Germans Losing Patience with Picking Up Tab
The German public opinion is increasingly against the idea of paying to save the weaker euro-zone periphery member countries, Erik Nielsen, chief European economist at Goldman Sachs, told CNBC.
"If you go around Germany and you read the German press and you talk to taxi drivers, you have a sense that not very much longer will (they) pay for this," Nielsen said.
"Yet if you look at the opinion polls and if there were to be elections today ... you would see that the Green and the Social Democrats, those who are much more pro-European … would stand to win … while the party that’s the toughest on the peripheral...might even lose their representation," he added.
The euro zone's debt problems are unlikely to be resolved this year and finance ministers are already focusing on 2013 to put in place a permanent and robust system" Nielsen added.
"I think the most important thing here is that there has been a change over last few weeks, or month or so where the Germans have gone on the offensive in many ways," he said.
In Europe, debate rages on about where the euro zone will go, whether there will be some form of fiscal federalism where the rich will bail out the others with tax money, or whether all countries will begin to behave more like the Germans, Nielsen added.
"What the Germans have done is gone on the offensive basically saying, ‘the problem here is your competitiveness,’ so that’s the competiveness issue that’s been raised," he added.
"Low interest rates have not made (the periphery) uncompetitive – what made you uncompetitive is that low interest rates saved the governments in the peripheral a lot of money and debt burden and those savings were spent to raise public sector salaries very dramatically over a number of years which then pushed out or crowded out the private sector which raised union labor costs," Nielsen said.
"If you look at eight years, from 2000 to 2008, the German government consumption declined by about 2.5 percentage points while it increased by 6-7 percentage points in the peripheral which crowded out the private sector and pushed up labor union costs, that has to be reversed," he added.