If you want the ultimate German take on the euro crisis, you must go read the FT’s interview with Bundesbank chief Jens Weidmann.
It basically comes down to this: There is no Euro crisis, there’s only a crisis in various European countries, and they’re all unique. In Greece, they racked up too much debt. In Italy their politics are crap. The solution: stick to the original rules, and everything will be fine.
What’s incredible — and almost impressive — is how uncool this thinking is. And we don’t mean that in a pejorative way, but rather, nearly everyone else thinks that the Euro has structural problems associated with the fact that countries don’t have flexible currencies, and thus can’t adjust, or naturally overcome their debts.
Paul Krugman nailed the problem pretty well in one sentence this past week, explaining that countries like Greece and Italy voluntarily reduced themselves to the status of third-world countries that have to borrow in a foreign currency (the euro).
Anyway, Bundesbank’s Weidmann is incorrect. It’s not a crisis that’s just about unique situations in various European countries. It’s a Europe problem, and more great evidence of this comes from this awesome chart from Naufall Sanaullah’s latest economic overview showing the difference in Italian-German industrial production pre-and-post Euro.
As you can see, the two countries grew mostly in line in the years up until they fixed the exchange rate. It was after the exchange rate got fixed, and the Italians no longer had the power of competitive devaluation that the gap started to emerge.
Of course, this is consistent with several other points people have made that basically the euro has been a great boon for the Germans, as all of its partners have been both stymied (less currency flexibility) and been afforded more credit (with which to buy more German goods).
So yes, someone please send this chart to the Germans, preferably tonight, so they can greenlight the ECB’s inevitable market intervention.
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