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Greece Collapses – Germany and the World Will Pay the Price

By Shlomo Maital

   Greek collapse

    Two trucks speed toward each other on a deserted highway. They are 50  kms. apart.  Each drives at 100 kms. an hour.   They have 15 minutes before they meet.  Plenty of time to slow down, stop, turn off the road. 

    Yet they still collide head on, with massive damage.   

    Then, the experts debate why this happened.

    This is the story of Greece.  Greece joined the EU in 1981.  It joined the Euro in 2000, in time to implement paper euros and coins when all of Europe did. 

   Here is what  former  European Central Bank Chief Economist Otmar Issing  said, in March 2011:   “Greece was only able to join the euro through deception [its budget deficit was far above permissible levels]  and the currency bloc’s leaders have been “too polite” ever since to deploy adequate sanctions that could have averted the region’s debt crisis.  When I worked for the ECB, I suffered every time countries didn’t meet the criteria…Greece cheated to get in, and it’s difficult to know how we should deal with cheaters. … Greece will probably be unable to honor its debts as it grapples with insolvency. The country’s repayment ability remains questionable even after the government endorsed an accelerated asset-sale plan and a package of budget cuts necessary to draw a fifth tranche of its bailout.”

    It was obvious in 2011, four years ago,  that Greece could not pay back all that it had borrowed.  Today its public debt is an unsustainable 177 percent of its GDP.  So it is obvious – much of the debt has to be wiped out, one way or another.

   Are Greece and its leaders to blame?  Sure.  But on the principle of “sunk costs”, the history is irrelevant. The question is, what to do today, to avoid the crash?  We’ve seen it coming for years, according to Issing.  Yet Europe and its blind leaders continued to torture Greece, imposing ever more severe austerity.  You cannot grow an economy by shrinking it.  And an economy can only pay back debt by growing.  Grade 5 kids know that.  But politicians and economists don’t.  You cannot have a single currency, the euro, without a single united banking system throughout the euro zone with one set of rules.  That never happened. It never will.  So the euro will become a permanent chronic ongoing crisis, and it has been for years. 

    Yesterday German Chancellor Angela Merkel said, “if the euro fails, Europe fails.”  Really?   What has Chancellor Merkel done to recognize reality – Greece cannot, cannot, pay back its debt?    She should have said, “The euro has failed, because I have failed, and I therefore tender my resignation.  I failed to explain to the German voters, that even if we wipe out a quarter of Greek’s debts, Germany still has gained immensely”. 

     Who has been the big winner from Greece’s suffering?  Germany.

     Why? Because Greece has dragged down the external value of the euro, and the cheap euro makes German exports more competitive.  If Germany under Merkel would give Greece 3 percent of all it has gained from the Greece-driven euro decline, the crisis would be over. 

      Some 37 % of Germany’s GDP comprise exports, or nearly $1.5 trillion (in 2014),   just slightly behind that of the U.S., whose population is three times bigger.  Even China exports only 23 % of its GDP.   How strong will German exports be, when Greece leaves the euro, restores the drachma, bankrupts its citizens and its banks, crashes world financial markets,  bashes the world economy —  and then the euro soars,  throwing Germany’s export-driven economy into recession?

     Two trucks speeding toward each other for years.   Could the crash have bene prevented?  Sure,  with common sense. 

     Was it?

     No.   History will be unforgiving to the hypocritical blind leaders who caused this.


Benchmarking Germany: Job Creation a la Merkel

By Shlomo Maital

job creation

proporiton with jobs

change in proportion of people ages 15-64 with jobs, since 2007

Floyd Norris’ “Off the Charts” feature in the New York Times finds clever ways to present complex data in clear, meaningful visual ways. In his latest effort, today (April 19-20), he charts the “proportion of people with jobs”, by age group, dating from 2007.

This is a much better statistic than the unemployment rate, because when the poll person knocks on your door and asks you, “are you working now?”, if you say “no”, the next question is, “have you been actively seeking work in the past 2 weeks?” If the answer is no again, you are not unemployed, because, you are not even in the labor force. So “proportion of people with jobs” is a good statistic to track.

   Norris’ charts show that both America and the EU (excluding Germany) are abysmal; nearly 5 per cent fewer people aged 15-64 have jobs today than in 2007, and this is after the two biggest economies in the world have ‘recovered’.   Britain is nearly back to what it was in 2007; the Conservative government under Cameron is taking credit for this, giving credit to its austerity program.  I think the job recovery was in spite of austerity, not because of it.  Britain’s pound sterling has dropped a lot, helping its exports, like Germany. 

   But the stellar performer is Germany! Germany has 4 percentage points MORE people working, ages 15-64, than in 2007.    


     I have some explanations. Germany has benefited from the plummeting euro, and boosted its exports. Germany has succeeded in boosting exports to China. Germany maintained wage restraint and restrained social benefits, and its unions have been highly responsible.   Germany avoided shedding excess labor during the downturn and hence preserved the high skills of veteran workers, often the first to be dumped.

     But this is not my point. When job creation is the #1 key issue almost everywhere, and when one country outperforms all the rest by a huge margin, should the decision-makers not be beating a path to its door to find out the secret?   I see no evidence this is happening.

     Obama – Send your civil servants to Berlin. Tell them to stay there until they come home with a strong plan to boost job creation, and reduce the huge numbers of discouraged workers, who do not appear in unemployment stats and hence who are invisible. Tell them to get to the bottom of Germany’s success.   And while they’re there, ask them to discover why Chanceller Angela Merkel is an effective competent leader, while you, Obama, seem unable to organize a paper bag (or a simple website).

Blog entries written by Prof. Shlomo Maital

Shlomo Maital
October 2019
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