There is a strong case for Germany and other surplus countries to rise above the egoistic narrow view of the situation and explain to their electorates that not only it is in their own interest to save the Euro but that they also have a moral duty to support the deficit countries to overcome their problems.
This has to involve a fair burden sharing arrangement which is in the long term interest of the surplus countries as an indispensable step to save the Euro. Collapse of the Euro will be highly detrimental to the economies of surplus countries, apart from other political, social and possibly even security considerations.
Surplus countries have an obligation to burden share the adjustment process of the weak countries, for following reasons:
- The weakness of some members of the Euro, in particular Greece, Italy, Spain and Portugal, was known in advance so strong members share some of the responsibility for admitting into the Euro Club members who were clearly not ready for the commitment.
- Germany and France were the first countries to openly breach the Euro rules in 2003 and they demanded impunity, indeed demanded and obtained weakening of the rules, setting a bad example for the weak countries and weakening the ability of the European Commission to impose discipline on offenders. If you cannot throw the book at Germany why should you be able to throw the book at Greece?
- When Greece was clearly floundering on fiscal good housekeeping and anyone with eyes to see should have suspected that Greece statistical submissions were, politely put, inaccurate, most countries simply looked the other way and pretended not to notice.
- All Euro members allowed the markets to imply that whatever is stated in black and white in the agreements ultimately there is a sense of inbuilt solidarity among Euro members and no Euro country would be allowed to default. In particular Mr Jean Claude Trichet when President of the ECB gave many verbal assurances that no Euro country will default on its debts.
- Strong countries made a feast out of the problems of weak countries. Greece’s balance of payments deficits are the surpluses of Germany. A UBS research paper shows that the benefit being enjoyed by the surplus countries is so large that it is much cheaper for the surplus countries to help the deficit countries to overcome their difficulties through responsible burden sharing than it would be if the Euro blows up.
- The crisis itself has been as much an economic bonus for surplus countries as much as it has been an economic distress of the deficit countries. The crisis has weakened the Euro against other major currencies making core surplus countries, whose economy is export oriented beyond the borders of the EU, even more competitive than it would have been if there were no crisis.
- The crisis has also been a bonus for surplus countries in that their borrowing cost have reduced just as the borrowing costs of deficit countries have shot up. The crisis has triggered investors to take risks off their portfolios and seek capital security in preference to yield.
Germany and France cannot solve the Euro crisis by forcing austerity measures on others while they enjoy all the benefits of the crisis. They must stop being the grinch!!