Germany will end up being the nation who foots the largest portion of the bill for Europe’s latest bailout.
The German taxpayer will be taking on the risk of default for PIIGS nation debt. In addition, as Allemn Mattich at The Source points out, the ECB’s bond buying activities could hurt German savers, since it could spark Eurozone inflation. (inflation hurts those who save more, ie. Germany, while helping those who save less, ie. Greece)
Worst yet, they won’t even get any credit. They might actually end up being hated for bailing out Europe:
Germans will, unsurprisingly, be resistant. In order to ensure quantitative easing doesn’t trigger rampant consumer price growth, they will make every effort to enforce austerity across Greece, Spain and Portugal. Governments will be made to stick to their promises of fiscal probity, of tax hikes and spending cuts, come what may. This, in turn, will drive peripheral Europe into depression and deflation. Their debt loads will remain as onerous as they’ve ever been, but they also won’t have much in the way of growth.
For these countries, this free lunch won’t seem free and it won’t have felt like lunch either. Germans will come to be seen as mercantilists, benefiting at the expense of their European partners. The euro will be seen as a straight jacket for them, boosting German exports but keeping peripheral Europeans in permanent recession.
Anti-German sentiment will become increasingly widespread across these countries over the years to come, as Michael Pettis, the Peking University economist, recently pointed out on his China Financial blog.
Great. Germans can only hope a potentially weak euro and the German exports it should stimulate will make up the difference.
(Via Abnormal Returns)
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