To provide prosperity for all (part of the manifesto) Europe needs urgently to deal with its economic problems. Currently we have a prosperous North and a struggling South. This situation suggests a path forward: the South should just become more like the North. In the following posts I will argue that the situation is a bit more complicated. I will start with two letters to the Financial Times. The first one was published January 28th, 2015:
We Germans are mostly unaware of how we have benefited from the crises
by Olaf Dreyer
Sir, Being an avid reader of the FT who lives and works in Germany, I am struck by how much the portrayal of the European debt crises in the pages of the FT differs from that in the German press.
Let me give one example: In the first round of sovereign bond purchases under Jean-Claude Trichet the ECB bought roughly €200bn worth of bonds from southern European states. Half of these bonds were issued by Italy. Since no default occurred, these bonds turned out to be rather good investments at an average interest rate of 6 per cent. Via the detour of the ECB the German taxpayer received €2bn from Italy alone. This fact is virtually unknown in Germany. It was reported in the FT but no mention of it was made in any German newspaper that I had access to. The only figure that is mentioned here in Germany is the total amount the ECB spent, ie the €200bn.
The idea that Germany benefited handsomely from the crises is completely foreign to Germans. Germany of course benefited in other ways too. Because German bonds are perceived as safe, the interest rates on German bonds have reached historic lows. Servicing German debt has thus become vastly cheaper than it used to be. In addition, the European debt crises have led to a weakening of the euro, making German products more competitive internationally; a hugely important factor for an economy that is so dependent on exports. Put together, these benefits add up to tens of billions of euros for the German taxpayer. All because of the crises.
One would think that these points are not controversial but when I bring them up in discussions here in Germany I only ever encounter disbelief. As mentioned above, the German press is also mute on these points.
Why do I think this is important to mention at this stage in the crises? After the election in Greece there will be a push to renegotiate the Greek debt burden. The task German politicians face is made so much tougher by the fact that most Germans believe we have been paying for the crises all along. If the Germans knew instead how much we have benefited from the crises the willingness to meet Greece halfway would be that much greater and a possible solution would be that much closer.