I can’t prove what I am going to write, but it makes sense, at least to me. Angela Merkel does not want the ECB to print money, be a lender of last resort, etc because most Germans RENT.
This is huge, for the simple reason that renters are most vulnerable to inflation.
Indeed, Germans are protected by their government in many ways. The Germans do not allow easy money lending to disrupt the real estate market. That does two things. First, it keeps a cap on RE values, and allows landlords to maintain steady rents. Second, it allows the Germans to avoid moral hazard in real estate, keeping a lid on wages and benefits and the dreaded inflation that terrifies the country.
Of course, the German banks didn’t have a problem lending to other nations in an easy money binge that resulted in massive German bank leverage. So, one must ask, if the Germans are vulnerable to massive social disruption due to monetizing debt on a massive scale by the central bank, would they even bail out Italy if the Italians pass austerity?
It looks to me like Germany and Italy are like oil and vinegar. There is a trust issue here of major proportions. If I were an Italian leader I would be asking myself if Germany is really committed to the Eurozone, which requires printing money for the benefit of the PIIGS nations, but which would be disastrous for the renters in Germany. German house ownership is way below 50 per cent. These people rent cheaply, get paid well, and then produce goods that have quality and are affordable.
Germany is afraid that affordability of their products can only fail if rents are hiked and inflation becomes expected, requiring Germans to ask for raises. But Germany should have reined in her banks, and made sure that the PIIGS did not over borrow. The failure to do so is why the nation has qualms about continuing with the PIIGS in the Eurozone.
So, while austerity is moving into uncharted waters for Italy, printing money by the ECB moves Germany into uncharted waters as well. Germany is simply not prepared to sacrifice her renters any more than the Italians want to sacrifice their homeowners to declining wages and austerity.
And this tension does not apply to Germans and Italians only. In Switzerland, 28 per cent of people own their own homes. And in Spain it is 80 per cent! The Swiss would be insane to join the Eurozone with such a low home ownership rate. All this is indeed, oil and vinegar.
In the end, the reasons why German Homeownership is at 43 per cent of the population doesn’t matter. That rate is really low. Italy has a rate of 78 per cent. No wonder Italy feels more wealthy than Germany and Switzerland. The Italians see the massive austerity as an attack on home ownership.
It will be interesting to see how this plays out as the Italians resent those poor Germans (mostly renters) telling them (mostly homeowners) how to preserve their middle class.
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