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In fact, the euro is a massive "subsidy" by Germany (and, to a lesser extent, France) to the periphery countries which used to have much higher interest rates, and now have pretty much the same ones.

It does not cost Germany anything, as this is a windfall given by the markets, but said markets do expect that Germany will discipline Italy and others into putting their house in order. Thus that implicit German "promise" is worh tens of billions each year to Italy, Spain and others.

It's not a transfer, but it's real wealth for these countries.

(And it puts in perspective the budget deficit disputes whereby Germany and France have been said to weaken the Maastricht criteria: these criteria were meant to make Italy et al. as solid as Germany. It will take more than a couple of years of subpar budgetary performance by Germany  to make Germany less solid than Germany, even the idealised one of the traders. France is now put in the same boat as Germany, because it established its own credentials in the 80s and 90s under the Socialist governments. Beregovoy (the PM in 1992-92, and all)-powerful Economics & Finance Minister before that, who took his life in 1993 after ugly slanders) has done more for the credibility of the euro than any other of our leaders, by sticking to unpopular strict policies then.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Wed Jan 31st, 2007 at 04:26:45 PM EST
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