I often hear financial pundits talk about how strong Germany is, the "jewel" of Europe, if not the world. WRONG!

The first time I heard about the fallacy of German “supremacy” was in Michael Lewis’ book “Boomerang”, where he explained somewhat humorously that Germany loves a “$hit show”, as long as it’s not their own. But they are certainly willing to sponsor one, and watch! Thus the $hit show going on in Europe right now was funded by none other than Germany.

 

Today, in slightly more advanced economic speak, I ran across a good summary description of the problems the Germans have caused themselves by financing poor decisions in deficit counties like Spain.

 

From “The Great Rebalancing”, by Michael Pettis.

“The funding by German banks of peripheral European borrowing, was a necessary part of the deal, arrived at willingly or unwillingly, leading both to Germany’s export success and to the debt problems of the deficit counties. If the latter behaved foolishly, they could not have done so without equally foolish behavior by Germany, and now both sets of countries – surplus countries and deficit countries -  will have to deal jointly with the debt problem.”

“Whether or not these countries (deficit countries) default or devalue should be wholly a function of their national interest, and not a function of external obligation, just as German lending was a function of policies aimed at domestic job creation and not acts of European brotherly love.”

 

So what this tells me is that eventually they are ALL going to be losers. Sooner or later something is going to cause that massive debt loads in Europe to “re-price” to some level below par. And the pain is going to be felt by all.

 

Randy Woodward

 

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