Guest Post: How Much To Save The Euro?

Tyler Durden's picture


Submitted by Geoffrey Wood

How Much To Save The Euro?

Germany keeps being told that it must pay up to save the euro. But how much can Germany pay? No-one seems to have thought about that, but there is already concern about the possible size of bill – German bond yields rose soon after news of the Spanish bail out, even before it was announced where the money was going to come from. (And it was of course a bail out for Spain, regardless of what Spain’s prime minister says. If I borrow money and then lend it to someone else I’ve still borrowed it.)

There is though a more basic question. How much does it make sense for Germany to pay? What sort of bill would it be reasonable to present to them? In fact the best approximation one can arrive at is a bill of zero.

Why zero? What about all these exports that have been produced because Germany has a currency whose value is determined not just by Germany but also by less productive, higher cost, economies?  That link has artificially depressed the prices of German exports. These net exports resulting from Germany’s Eurozone membership are actually the problem.

Germany has been exporting more goods and services than it has been importing. So non-German residents have been making net transfers of funds to Germany. If they can not earn these funds, and they did  not because if they had Germany would not have run a trade surplus, they must have borrowed them. A trade surplus being run by a country means, in other words, that it is a net lender to the rest of the world.

That is certainly not always bad. Often it is good for both borrower and lender. The classic, and one of the longest lasting and relative to national income one of the biggest examples of that is the lending by Britain to the United States that went on from just after 1870 to shortly before the First World War. That lending was beneficial to both sides. In the USA it was invested productively, developing and opening up the prairies. These were, and still are, among the most fertile agricultural land in the world. The investment helped to make the USA a major and very prosperous agricultural producer. And Britain meanwhile not only earned a higher return on capital than could be earned by investing at home (Britain was even then a mature developed economy) but saw a sustained fall in the cost of living as the cost of food fell due to the imports that started to flow from the USA.

Recent German investment has not all been like that. Some has been productive – motor car factories in Brazil, the Czech Republic, and Mexico, for example. But much of it has just been lending to enable governments and individuals to spend more than they have been earning. As is now clear, many of the recipients of these loans are unable to pay them back. So in contrast to the earlier British/US experience, where both sides gained, both sides have lost.

Another aspect of this appears if we think about what would have happened in Germany if net exports had been smaller. Workers and factories would not have simply sat around. More goods and services would have been produced for investment and for consumption inside Germany. By increased investment Germany would have become more productive, and because individuals in Germany could consume more they could have had a higher standard of living. These big exports have in effect been a subsidy from Germans to many of their trading partners.

That is not the end of the story, not the end of the bad news for Germany. What an economy produces can be roughly divided into two categories: goods that are traded internationally and goods that are not. These categories – tradable and non-tradable goods as they are termed – are not of course clear cut categories, but some goods are much more easily traded internationally than others. The depressed German exchange rate has shifted productive resources, labour in particular, from the non-traded to the tradable sector. These resources are more productive there only so long as the exchange rate stays at its current artificial level. When that changes, they will have to incur all the costs of moving back. And, of course, they have been employed producing goods for which in many cases Germany may never be paid.

This is actually the exact reverse of what is now facing Australia. Its exchange rate has been driven up by a mineral boom. Policy makers and voters there are now thinking about two issues. What is a reasonable distribution of the benefits of the strong currency? And what planning should there be to deal with the inevitable end of the boom?

In conclusion, then, it is clear that it is wrong to say that Germany has benefited because of the boost to its exports delivered by a depressed euro. There have been some benefits, for some of the associated overseas investment has been more productive than it would have been at home; but there have also been some costs. The net effect is immensely difficult to calculate, but there can be no doubt that claims that Germany has gained so Germany must pay are just wrong. Any attempt to put the burden of saving the euro on Germany has to be supported by other arguments. I have yet to see them.

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Wed, 06/27/2012 - 17:12 | 2566439 TWSceptic
TWSceptic's picture

Germany foremost benefited from the reforms it did, strangely enough this is mostly ignored by those in the 'pay up' camp.

Wed, 06/27/2012 - 17:17 | 2566447 BarreraNorman70
BarreraNorman70's picture

my friend's mother makes $82 every hour on the computer. She has been out of work for five months but last month her paycheck was $15988 just working on the computer for a few hours. Go to this web site and read more www.MakeCash.Com (just visit once and click home tab )

Wed, 06/27/2012 - 17:23 | 2566473 OttoMBMP
OttoMBMP's picture

Research by Hans Werner Sinn (Ifo Institute in Munich) shows that Germany actually has been a big loser of the Euro.
This mainly due to a strong capital drain in favor of southern Europe.
Note that the share of German exports going to EMU countries has gone down since the inception of the Euro.

Wed, 06/27/2012 - 17:45 | 2566554 Ghordius
Ghordius's picture

Otto, the UKUS Financial analysts have decided the Euro is doomed. It's over. Perhaps next year it will be eating babies. Meanwhile Germany is culpable. We don't know yet why, but "Ihr seid Schuld". Perhaps the tune changes next week or next year, we'll see...

Wed, 06/27/2012 - 17:50 | 2566571 OttoMBMP
OttoMBMP's picture

Yep. If they spare us the carpet bombing this time.

Wed, 06/27/2012 - 22:39 | 2567196 alex_g
alex_g's picture

you're actually bitching about WWII??

Thu, 06/28/2012 - 02:41 | 2567487 Ghordius
Ghordius's picture

I don't know about Otto, I'm bitching about all this propaganda made by Financials. targeting people who have seen too many WWII movies and depicting German intentions as if we where moved back 70 years.

Meanwhile, Nick Clegg et al have understood that this stance is not going to help them. The FT is brimming with articles telling PM Cameron that he has to sit down with the EU Council and behave, i.e. bring some constructive proposals. The City of London made it clear to him that his ultra-arrogant-and-destructive stance last time is not helping them - it just tickles the tummies of his powerbase in the Torys that has this "the Euro must die" fetish.

Fear of being shut out of the eurozone made the Square Mile think. There might be some progress, thanks to that...

Wed, 06/27/2012 - 19:42 | 2566846 agent default
agent default's picture

Germany enacted pretty hard austerity measures after the dotcom bubble burst.  At the same time all the other Eurozone countries started borrowing ans spending like mad, on non productive projects and social policies.  And now it is Germany's fault.  Germany should tell them to get lost and get out of the Euro.  Let's see how much the Euro and the Eurobonds are worth without evil Germany.

Wed, 06/27/2012 - 17:27 | 2566486 TraitorsHang
TraitorsHang's picture

I'm sorry, I have to be promised at least $16632 per paycheck before I click a spam link.

Also, your figures imply that your mother worked 195 hours last month.

Utter fail.

Wed, 06/27/2012 - 18:01 | 2566590 bdc63
bdc63's picture

... ? ... why would you even bother doing the math ...

Wed, 06/27/2012 - 18:44 | 2566707 CaptainObvious
CaptainObvious's picture

Because it's fun, like baiting a Nigerian scammer.

Thu, 06/28/2012 - 03:46 | 2567531 lewy14
lewy14's picture

And a compulsion. And I mean that in a good way. Weird thing is, I'm thinking, damn, I didn't do the math... didn't catch that... getting soft... Must. Try. Harder. ... 

Wed, 06/27/2012 - 17:30 | 2566495 sessinpo
sessinpo's picture

Not forgotten at all. Of course I would expect someone to benefit from loaning me money whether it is a nation, a bank or someone I know in person. However, I am not forced to take that loan and if I do, then expectations are I pay up. But I certainly don't think banks should be bailed out. The banks took the risk, they should pay the piper for non performing loans.


Thu, 06/28/2012 - 01:28 | 2567444 skistroni
skistroni's picture

It was German banks and multinational corporations that have benefited the most from the Euro experiment. Only some of this money trickled down to the hard-working German population. 

German banks, plus the ECB (funded by Germany), have been giving "subprime" loans to the periphery for them to buy German products and services. Think Hochtief, Allianz, Siemens, Bayer, auto industry, retailers and so on. The periphery could perfectly live without these, but the politicians (backed of course by the people in their respective countries) could not resist the temptation. A strong DEM would have never allowed this to happen. 

I would also definitely say that the German taxpayer should not pay for bailouts. It's about time the German elite pays back. And they only way they can do that in a fair manner for the people is by defaulting themselves. The German people will work their way out of the mess, as they have done before. 

Thu, 06/28/2012 - 01:52 | 2567461 LowProfile
LowProfile's picture


How Much To Save The Euro?

I give up...  How much?

Oh, you don't know either?   Glad I skimmed to see that and saved some time.

Wed, 06/27/2012 - 17:23 | 2566475 twocents
twocents's picture

Communism fails again. When the people realize that the plan was always to 'harmonize' standards of living across EU countries, the ones who worked, saved and did the right thing will finally figure out that it means lowering their own standards of living to raise those of the lower ones, permanently. Tough sell.

Wed, 06/27/2012 - 17:52 | 2566576 THX 1178
THX 1178's picture

Communist banking catel. Socialist Banksters. Transferring all of Wall Street's money to Main Street. Ain't that a bitch.

Wed, 06/27/2012 - 17:25 | 2566483 lewy14
lewy14's picture

How much?

All they have is not enough.

A pfennig is too much. 

Wed, 06/27/2012 - 18:07 | 2566605 noses
noses's picture

To quote Pete Townshend:



Give blood
But you may find that blood is not enough
Give blood
And there are some who'll say it's not enough
Give blood
But don't expect too ever see reward
Give blood
You can give it all but still asked for more

Give blood
But it could cost more than your dignity
Give blood
Parade your pallor in iniquity
Give blood
They will cry and say they're in our debt
Give blood
But then they'll sigh and they will soon forget

Wed, 06/27/2012 - 17:28 | 2566491 midgetrannyporn
midgetrannyporn's picture

Germany is guilty of mercantilism just like china. if you run the trade deficit scam long enough you either get paid in ever more worthless currency or you don't get paid at all. Everyone who is crying for germany because they did the right thing is full of beans. Let shylock have his pound they say. sick.

Wed, 06/27/2012 - 17:36 | 2566522 OttoMBMP
OttoMBMP's picture

Hey, but you know that GER doesn't have a currency which could appreciate and thus have a counterbalancing impact on the trade balance.
So, you take away this mechanism. What do you expect them to do? Artificially increase unemployment? Force people who save for retirement to buy Gucci bags or a thousand gallons of olive oil?
Go take some economics lessons.

Wed, 06/27/2012 - 17:38 | 2566526 buzzsaw99
buzzsaw99's picture

where? harvard? maybe in switzerland? sprechen zee german? HAHAHAHAHA!!

Wed, 06/27/2012 - 17:47 | 2566559 OttoMBMP
OttoMBMP's picture

Hahaha, do you speak a foreign language?
Have you learned anything else useful?
I hope it for you.

Wed, 06/27/2012 - 23:33 | 2567298 China
China's picture

He should learn Chineese if he is American. China buying gold/silver. Americans buy cheap trinkets at our favorite store - Wal-mart

Wed, 06/27/2012 - 17:40 | 2566539 midgetrannyporn
midgetrannyporn's picture

Hey fart face germany got rich off housing bubbles in all the other countries and never said a word because it was good for business. Let the Euro suk it bitchez.

Wed, 06/27/2012 - 17:41 | 2566541 buzzsaw99
buzzsaw99's picture

you tell 'em midge! NO SOUP FOR YOU!

Wed, 06/27/2012 - 17:43 | 2566548 OttoMBMP
OttoMBMP's picture

You are very elegant, sportsfriend.
Mom and dad are certainly proud.

Wed, 06/27/2012 - 17:46 | 2566556 buzzsaw99
buzzsaw99's picture

dad is an erudite useless eater just like you.

Wed, 06/27/2012 - 17:47 | 2566561 midgetrannyporn
midgetrannyporn's picture

Don't fight my battles for me buttwipe, you know I hate that.

Wed, 06/27/2012 - 17:54 | 2566579 buzzsaw99
buzzsaw99's picture

Blow it out your bunghole buzzard breath.

Wed, 06/27/2012 - 18:54 | 2566737 TWSceptic
TWSceptic's picture

Absolutely clueless.

Wed, 06/27/2012 - 17:39 | 2566537 ArkansasAngie
ArkansasAngie's picture

That link has artificially depressed the prices of German exports. These net exports resulting from Germany’s Eurozone membership are actually the problem.

Right so the problem can easily be solved by raising German prices ... Inflating them?

So the cost will be zero?

Horse manure.


Wed, 06/27/2012 - 17:45 | 2566552 falak pema
falak pema's picture

3.5 T according to Buiter of Citi. Thats peanuts to become king of Eurogroup for twenty years!

Wed, 06/27/2012 - 20:53 | 2566997 darkpool2
darkpool2's picture

No for only one dollar would i want to be king of all those useless asswipes!
I have maintained for a while that Germany will bail ( walk, not fund !!!) , and the longer this goes on, the more that seems the logical outcome. Who they then team up with is the really interesting question. Many will not like the answer.

Thu, 06/28/2012 - 04:37 | 2567558 falak pema
falak pema's picture

same goes for USA...its called the Titanic. But those on board have to try and escape. We are in those times and those waters.

Wed, 06/27/2012 - 17:51 | 2566574 MillionDollarBogus_
MillionDollarBogus_'s picture

How much?

Whatever it takes, after they get the interest rates at or near zero.

Why they have't done that is a bit of a mystery.

Wed, 06/27/2012 - 17:56 | 2566580 dick cheneys ghost
dick cheneys ghost's picture
''When the paper mache artisans start talking about a total of $10 to $12 trillion for Western Europe, the United Kingdom, and the United States combined, then they will be seriously planning a banking system recapitalization. They prefer the futile incremental approach, with the proviso of not liquidating the big banks. The hilarious factor is that even $10 trillion would not work, but it would indeed buy another couple years, maybe three years. So  if an alcoholic has the Delirious Tremens, the consensus stupidity calls for feeding him a higher proof Jack Daniels whisky and from a vat for intravenous application, which will revive him, when a mere few liters would not. It is utterly amazing that Bernanke and Draghi are given any respect at all. This is utterly absurd, since the wrong-footed solution is going to be simply higher volume of what does not succeed in reviving the system. WHEN THEY START TALKING ABOUT BIG BANK LIQUIDATION AND A NEW GOLD-BACKED MONETARY SYSTEM, THEN EXPECT SOME TRACTION. But such a plan would involve plowing the system under and removing the bankers from power. Until then, plan for a bigger killing field. The great tragedy is that the killing field is the entire Western monetary system, attached at the hip to the Western Economic system. Witness the gradual collapse.''


Jim Willie.........from today.......from SilverDoctors

Wed, 06/27/2012 - 18:00 | 2566587 TaxSlave
TaxSlave's picture

And WHEN it comes, the 'gold-backed' part will mean "paper debt notes backed by gold (but you can't have any of the gold)".   Bet on it!

Wed, 06/27/2012 - 22:10 | 2567136 g speed
g speed's picture

yep-- the banks played that game in 1837 in the good old USA  -- 

Wed, 06/27/2012 - 17:57 | 2566585 TaxSlave
TaxSlave's picture

Wikipedia says Germany has a national debt of 82% of GDP.

So, just to clarify, Germany does have money to lend, it just has better 'credit'.

Here's hoping people worldwide begin to equate the word 'bond' with 'bondage' -- their slavery.

Wed, 06/27/2012 - 18:48 | 2566718 CaptainObvious
CaptainObvious's picture

Wikipedia also says that Lady Gaga is an "artist" and that global warming is caused by man.  Don't believe anything that can be edited by people who will make money from the edit.

Thu, 06/28/2012 - 07:12 | 2567663 my puppy for prez
my puppy for prez's picture

Did everyone hear that Lady Gaga is coming out with a new perfume that, in its scent formula, has the elements of her own blood, an anonymous seme sample, and a highly poisonous-to-humans plant?  

I am not making this up!

Wed, 06/27/2012 - 18:04 | 2566597 Sudden Debt
Sudden Debt's picture

We'll see how it turns out...


There will be a meeting number 20.... And 21.... And 22....
And all this shit will go worse and worse untill they just open the floodgates of hell.

Wed, 06/27/2012 - 18:06 | 2566601 slewie the pi-rat
slewie the pi-rat's picture

 <<neg trade balance = BK

 << no, that's not why!

are we to believe that the EU debtors are BK b/c they had a negative balance of trade with germany?

or not? 

what is the correct  answer for this  afternoon's 'save the euro' dichotomy article? 

andbody know?  L0L!!!

Wed, 06/27/2012 - 18:14 | 2566620 buzzsaw99
buzzsaw99's picture

salacious. falacious, sagacious, outrageous. the whole system is fuktarted.

Wed, 06/27/2012 - 18:18 | 2566624 Youri Carma
Youri Carma's picture

Donald Coxe: “It used to be that the number that would solve things was $500 billion, then it got to $1 trillion, and now I’m reading responsible people who say, ‘We will really need about $2 trillion over the next twelve months because of debts maturing.’”

Youri Carma: “All in all the ECB would need around an estimated $6 trillion to accommodate their imediate and inter-imediate funding needs.”

FROM: Wonder What Would Alice In Wonderland Say To The Vampire Squid?
27 November 2011, by Youri Carma (FPP)

Wed, 06/27/2012 - 18:24 | 2566640 ddtuttle
ddtuttle's picture

They don't print that much.

Simply, Germany will not pay what it will cost to get the peripheriy out of hock.

In other words, the only solution (get rid of the debt), is impossible for Germany.

The ONLY thing that makes sense is for Germany to leave the Euro, and let find its true value.

In the long run, it will be MUCH LESS expensive for Germany to have a strong DM, than to pay for the rest of Europe.

Thu, 06/28/2012 - 00:21 | 2567369 wandstrasse
wandstrasse's picture

Germany is the last piece of collateral available in the western world to keep the ponzi going for a couple of months. Bankers want it, bankers get it. Rest assured. With D-Mark or with Euro, does not matter. It has been decided decades ago, cannot be stopped neither can the direction be changed.

Wed, 06/27/2012 - 18:26 | 2566648 data_monkey
data_monkey's picture

How am I supposed to read this if ZH doesn't Bold any of it?

Wed, 06/27/2012 - 18:36 | 2566682 q99x2
q99x2's picture

Banks are stealing the German tax dollars to bribe their politicians just like over here. Next they'll be paying for a DHS, that will be used by the banks against them, with their tax money. They have to get rid of the banksters while they still have a chance.

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