2011 September 18 Sunday
Germans Oppose Denkverbot And Eurozone

For the first time ever, a clear majority (60%) of Germans no longer sees any benefits to being part of the Eurozone, given all the risks, according to a poll published September 16 (FAZ, article in German). In the age group 45 to 54, it jumps to 67%. And 66% reject aiding Greece and other heavily indebted countries. Ominously for Chancellor Angela Merkel, 82% believe that her government's crisis management is bad, and 83% complain that they're kept in the dark about the politics of the euro crisis.

The odds of a bailout of the southern European countries seem to be getting worse. At the same time, I expect their financial conditions to worsen as economic growth fails to resume. So the need for a bailout seems likely to grow. Does this mean the end of the Eurozone? Or just a splitting off of some members? Or perhaps the creation of a couple of smaller Euro currencies? Will the Germans bring back the Deutsche Mark while some neighboring countries (e.g. the Netherlands) decide to use it?

Denkverbot: a cool word. You can classify people by whether they support or oppose denkverbot. The denkverbot supporters on a particular subject may cloak their opposition to thinking thru evidence and debating a subject. But their intentions are usually clear enough.

"There cannot be any prohibition to think" just so that the euro can be stabilized, wrote Philipp Rösler, Minister of Economics and Technology, in a commentary published on September 9 (Welt, article in German). "And the orderly default of Greece is part of that," he added. Instantly, all hell broke loose, and Denkverbot (prohibition to think) became a rallying cry against the onslaught of criticism that his remarks engendered.

Once the taboo breaks against seriously considering alternatives to the current Euro zone the debate might spark a large flight of deposits out of banks in heavily indebted countries. Those banks hold lots of sovereign debt. If the southern European governments don't get bailed out then the banks will fail. You can expect to see Greek, Italian, Spanish, and Portuguese banks totter. If they aren't propped up then watch the dominoes fall. The 1931 Credit Anstalt collapse in Austria is the historical precedent most feared by policy makers.

You might think bailout is the right response to a financial crisis that has the potential to cause a big economic downturn. The problem that the Germans correctly sense is that Greece is unlikely to reform if the past pattern up the the present is any indication. Prudent people not under the sway of denkverbot would admit this.

Greece is a chronic defaulter. Since winning independence from the Ottoman Empire in 1832, the nation has spent half its time in various stages of default or restructuring.

Yet various writers keep proclaiming that surely now the Greeks have learned the folly of excess deficit spending. To which I reply: The Americans haven't even learned that lesson.

The idea, which has floated around for months without getting much uptake from European decision-makers, is to scarf up Greece's unaffordable debt on the open market and exchange it for new, more affordable long-term bonds issued by a (presumably) reformed Greek government.

The Euro zone is the creation of idealistic fools. Milton Friedman opposed the Euro founding in 1999 and commented in 2004 that its collapse was "a strong possibility". Given that the Germans have taken positions that make a Greek hard default and even a Portuguese hard default very likely if the Germans intend to eject a few Euro members they had better shift into high gear with preparations to redraw the boundaries of the Euro. The faster done the better. Read that last link. Ambrose Evans-Pritchard of The Daily Telegraph takes a look at the European debt and currency crisis from lots of angles.

Update: The top leaders do not want to hear talk of Greece leaving the Euro.

The key people behind these moves also agreed that one topic was off the agenda: the possibility of a break-up of the euro and, more immediately, the ejection of Greece, was not to be spoken of in public. Chancellor Merkel warned wayward German MPs to “weigh their words very carefully”. Geithner urged EU policy-makers to avoid “loose talk”. Luxembourg prime minister Jean-Claude Juncker, presiding over the Eurogroup, called for “verbal discipline”, lest saying the wrong thing should trigger “irrational” market responses.

Right now the market is pricing in a big default in Greek debt. Is that what the German leaders have decided on? Sovereign default, prop up some banks, and then keep Greece in the Euro? If that's not their conscious choice then are they stalemated?

Share |      By Randall Parker at 2011 September 18 09:58 AM  Economics Sovereign Crises

Make Believe Media said at September 18, 2011 4:35 PM:

"Never believe anything until it has been officially denied!"

CamelCaseRob said at September 18, 2011 8:15 PM:

Seriously, the man on the street has no clue about macro economics and a poll about what they think is pretty worthless. BTW, there is no legal mechanism for an EU member to leave it.

Fritz said at September 18, 2011 8:26 PM:

BTW, there is no legal mechanism for an EU member to leave it."

And how would Deutschland be punished?

Randall Parker said at September 18, 2011 9:16 PM:

CamelCaseRob, The German leaders feel constrained over which options they can choose as the populace becomes more opposed to some of those options.

The populace in Germany do get the score at a very high level: They are expected to subsidize the profligate spenders in order to keep the Euro zone together. Naturally they are not keen to do this and would prefer cheaper options.

gig said at September 19, 2011 10:17 AM:

BTW, there is no legal mechanism for an EU member to leave it."

There wasn't a legal mechanism to dismantle the Roman Empire either. The truth of this is attested by the fact that several centuries after the fall of the Western Empire there were still several warlords throughout Western Europe giving themselves the title of "Western Roman Emperor"

There wasn't a legal mechanism for any USSR member state to leave it. The same for Yugoslavia and Czechoslovakia

Black Death said at September 19, 2011 11:14 AM:

The degree of denial on both sides of the Atlantic is startling. European politicians do not wish to admit the the Euro is doomed and that the whole idea of European integration (the EU) was flawed from the very beginning. Most of the ordinary people believe their lying eyes and see that the wheels are coming off, but the political elite still pretend that they like the emperor's new clothes.

The US is just as bad. The depth of the crisis is denied by almost all politicians. Obama and his cronies think that we can go on running trillion dollar deficits forever and that "taxing the rich" will fix everything. The Republicans are almost as bad - they also pretend that serious entitlement reform will not be necessary and the the US can afford its bloated military and continue to play policeman to the world.

I don't know how this will end, but it's not going to be pretty.

AMac said at September 19, 2011 12:36 PM:

Seems to me that any rescue plan should include an answer to this question: What were the motivations of the rioters who tore through Athens earlier this year? (That was the show that included firebombing a bank branch so that the employees could burn to death. No suspects have ever been identified.)

Well, rioting is exciting and fun, granted. But the broad support for the Molotov cocktail throwers seemed to have more to do with Greeks' determination not to get cheated out of the standard of living that they enjoy, and that is their due.

Who, exactly, owes this to the Greeks? Dunno. Don't care.

Given the disposition of the electorate, how would this "(presumably) reformed Greek government" thing work, in practice?

Apackoflips Now said at September 20, 2011 8:12 PM:

"I don't know how this will end, but it's not going to be pretty."

Gold, guns and groceries...Buy cheap, stack deep...Find a nice place out in a white, less urban area...Cities will be nasty, nasty places with savage negroes looking for loot and KFC. I kid you not.

solaris said at September 21, 2011 10:02 AM:

>"there is no legal mechanism for an EU member to leave it."

That's OK. There was nothing much legal about the way the members joined it.

AMac said at September 21, 2011 2:15 PM:

A (health-care-centric) view of the Congressional Supercommittee approach to US-style deficit spending, here. Not very appetizing sausage on this side of the Atlantic, either.

Lingering said at September 23, 2011 4:31 PM:

Sorry for Germany, but that's gonna be a tough call considering its location on the map. Geography can sometimes be a bitch.

Germany's case is a little like the girl who accepts an invitation out, gets a little drunk, dances, laughs, invites upstairs, kisses, spreads her legs,,, only to say 'I changed my mind'

pitis said at September 25, 2011 3:46 PM:

I think the Germans are in their right but I think it should also help to Greece with the possible

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