foreign minister, Radek Sikorski, believes the opposite on German rule. “I fear German power less than I am beginning to fear German inactivity.” Unfortunately, only time will tell the fate of the eurozone and all of its members.
I don't think it would make a lot of sense for the Germans to leave the euro. They still benefit greatly from the stable exchange rates that the euro affords them. Especially given Germany's exports and the nature of its main industries, I would imagine it is more expensive to them to leave the Euro than it is to stay and bail everybody out. Obviously, neither is really preferable.
ReplyDeleteI don't know that I agree with either option. The eurozone has too many benefits, so neither Greece nor Germany should leave. However, I don't think that a Eurobond will do the trick either. I wasn't quite sure what it was, so I looked it up, and apparently it is just a way to collectivize the debt of the member countries, meaning that Greece and such would pay a little less, and Germany and such would pay a little more. The big problem I see with this though is that it does not create incentives for countries such as Greece and Cyprus to fix their financial systems. They will still be able to satisfy their populace by not cutting spending, but the average German citizen will have to work harder to pay for this. Its just not fair that well functioning economies should be forced to pay for others to continue to go down a path of irresponsible financial practices.
ReplyDeleteOh euro zone! Maybe all of the big players, Germany, France, the Netherlands, ect, should all just form their own little club and leave the euro behind. At least that way they can push their austerity policies as they please and the countries that are dragging the eu down now still get to be part of a multilateral monetary union.
ReplyDeleteWhere is the incentive for all of the rich countries to continue being weighed down by less disciplined countries. Great Britain caught on a long time ago; the EU is getting too big
I do not think Germany will leave the eurozone or be in a recession by years end. It seems improbable that this will happen because other wealthy euro countries would have no problem lending to Germany in crisis because their economy is strong they were just forced to fund the debt of countries who are clearly irresponsible and promote poor economic decision. If any of the countries that currently hold german loans defaults i think the consequences will be much worse for the country that defaults. Germany seems like the scape goat of the eurozone they have attained so much credibility and influence for their strong economy and lending to countries in need, even if they were just doing it as part of the eurozone. If anything Germany should have more influence over those countries that hold large German loans but due to the frame work of the EU they can not. Perhaps they should attempt to influence the sanctions attached to EU loans in order to ensure these indebted countries reform and dont default.
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