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"Germany will stubbornly (and foolishly) refuse to bear its share of the burden of the European adjustment, and the subsequent retaliation by the deficit countries will cause German growth to drop to zero or negative for many years."

What sort of retaliation would that be? Tariffs? Cut off energy or food supplies? Seems to me that if Germany has a globally competitive economy, there's not much that the rest of Europe can do about it.

by asdf on Wed Aug 31st, 2011 at 07:39:40 PM EST
[ Parent ]
asdf:
Seems to me that if Germany has a globally competitive economy, there's not much that the rest of Europe can do about it.

i agree, the rest of europe can suck eggs, from their point of view, the periphery is tapped out as luxury goods market asia and brazil can keep them in the style they're accustomed to.

and just to balance out the germany bashing here a bit, it's not their fault that the PIIGS are less responsible, civic minded, industrious or thrifty, and more corrupt, but it was tolerable when there was money to be made, during which period the euro was a convenient tool, now no longer necessary.

it's not that they want to throw the rest under the bus, it's just time to move on to more avid market, and for that the PIIGS are so much ballast to be jettisoned, nothing personal, just bidnis...

the vaunted european union of common cause was probably a convenient fiction for the movers and shakers all along. that fiction was perceived as reality by millions of dewy eyed believers (myself included), and now there is a huge bureaucracy of EU technocrats geared to protect and ameliorate the lives and rights of EU citizens, setting a good example for the world in many fields, such as alt energy. you're not going to be able to crash all that good will and earnest politicking very easily.

what will be telling is if, faced with the great leap backward that the european state collapsing would be, if enough populist goodwill for the ideal european union project could build to thwart the purely mercenary motives spawned by the neo-lib political capture of those even token leftwing parties here.

i pray that the fiction, born to delude, will have planted itself into so many citizens that they are willing to peacefully take to the streets, to force the hand of those who thought they could dangle a dream in front of gullible, wartorn millions, and then jerk it away as soon as a whole generation has been raised as much 'european' as french or german etc.

perhaps then pols will learn a lesson about keeping promises... europe may need to almost completely founder before mass consciousness awakes to realise what we are in danger of losing, when we had barely begun.

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Wed Aug 31st, 2011 at 08:07:03 PM EST
[ Parent ]
some people seem to forget that Germany still exports more to Belgium (or Italy, or, of course, France) than to China...

Wind power
by Jerome a Paris (etg@eurotrib.com) on Fri Sep 2nd, 2011 at 08:39:06 AM EST
[ Parent ]
Demand destruction. The New DM would probably revalue to twice the value of the New Franc practically overnight if the Eurozone broke up.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Thu Sep 1st, 2011 at 02:00:48 AM EST
[ Parent ]
"Globally competitive" is a function of exchange rates precisely as much as of price levels, and at least as much as it is of the quality of your manufactures. Countries subject to German wage suppression driven mercantilism can retaliate by discounting their currencies until they have restored foreign balance. Indeed, in a true floating currency system they do not even need to actively retaliate, as this is the equilibrium condition for a floating rate system.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Sep 1st, 2011 at 03:32:07 AM EST
[ Parent ]
But we continue to avoid a true floating-rate system. Since Bretton Woods ended we have seen 40 years of surrogates of fixed exchange rate systems. Possibly because Central Banks don't want to, or don't know how to, regulate and then hedge against the foreign currency exposure of their domestic economies.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Thu Sep 1st, 2011 at 04:19:15 AM EST
[ Parent ]
The USA is a good example of a place where a seemingly innocent meme ("tax relief") takes root, and eventually upends the entire country. It happened over 50 years. But still...

Beware these seemingly benign transformations. They tend to metastasize and become religion.

by Upstate NY on Wed Sep 7th, 2011 at 05:15:18 PM EST
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