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Greece Collapses – Germany and the World Will Pay the Price

By Shlomo Maital

   Greek collapse

    Two trucks speed toward each other on a deserted highway. They are 50  kms. apart.  Each drives at 100 kms. an hour.   They have 15 minutes before they meet.  Plenty of time to slow down, stop, turn off the road. 

    Yet they still collide head on, with massive damage.   

    Then, the experts debate why this happened.

    This is the story of Greece.  Greece joined the EU in 1981.  It joined the Euro in 2000, in time to implement paper euros and coins when all of Europe did. 

   Here is what  former  European Central Bank Chief Economist Otmar Issing  said, in March 2011:   “Greece was only able to join the euro through deception [its budget deficit was far above permissible levels]  and the currency bloc’s leaders have been “too polite” ever since to deploy adequate sanctions that could have averted the region’s debt crisis.  When I worked for the ECB, I suffered every time countries didn’t meet the criteria…Greece cheated to get in, and it’s difficult to know how we should deal with cheaters. … Greece will probably be unable to honor its debts as it grapples with insolvency. The country’s repayment ability remains questionable even after the government endorsed an accelerated asset-sale plan and a package of budget cuts necessary to draw a fifth tranche of its bailout.”

    It was obvious in 2011, four years ago,  that Greece could not pay back all that it had borrowed.  Today its public debt is an unsustainable 177 percent of its GDP.  So it is obvious – much of the debt has to be wiped out, one way or another.

   Are Greece and its leaders to blame?  Sure.  But on the principle of “sunk costs”, the history is irrelevant. The question is, what to do today, to avoid the crash?  We’ve seen it coming for years, according to Issing.  Yet Europe and its blind leaders continued to torture Greece, imposing ever more severe austerity.  You cannot grow an economy by shrinking it.  And an economy can only pay back debt by growing.  Grade 5 kids know that.  But politicians and economists don’t.  You cannot have a single currency, the euro, without a single united banking system throughout the euro zone with one set of rules.  That never happened. It never will.  So the euro will become a permanent chronic ongoing crisis, and it has been for years. 

    Yesterday German Chancellor Angela Merkel said, “if the euro fails, Europe fails.”  Really?   What has Chancellor Merkel done to recognize reality – Greece cannot, cannot, pay back its debt?    She should have said, “The euro has failed, because I have failed, and I therefore tender my resignation.  I failed to explain to the German voters, that even if we wipe out a quarter of Greek’s debts, Germany still has gained immensely”. 

     Who has been the big winner from Greece’s suffering?  Germany.

     Why? Because Greece has dragged down the external value of the euro, and the cheap euro makes German exports more competitive.  If Germany under Merkel would give Greece 3 percent of all it has gained from the Greece-driven euro decline, the crisis would be over. 

      Some 37 % of Germany’s GDP comprise exports, or nearly $1.5 trillion (in 2014),   just slightly behind that of the U.S., whose population is three times bigger.  Even China exports only 23 % of its GDP.   How strong will German exports be, when Greece leaves the euro, restores the drachma, bankrupts its citizens and its banks, crashes world financial markets,  bashes the world economy —  and then the euro soars,  throwing Germany’s export-driven economy into recession?

     Two trucks speeding toward each other for years.   Could the crash have bene prevented?  Sure,  with common sense. 

     Was it?

     No.   History will be unforgiving to the hypocritical blind leaders who caused this.

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Explaining (again) the Euro/Greece Crisis to Grade 5

By Shlomo Maital

Grade 5

  Hello Grade 5’ers!  Thanks for inviting me.  I know my subject, money and economics, is BOOOOOring.   But believe me, it is important for you to know what is going on, because when you are just a few years older, what happens in Europe will affect you. Because Europe is the world’s biggest, or next-to-biggest, economy, depending on how you add the numbers. 

   So here’s the deal.  Europe has had lots and lots of terrible wars, with France, Germany England and others fighting each other. Someone (in France) had a great idea.  What if we stopped fighting and made money together, by buying each other’s stuff?  If you buy my stuff, I’m not likely to want to fight you.   So they called it the European Single Market.  And it worked beautifully.  No-one thinks Europe will have a big fight any time soon (though, Russia may be an exception – that’s another scary story).

     If you sell and buy, you use money.  But there are 28 countries that belong to this European club.  What a mess if you have to start finding escudos, guilders, lira, pounds, francs, and all kinds of weird money.   So 19 of the countries decided they would use the same new currency, which they called the “euro”.  Kind of like America, where the 50 states all use the same money, the dollar.  Some 332 million Europeans use the euro. 

     But there is a problem.  If you have the same money, you have to have the same rules for making the money.  That means, you have to get all those 19 countries to agree on the “rules of the game”.  You can’t play baseball or football if neither team agrees what the rules are, right?  And here is where things broke down.  

  Some countries want there to be lots and lots and lots of euros.  Some countries want just a little bit of money.   Some countries (like, a little country called Greece, only 11 million people) broke the rules, spent too much money, and got into trouble, just like we do when we spend too much.   Because they had to borrow and now they have trouble paying back what they owe.  Other countries, like Germany, who had lots of money, helped Greece but sent Greece kind of to the penalty box. No more spending.   Less treats, less goodies.  And Greece didn’t like it.  I wouldn’t either. 

      So Greece has had elections and its new leaders are making a big fuss about the punishments other countries have given it.   Some think Greece might even leave the ‘club’ (the euro).  That might be terrible, because then some other countries might do the same, and the whole club would collapse.  So, the 27 countries want Greece to stay in the club but they do not agree how to make that happen.  It’s like, do you punish the Greek people for overspending (they didn’t do it, their leaders did)?  Do you forgive them, and then others might do the same?   Why should other countries give money to Greece? But if they don’t, they will lose too, because the whole Euro club might come apart.

    And you know, Grade 5’ers,  I guess you could see this coming.  If you start a game, and you have not all agreed clearly on the rules, including for things that are really strange (like, what if two guys are on second base – who’s out?  What if one player’s mother comes on the ice and drags him (the goalie) off to Hebrew School?  (yup, happened to me) – you’re going to get into trouble.  Those Europeans, they started a club without a clear set of rules, and worse, without any way of leaving it without causing REAL trouble. 

    I’m pretty sure they will muddle through and keep that weird euro club going.  They all have too much to lose. But boy, kids, I think you Grade 5’ers could have done a far better job.  Those Europeans, they couldn’t see their fingers even if they were right in front of their nose.   So, when you go to play a game, or start a club, make sure everyone knows the rules.  Kids usually do. It’s the grownups who are dumb about that sometime. 

7-1!! How Did Germany Do It?

By Shlomo  Maital

Muller

Thomas Muller

OK,  World Cup soccer (football) fans!  How did Germany win 7-1 over a strong Brazilian team?   Ask veteran sportswriter George Vecsey, who for decades has given us the inside story of what really goes on in baseball, and other sports.

    It starts with failure. Great achievement OFTEN, perhaps even always, starts with some sort of failure. The German football team failed to advance beyond the group stage of the European championship – a huge trauma.  This generated a development plan.  In 366 districts of Germany, youngsters were screened, examined and picked for further training.  The system produced an outstanding wave of players now in their mid-20s.   One of them is Thomas Muller, the creative star who seems to be everywhere, and who combines the two key elements of creativity:  discovery (being in unexpected surprising places, figuring out just WHERE to be), and delivery, the ability to convert chances into goals, like his amazing goal scored from a volley, against Brazil, after a corner kick reached his right foot.

   Want to be a world champion?  Find talent (including your own).  Develop it patiently.  Be focused.  Show your people the vision.  And work very very very hard.  Vecsey quotes British star Gary Lineker,  “football is a simple game; 22 men chase a ball for 90 minutes and at the end, the Germans always win.”

    Let’s learn from them.  Not everyone is thrilled by the 7-1 triumph.  But all of us can learn from it, about how creativity and discipline can unite to achieve true greatness.           

Blog entries written by Prof. Shlomo Maital

Shlomo Maital
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