One is tempted, indeed one is required, to begin a discussion about Germany’s eurozone financial policy by introducing the word hypocrisy. Such a discussion should explain how even the smallest German sparkasse or dry cleaner is TBTF, how bankruptcy law is not the most lucrative profession in Germany, and how there are no German vulture funds. Germany is the homeland of not only TBTF but also of Too Small To Fail. In Germany, all corporations are above average, and all dry cleaners are national champions.
All nationalities are hypocrites in one way or another. It is normal to preach one thing and practice another. But nonetheless, I must observe that Germany is dispensing a medicine in the eurozone that it has never taken itself.
This is the German prescription:
1. Eurozone governments should be allowed to default on their debt, and there should be no implied guarantee from the eurozone.
2. Eurozone banks should be allowed to default on their debt and deposits, and there should be be no implied guarantee from the eurozone.
Well, I mean, come on. I suppose that in some sort of laboratory those theories could be tested. But in the real world, in pathetic Europe? To have the banks fail and the governments default is a bit, how do you say, risky? Please remind me of the libertarian utopia where such things have occurred and revolution did not ensue.
The German idea of turning Europe into a laboratory of libertarian economics would be more credible if Germany had ever tried even the smallest experiment somewhere in Germany. You know, such as allowing Depfa or Hypo or Berlin or the Saarland to default. But, as we know, all German entities are TGTF, Too German to Fail. Deutschland is not a country for failures, only successes!
I can certainly sympathize with the German view. I feel the same way about California, Rhode Island and Illinois. I would love to see them go bankrupt and sink below the waves.
But if I were the head guy in one of the Club Med colonies, I would not sit quietly, stewing in my own juices, while my people starved.
Germany wants the big Spanish and Italian banks to fail and default on their deposits. Germany wants the Club Med governments to fail and default on their bonds. Germany wants Southern Europe to eat grass. Which is understandable--that’s how I feel about Illinois. But I don’t think that schadenfreude is the appropriate basis for national financial policy. Call me weak and “caring”, but I don’t really enjoy seeing educated people begging in the streets and eating out of dumpsters.
Germany doesn’t care about the kids in Southern Europe. Germany only cares about German kids, which is perfectly rational. (What did anyone do for German kids in 1946?) But you can’t construct a country on the basis of sadism and schadenfreude. Either Germany must allow the South to control eurozone monetary policy, or she should exit the eurozone. Having a hard-money hegemon running the ECB is destroying not only “Europe” but also the lives of millions of innocent Europeans. That is not in Germany’s long-term interest.