Please don’t give me the “they deserve what they got” line. Even if we forget the issues of trade imbalances and assymetric shocks in a currency union, which make the situation the eurozone is in today totally predictable and in fact predicted by various economists, the “we’ve been deceived by Greece” line parrotted by various EU officials is pure hypocrisy. Maybe they shouldn’t have allowed Greece into the eurozone in the first place but now they have to deal with the fact that they did. Or kick them out and let the IMF take over. Greece has been running high debt-to-GDP ratios and budget deficits for decades and if the EU didn’t have either the mechanism or the will to impose fiscal responsibility on Greece it has to take part of the blame for the debacle.

Anyway, recent events make me believe that although Germany certainly benefits from the situation they will not allow it to continue for very long. Already the rumours for a greek bail-out are becoming stronger and the bond spreads decline. As this coincides with the announcements by the greek government of austerity measures and the new tax code it is probable that political pressure to the greek government was at least part of the “we will not bail Greece out” tactic used up to now.

A lower valued dollar helps out US exports medium-term to long-term. But, there is another side to that. A temporarily stronger dollar in the SHORT TERM can be a big boost to PCE due to cheaper gasoline prices and the resulting freeing up of discretionary income that helps to relieve budget stresses on the bottom 1/3 of households. The question that I haven’t seen answered yet from any economists are what’s the breaks here? I’ve got a suspicion that our (*long term*) strong dollar policy is the root of the problem. We have opted for cheap gas as a stimulant as long as possible at the expense of everything else.

“And if these European troubles start to be reflected in difficulties for leading global banks over the next few days or weeks, the negative impact will be much greater.”

Monday 8 February 2010 19.58 GMT – Guardian.co.uk – excerpt

The cost of insuring against a potential default on western Europe’s debt hit a new record as officials failed for a third consecutive day to reassure investors about the ability of southern European countries to pay their bills.”

http://tinyurl.com/ydk5eb9

Greece looks more like a slaughter lamb in that circle then the epitome of untrustworthy public accounting. Here in Germany, at least between the lines, the press sounds a bit like “ahh those Greek, never should have trusted them, a bunch of crooks like those Romanians”. Viewpoints like that have a long eh tradition and while meaningless where markets and numbers are concerned, they have a lot of influence.

It doesn’t matter which country has problems as long as it isn’t your own. Most important: you don’t give money to crooks. Especially not after the last bank meltdown in Bavaria with the Hype Alpe Adria and their Balkan business. Especially not while waiting for a not so small election to get brutal with the population about taxes and federal budget problems. Especially not with a government that right now fights public opinion of “worst first 100 days ever”.

Help Greece? Maybe with an all-inclusive vacation next summer if they keep civil peace but that’s about it. Europe isn’t Europe if there are no ways to “help” Greece without it looking like help but while this may work with some everyday subsidies, a freakin bankruptcy? Nah, until this situation developed it was forbidden to even think in public about any member of the eurozone going belly up – for good nutcase-reason too. That’s why we have those Euro convergence criteria that nobody takes serious in real live.

Of course only a selected few even wish to help Greece, even with open doors and journalists present. The Greece equation sounds like “Euro + Greece = trouble + where did that come from?”. The role of Greece there is more or less symbolic. It’s the currency, stupid. Still, to argue we will see a D-Mark again anytime soon is perhaps a bit more outlandish then the reality approaching times we live in. Even in a “the game is on” atmosphere there are some things people cling to (not the public, business people).

Germany wants to cure it’s economy by export of mostly high end comsumer and industrial goods, world export leader and all. Political wet dreams aside the method of choice is called “unit labor cost wonder”, a cheap and at the same time highly qualified workforce (eh wet dream time again). At the same time the domestic market is Germanys weak spot (in some aspects like low private debt a blessing).

It’s all trivia but it still defines where your currency has to go. In the long run at least from the German viewpoint this develops to the question “How can I sell the largest amount of cars amd powerplants world wide?”. The eu common market is a big part of that, equally because of customers and competitors. The sheer size of it may even start some phantasies of megalomania that no rational human can forsee but still transform into actual policy. From a somewhat sane point of view you don’t sabotage a common currency in an economic situation of mistrust and “race to the bottom” atmosphere. Now if wishes were horses dreamers could ride and the eurozone may even get away with it.