Germany should not have to bail out Europe
The EU has agreed to an immense 750billion Euro rescue package to prop up the Euro. Germany has as the EU’s paymaster naturally been at the forefront of negotiations, but has been very reluctant to bail anyone out. The German public does not like the idea that they should have to bail out countries that have gotten themselves in to financial difficulties due to irresponsible fiscal policy. In Germany’s regional elections over the weekend Merkel’s party the CDU was down 10% on the previous elections, with the election in effect acting as a referendum on the bailout.
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Countries should not be responsible for other EU members
Whilst we have created the European Economic Community, no country is obliged to bail the others out. Each country should be responsible for its own domestic politics and its own domestic finances. With Greece facing so much trouble, it should not be Germany who help out. Greece should help them instead of dragging the rest of the European Community down with them. Countries need to learn how to help themselves and not become reliant on their status as a member state.
In reality, upon signing the Treaty of Lisbon, upon ratifying all previous treaties and entering into a single monetary union countries within that group do become increasingly responsible for each other. The European Union is becoming more and more like that of a single country. They are pressing more and more directives and regulations meaning that countries have to impose similar laws, they are admitting more and more countries into the single monetary policy for the Euro and they have introduced something called European Union citizenship to which everyone who has the nationality of a member state has the status of a European Union citizen. With these policies making the EU more like that of a single country is it any wonder that they are expecting more responsibility to be taken for other member states domestic affairs?
This is only temporary help
By providing this cash bailout Germany “have merely bought [the European Community] time, nothing more”[[Christoph Schmidt, head of economic research institute RWI]]. You should not provide a country with masses amounts of money to prop up the Euro without setting into place prevention measures to stop the crisis. Germany should not bail out a country that has not changed the way in which it manages finance. The old proverb still applies, give a man a fish and he will eat for a day, teach a man to fish and he will eat for a lifetime.
As eloquently pointed out by The Financial Times Deutschland, whilst the actions of Germany in bailing out the Euro will not alone save the Euro yet, it does set the preconditions upon which the Euro CAN BE SAVED. It sends a clear message to investors that the Euro is a currency that will not be left to sink. It is a currency with promise. In turn, this hope and faith will lead to investment into the euro-zone and this is what will save these countries. As with most financial matters, we should be looking at these short term consequences and their long term effects – not just the immediate public response.
the German people did not want to
The German people did not want to bail out Greece and consequently Europe. This can be seen by the recent bi-election results. Germany being ruled by a coalitions Government, saw that the bear majority party lost favour in these bi-elections. Commentators suggest that this is largely due to the German people’s resilience to the bailout plan.
It is well known that what the people want is not always right and it regularly occurs that popular opinion is on the wrong side of what needs to be done.[[http://rothkopf.foreignpolicy.com/posts/2010/06/08/when_an_issue_separates_the_majority_from_the_truth]] as is the case this time. The German people only see the potential losses and the cost to them rather than the benefits to them that they would be bringing because these would be long term and the pain short term.
Once again the creditors are off the hook.
Like with the bail out of banks. Who is essentially paying this bail out? The tax payer. Like with the bail out of the banks, who caused the need for the bailout? Bad management by creditors; these creditors have once again been irresponsible to the detriment of an institution. Not only now to banks, but also to whole countries and as a result the value of the euro has decreased. Most of the European nations are now suffering as a result. What have we taught these creditors in doing all this bailing out and suffering on their behalf? We have reinforced in them the idea that irresponsible money lending is acceptable as if it all goes wrong, the tax payer will pay the bill.
We have no alternative in these situations than to bail out the creditors! To fail to do so would only lead to an even worse outcome of financial uncertainty and destruction. We have to bail out the creditors and after the fire has been quelled, then we can start looking at action to take upon those creditors. We can see this with Britain and the banks. Bankers got their punishment once the dust had settled. The same will undoubtedly happen here, all we need is calm and patience.
It is a consequence of being part of the Euro
Being part of the Euro means that your countries currency is determined not only by your countries domestic economic politics, but also on that of other countries. Should other countries, like Greece, prove less efficient, less stable; the more responsible countries will suffer from the loss in worth of the currency. Germany is helping itself by helping ou5 the Euro as this is now their national currency. Upon signing into the monetary fiscal policy of Europe this is what Germany signed up to. They cannot now complain.
It should not have been a consequence of joining the Euro. Certainly the German people did not bail outs for the rest of Europe as being part of joining the Euro. The Growth and Stability pact should have prevented anything like this from happening by having all the countries agree to limit their budget deficits to no more than 3% of their total economy.[[Q&A: What is the European stability pact?, BBC News, 25/9/03, http://news.bbc.co.uk/1/hi/business/3139460.stm%5D%5D Hence it was because Greece and other countries ignored this that they are now having problems and Germany has to consider bailing them out.
Germany is at the heart of the problem
The Greeks and the other 'PIIGS' have generally had to shoulder all of the blame for their problems however this is ignoring one of the central issues that caused the problem in the first place: German. The European Union is a microcosm of the world as a whole. Over the whole world a big part of the problem is rebalancing between those nations that have been driving the economy by consuming based on debt - Britain, USA etc and those such as China who have been running up large surpluses and not buying enough. In the European Union the PIIGS have been taking the role of the debtor and Germany has been the one running up the surpluses.
The problem is explained well by Doug Saunders in the Globe and Mail
[[Doug Saunders, Life in the German Empire, The Globe and Mail, 30/4/10, http://www.theglobeandmail.com/news/opinions/life-in-the-german-empire/article1553140/%5D%5D
This would normally be solved by the Greeks devaluating the currency to regain competitiveness but within the Euro this cannot happen so Germany and German banks lend more and more to southern Europe so that they can pay for German goods. It is therefore not just Southern Europe that needs to restructure but Germany too. The Greeks need to be more competitive but German consumers need to buy more as well.
Needs to be greater fiscal union.
A big part of the problem is that at the moment Germany does not give enough. Or rather the rich areas do not give enough to the poor areas so that unlike in the USA the problems between states do not get ironed out through spending.
so essentially the problem comes down to not being able have a strong, durable monetary union, like the Euro, without a fiscal union. This fiscal union needs to be along side to allow for effective fiscal discipline and compensatory budget transfers across the whole currency area.[[Timothy Garton Ash, Britain and Europe are living separate crises. Underneath, it's the same one, The Guardian, 12/5/10, http://www.guardian.co.uk/commentisfree/2010/may/12/britain-europe-separate-and-same-crises%5D%5D
Germany has not done its part in stimulating the world economy
Germany despite being the world's 4th largest economy has not done much to stimulate the world economy during the recession. While Britain, China and the US pumped trillions in to the global economy Germany preferred simply to free-ride and not increase its own expenditure.[[Germany vs. Europe, New York Times, 27/5/10, http://www.nytimes.com/2010/05/27/opinion/27thu1.html%5D%5D It is only right that it should have to do so now when its own back yard is in difficulty. Indeed as an example that helps show that Germany is not doing enough to help the global economy Paul Krugman has now expanded his arguments for telling off/putting tariffs on China to Germany's austerity.
[[Paul Krugman, Dealing With Chermany, New York Times, 11/6/10, http://krugman.blogs.nytimes.com/2010/06/11/dealing-with-chermany/%5D%5D
What do you think?