So far, though, Germany is resisting calls to allow the European Central Bank to conduct unrestricted purchases of government bonds issued by ailing euro-zone countries in order to push their borrowing costs down to sustainable levels.
It also remains opposed to jointly issued euro bonds. Its arguments are that the measures would remove the incentive on high-debt nations to get their budgets in order, would stoke inflation and would end up costing Germany too much.
Here is the bottom line as I see it. It’s time for Germany to make some tough decisions. The Euro is toast unless Germany acts decisively to save it. No one else can. It’s not fair to the German people that they should have to pay the price for the profligacy of Greece and other countries. But life and economics don’t come with a fairness guarantee.
This is where the rubber hits the road. Germans must now decide, and quickly or the decision will be out of their hands, whether they are prepared to foot the bill to save the Euro. How important is the single currency? How bad will the damage be when it collapses (and it will without massive German intervention)? Are they prepared to underwrite significant parts of the debt of other nations and or tolerate large scale money printing with all the risks that come with that?
If not, then better for all if they simply make their position clear and future conferences could then focus on trying to unwind the Euro mess in as minimally destructive a manner as possible. For my money I think any “solution” that doesn’t involve the creation of some sort of centralized pan-European government with real authority over national budgets is a waste of time. You can’t have a single currency with everyone operating on the honour system. That much I think has been made clear. And some decision is going to have to be made as to who is going to take the haircut for all of the bad debt out there. Bad debt doesn’t just go away. It stays bad until someone takes the loss.
I have serious doubts about the ability of anyone to persuade the German people that they should have to suffer for the fiscal insanity of Greece and the other overextended states. But we will see one way or another. And I don’t think we will have to wait long.
The Euro experiment has failed and I for one don’t think it is rational for the Germans to be left holding the bag long after the southern European countries implode due to their profligate spending, corruption, and demographic suicide.