A rather damning indictment of the German government’s role in the Euro crisis in today’s Der Spiegel by leading German economist Stefan Homburg. He argues that Greece should default but because of Germany’s ‘boundless stupidity’, she will continue to pay up. He begins by making this point about the proposed voluntary participation of the banks, which would not only lead to a default by the ratings agencies, but are illegal:
Banks cannot participate voluntarily. An executive board is committed to its company’s welfare, and not the public interest. If it waives outstanding debts at the expense of its own company, this is a breach of trust and punishable by law.
So according Homburg the proposals are merely a big show to reassure German taxpayers:
SPIEGEL: So the voluntary participation of private creditors, which German Chancellor Angela Merkel and French President Nicolas Sarkozy have agreed on, will achieve little or nothing?
Homburg: It was all just a big show which was mainly intended to calm the German public. Merkel wanted mandatory participation, Sarkozy wanted none at all. In effect, Sarkozy has prevailed.
Interestingly an agreement by French banks to rollover their debt has been put forward by the French this morning:
French Finance Minister Christine Lagarde said on Monday that the government had a first draft deal of an agreement with French banks to roll over holdings of their Greek debt.
“We’ve got a first draft. It’s a first outline,” she told journalists ahead of a news conference with President Nicolas Sarkozy
However, Homburg is so confident that the German will pay that he has invested in Greek bonds himself:
In recent days, I myself have invested a considerable sum in Greek bonds. They will mature in one year’s time and, if all goes well, produce a 25 percent return on investment. I sleep very soundly at night because I believe in the boundless stupidity of the German government. They will pay up.
Since I involuntarily help finance the rescue packages through my taxes, I have no problem with also receiving a portion of the profits. Why should it only be banks and hedge funds that benefit?
But Homburg is in no doubt that Greece will eventually default, it’s simply incapable of sorting out its finances, but the Germans (and indeed the rest of the EU including us) will continue to throw good money after bad in hope the that someone else will be blamed for the Euro collapse:
Many politicians have also come to the realization that the path that we are on ultimately leads to national defaults and currency reforms. This process is already irreversible, but nobody wants to say it out loud and go down in history as the one who triggered the explosion. So we leave the bankruptcy to subsequent German governments and, in the meantime, throw good money after bad. Sooner or later, this much is certain, the system will be blown apart by political and economic factors. And, unfortunately, there is a great danger that, when this happens, it is not only the euro that will fall apart, but also the entire EU.
Greece will be voting on its austerity budget tomorrow, which most analysts believe will pass the Parliamentary vote, albeit narrowly, meaning the Euro debacle will continue to limp along pathetically for some time yet – in the meantime billions of pounds of taxpayer’s money will be wasted to shore up a few politician’s egos. I think I could use a few stronger words than ‘boundless stupidity’ to sum up the current crisis.