Stop Bullying Germany for Being Too Successful

I know it has been a long and cherished tradition to blame the Germans for just about anything from the end of fox hunting to the trials and tribulations of the euro, but as popular as it may be, trust me, it is not always true. And I am not only saying that out of misplaced patriotism. Promise.

AP

Let's just forget about fox hunting for the moment (although my sympathies have always been with the fox!) and concentrate on the euro

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Before we go into the details of interest rates, the need to adjust economic imbalances and the allegedly inevitable grim truth that some of the now struggling euro countries should not have been included in the euro zone in the first place, let's just get some of the favorite arguments of die-hard euro sceptiscs out of the way.

First - yes, that ol' chestnut - one size fits all (in terms of interest rates) simply doesn't work. Or it doesn't work well.

But it does not work well anywhere else either.

In the Unites States, for example, the economic differences between California and Idaho are far greater than those between Germany and Greece. Ireland, Greece and Portugal's combined problems are small beer compared to the debt and budgetary problems of the bankupt state of California. And nobody is suggesting that California leave the dollar and print Californian Pesos instead, or have I missed the headlines on that one?

Second - another one of my favorites - the Germans have to adjust their (highly successful!) economic model in order to level out some of the global imbalances.

I just love this one! Honest! The suggestion (curiously enough often voiced by economists and analysts with an Anglo-American background) is that the Germans should simply become more like the Americans or the Brits and embark on overspending and over-indebtedness to try and pay for goods and services they can't afford.

Sorry, but I simply fail to see how that approach could cure the world's ills. I thought that was how the global debacle known as the "subprime crisis" started in the first place.

Silvia Wadhwa
CNBC Anchor

I would also point out another basic flaw of this argument.

Are you seriously suggesting that a highly successful business model, a model that kept Germany on the list of top-performing nations for more than half a century should be swapped for a model under which Germany is less productive so that the less efficient economies around us don't quite look so bad?

If that is the master plan, then let's start printing Deutschmarks now and euro be damned!

The euro - regarded as an impossible endeavour by many sceptics - has been a shooting star. Within its first decade, it became world reserve currency number two, its share in global reserves almost doubling to just unter 30 percent and counting.

And, guess what, this has happened largely at the expense of the dollar and (and to a lesser extent of yen and sterling). So one might point out that for a grossly over-indebted nation like the Unites States to have "the only game in town" currency would be much more preferable to having to compete.

Compare it to Boeing

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[BA  Loading...      ()   ] being much happier before the advent of Airbus on the world stage. Get my drift?

Back to "blame the Germans": should Germany be less hard-headed and Teutonic about tackling the present debt crisis and simply be "nicer" to the notorious spendthrifts in Greece, Portugal or Ireland? Nein! There's no such thing as a free lunch - no matter in what currency.

When Greece, Portugal, Ireland (and arguably Spain and Italy) joined the euro, they effectively moved from a soft currency bloc to the deutschmark bloc. And with that they were given deutschmark (low) interest rates on a golden platter. Almost like giving a low-income earner a no-limits gold Amex card. And Greece, Ireland and Portugal did with their gold euro card what could be expected: they spent. And they spent more. At low rates. And eventually the card company - i.e. the markets - demanded repayment at the equally expected higher rates.

What happened next?

The overspenders went to the European Union and demanded aid.