Friday, March 30, 2012

Germany the Vampire Squid of Europe

The real story of Germany, to be blunt, is that it is a parasite economy. Its domestic demand lags. It has a labor force with different values than most. It will live with low wage increases and low inflation. It has lured other EMU members into a currency bloc and let them run such persistently higher rates of inflation (with no criticism of it!) that Germany now OWNS any domestic demand that other EMU countries can generate. Germany is like the vampire squid economy of Europe. Now it’s kind of caught in its own huge blinding squirt of ink, since its banks have to lent to these other EMU countries to finance their excessive consumption entangling Germany in their financial problems. But on the real-economy side of things, the German economy is eating their lunch, however, meager.

Some think that the solution is to knock the euro down on FX markets; that is something that might help Spain and Portugal and Italy and others… and it will absolutely enrich Germany with its hugely advantageous competitiveness position in the EMU region.

On one hand it is easy to extol the virtues of Germany for its relative prudence. But its banks helped to recycle funds Germans would not borrow to fuel excess consumption in the other places in the Zone. When there is a crisis, the lesson is that bankers get coddled and the borrower-homeowner gets put on the short leash and gets the lecture and the penalties. That’s exactly how Europe is playing out.

I think that EMU has let inflation differences- parities- get so far from their starting point so that there is no going back. It needs a whole re-benchmarking or split up. Maybe the very strongest (lowest inflation nations) need to leave the Zone. But the Zone seems to have outlived its workability. It is in real need of change and not tinkering. I don’t see how or why financing it to let these disequilibria conditions persist makes any sense. And I don’t see actions being taken to make the less competitive more competitive. I just see austerity piled on top of high indebtedness and that will only lead to ruin.

The fact that Germany is not the engine of growth and will not bear the financial burden of rebuilding Europe as its financial pillar is the real truth of the role of the German economy. It is in EMU to take not to give. EMU is fine as long and it becomes more and more Germanic. And that is the final lesson. It might end when the zone is renamed GMU.


rattyroo said...

I don't understand how Germany can have a different rate of inflation from the rest of the EMU, they have the same currency.

I'm also not sure what you mean when you say that the EMU's policy is geared towards Germany's economy.

Thanks for helping out a financial newb.

World of Finance said...

No wonder you are an economist!
How Germany is to be blamed for the ills of the other PIIGS? Just because they did all the right thing for themselves and worked hard to make their products competitive and desirable by the world? Are you a Greek as well?


Ratty_ each country in EMU publishes its own inflation data and has its one inflation rate.

WoF - See my posing on Zero Hedge for more on this. I understand your reaction but if you read what's on Zero hedge you may find that there is a real reason not just sour grapes. and no I am not Greek.

World of Finance said...

Just because ZH publishes something does not mean it is God's word. You have just sated your opinion without any validation. I am not a German but I can say for sure that if other countries were as productive or followed the fiscal discipline of Germany, we would not be in such a mess. Basically you are suggesting that Keynesian economic model be rewarded for its failures and those who did not follow the borrow and spend economic policy, should be bad mouthed. It is the Greeks who worked with GS not the Germans.
Get your facts straight.


I did not mean to glorify what I wrote juts for you to READ IT. You obviously did not

I am not suggesting anything like a Keynesian model whatever YOU think that means. Just read it. It is less dogmatic than that.

I DO NOT Glorify Germany for what it does as you do. it it Germany's choice to grow slow. To run high unemployment; to have a social welfare system that makes it politically feasible to seek such low inflation.


That system has consequences.

A German said...

"Let's make the EMU and we will never again have to devalue against the Deutschmark!"
The PIIGSF believed they would outpace Germany. They were ignorant and stupid. They would not listen to the warnings of German economists.
In fact Germany negotiated the "no bailout" clause because it knew (or at least feared) what would happen.

To German voters, fiscal austerity is virtue, inflation is theft, and QE is a crime.

To PIIGSF voters, fiscal austerity is theft, inflation is virtue, and QE is a good thing.

Now the PIIGSF are broke and they say: "Germany has to accept that fiscal austerity is theft, inflation is virtue and QE is inevitable, and everyting will be fixed."

rattyroo said...

Thanks for you response to my question.

I'm still unsure how in such an open system like Europe they can have localized inflation because people or stores can just cross the border a purchase their goods.

I'm also still not sure what you are trying to say when you say (I think) that there is a connection between the lower rate of German inflation and the "game", which I guess you mean is austerity and no QE.

I am tempted to think that it's more about the banks vs. the people, but perhaps you are right that this is like warfare between nations. I still don't see how the crisis is good for Germany tho because it's reducing demand, and why should they care if other nations adopt their economic policies? How does austerity in the rest of Europe help Germany?

Anonymous said...

Wow. Mr. Brusca, you are a politically motivated moron.

antin said...

"Let's make the EMU and we will never again have to devalue against the Deutschmark!" NO German said that. The Euro was forced upon the German to let the two Germanies unite in 1990.

rattyroo said...

I don't understand that statement: we will never have to devalue against the Deutschmark. They are the Deutschmark, what is being devalued?

farmland investment said...

I am not sure Germany is a parasite economy. But, they have been the major beneficiaries of EMU and have not been willing to up their domestic demand.

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Germany is the one bright light in the euro zone.

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