Back to the Deutschmark

The debt crisis has upended lots of my assumptions about European politics, so it’s perhaps not surprising that I find myself agreeing with just about everything in this piece from The Telegraph by Mehreen Khan, advocating a German exit from the euro. Less surprisingly, I also agree in general with this NY Times article by Shahin Vallee, who also concludes that the (virtually inevitable) breakup of the euro would be better achieved by an orderly German departure.

One point made clear by the Greek disaster is that the mechanics of exit from a currency union are feasible only if the new (or, in this case, revived) currency is stronger than the old one. So, the appropriate way to break up the euro is for Germany, and other countries that want to remain in a German currency union, to switch to the Deutschmark. That way, existing euro-denominated contracts and accounts stay in euros, which can be freely exchanged for marks. Since the mark is expected to appreciate, there’s no reason for a run on banks in advance of the switch.

All this assumes that a breakup of the euro is desirable. In my view, the euro has failed on every count.

* The euro has failed in the aim of creating an Europe-wide currency union. The countries still outside are counting their blessings, and will almost certainly never join.

* The fallback position, based on the idea of the eurozone as the core of “two-speed” Europe has also failed. This idea was always based on the assumption of a vision shared between France and Germany, an assumption that has been destroyed, in large measure, by the euro. Far from being a unifying force, the euro has gone a fair way to reviving the demons the EU was created to keep at bay

* Economically, the euro has been a disaster, producing a deep depression in most of Europe and not even doing much for Germany. It’s an open question whether this was an inevitable consequence of a common currency, or the result of ECB mismanagement in the crucial years after the crisis, but either way, this is a failed experiment.

86 thoughts on “Back to the Deutschmark

  1. the appropriate way to break up the euro is for Germany, and other countries that want to remain in a German currency union, to switch to the Deutschmark. […] Since the mark is expected to appreciate, there’s no reason for a run on banks in advance of the switch.

    Wouldn’t we expect that the euro would depreciate upon the exit of its richest members? And so we might still see a run on Greek, Spanish, Portugese (etc. etc.) banks in advance of the exit of Germany and friends?

  2. @Matt

    Yes, Matt.

    Maybe the word ‘run on banks’ in Spain and Portugal is putting it a bit too strongly. Lets say, unusual and significant deposit outflows, enough for at least some banks to fail the ‘stress test’.

    We are talking hypotheticals here. Hopefully, the EUROzone members would agree to temporary capital controls before the event such that a Euro40billion deposit outflow from Greece (since Varoufakis left the gate open and then blames the ECB for closing it) during the 6 months to 13 July could be prevented.

  3. Depreciation of the rest of the Eurozone would be a good thing for their economies.

  4. @Matt

    The point is that it’s impossible to convert euros into DMs in advance of the (re)introduction of the DM. And euro liabilities don’t get converted to DM. So, the banks are solvent both before and after the switch.

    Of course, the euro would depreciate against external currencies, while the DM would appreciate, but that’s not a problem – we’ve seen plenty of currency depreciations before.

  5. @John Quiggin

    I question the banks being solvent after the switch.

    Whether if a ‘bank run’ will be triggered after the switch causing banks to go insolvent depends on the composition of the liability (deposits) on the bank’s balance sheet. If the composition of the deposit liability is majorly owed to average (or below) income earners and wealth holders then banks becoming insolvent is unlikely as most of the deposit holders are unlikely to exchange euro which they will still be using for day to day transactions to DM. If the composition of the deposit liability is majorly owed to high income earners and wealthy people, then they can exchange a large amount of deposits into DM anticipating for DM’s appreciation and Euro’s depreciation; which depending on the amount of deposit withdraws, can make banks become insolvent.

    Given the long period of depression which in most cases cause middle class or the poor to run down their savings and wealth, I highly suspect the latter rather than the former would be the case.

  6. The French will never, ever let it happen. A one currency Europe suits the French very well. The French economy benefits from the strength of the Germans and the weakness of the southern Europeans. But if Europe was divided into strong and weak currency groups, economically, they would belong in the weak currency group. But politically, that would be a national humiliation like May 1940.

  7. Three thoughts arise here.

    Firstly what would have happenned if the Pound had also been incorporated given the Pound is not just about Britain but is traded enormously and is linked to who knows how many off-shore fiefdoms of capital? An even bigger mess no doubt so the UK staying out was indeed a good idea even if it benefitted the City which doesnt seem a great idea.

    “Economically, the euro has been a disaster, producing a deep depression in most of Europe and not even doing much for Germany.”

    I have seen many claim that German exports benefit greatly from the depressed exchange rate. But conversely having the rest of Europe depressed means they cant sell as much locally because people dont have the money to buy. I wonder about where the balance lies here.

    Finally whither Greece now? The solution doesnt seem to have solved anything but just kicked the can down the road again for another six months before it finally breaks.

  8. JQ, I agree with your asterisk points. In fact, I am in furious agreement with these asterisk points. It is always good is it not, to begin a dialogue by first agreeing on the common ground before coming to issues possibly in contention?

    To get on to the possibly contentious issues, why do you say this?

    “One point made clear by the Greek disaster is that the mechanics of exit from a currency union are feasible only if the new (or, in this case, revived) currency is stronger than the old one.”

    Could you expand on the reasoning that leads you to this statement? In context, the words “feasible only” almost seem to suggest that you are saying exiting a currency union for a (very likely) weaker currency is impossible. I am not sure if you mean politically impossible or economically impossible (or both combined).

    I wonder if you think Roger Bootle’s 2012 paper, “Leaving the Euro: A Practical Guide” covers or does not cover the basic relevant legal, political, financial and technical issues of leaving the Euro.

    I wonder why you think that the very likely devaluation which would follow a Euro exit and a “New Drachma” would be an insuperable obstacle? Are there not benefits in devaluation for a weak economy? Also, would you consider stratagems (some or all) such as debt default, floating currency (obviously), capital controls (for a time), nationalisations and confiscation of wealth of rich (and likely corrupt) oligarchs as viable or not viable?

    The stratagems above are precisely the ones I would vote and agitate for if I was a citizen of Greece.

    You say;

    “Economically, the euro has been a disaster, producing a deep depression in most of Europe and not even doing much for Germany. It’s an open question whether this was an inevitable consequence of a common currency, or the result of ECB mismanagement in the crucial years after the crisis…”

    I think both factors contributed. The Euro and the technocratic-neoliberal rules surrounding it put the Eurozone in a kind of financial straight-jacket which became a manifest constriction on policy options once the GFC or Global Recession hit. The Eurozone is not an OCA (Optimum Currency Area) and it does not have a fully Federal structure which permits true federations of states like Australia or the USA to make the necessary horizontal and vertical fiscal transfers (at least in theory and partly in practice if they do not always do that adequately).

    Perhaps it’s high time orthodox economists paid a little more attention to unorthodox economists like Bill Mitchell and Steve Keen. Their predictions about the GFC (about its happening, not its timing) and about the “designed-in” or “programmed in” inevitability of failure of the Eurozone now look like very good predictions. Perhaps some of their theories are right as they are starting to show some predictive power.

    It’s getting harder and harder to shrug off this empirical evidence with the same old appeals to dogma and orthodoxy.

  9. I thought Germany did well out of the Euro because its currency unit is depreciated by the inclusion of other countries such as Greece, Italty and Spain.

  10. @hc

    Germany does relatively well, for this reason, but that’s offset by the negative effects of fiscal austerity and ECB monetary policy. So, its overall economic performance has been mediocre at best.

  11. @John Quiggin

    Given the hypothetical situation of the current Eurozone being split into DM-zone and a Resteuro-zone, a date has to be announced, say t*. You are perfectly correct in saying at times t*-1, t*-2, …..t*-k Euros cannot be exchanged for DM, only as at date t*. But this is neither the beginning nor the end of the process.

    1. Consider multinational firms with accounts in a future Resteuro-zone and in a future DM-zone. There is nothing to prevent these firms to drain their accounts and borrow in the Resteuro-zone and transfer the total to their account in a future DM-zone. After the conversion, and assuming as you seem to assume too, the DM will appreciate relative to the Resteuro. The loans in the now Resteurozone are repaid at a time of their choosing and at a profit.

    2. Any positive net wealth person or agency can do the same as a multinational. (Given current interest rates on bank deposits – approximately zero – withholding tax is effectively zero).

    3. Bank deposits are not the only place (type of financial security) to park speculative funds. There are Bunds (German government bonds), there are shares, there is real estate, there are pre-payments.

    4. There are several time zones to be considered.

    5. How the dynamic would work out is difficult to know. However, ruling out banks in the Resteuro-zone not becoming stressed if not worse is something I wouldn’t bet my money on.

    In the early 1970s when the convertibility of the US Dollar into gold ceased, the US Dollar was not convertible into DM for several days and special capital controls were put in place. This was at a time when the international financial system was not as integrated and as easily accessible to almost everybody in the EU, the USA, Japan, Australia, Canada, Switzerland, Singapore, Hong Kong as now.

    Euro40billion have been withdrawn from Greek deposits during the past 6 months. Of these about Euro9billion were withdrawn shortly before the end negotiations. An emergency bridging financial facility of about the same amount was then requested.

  12. When you write that “the euro has failed”, are you not actually saying that the political management of the euro and the eurozone has “failed”? The discussion of economic policy here seems mainly technical, and objections are raised in large part because the realities of politics in Europe lead in different directions. The shared currency has not been matched by a shared political commitment. What has failed is not the currency, but a shared “vision” of (and we should say shared understanding and politically practical plan for the management of) Europe as a common political and social community. Instead we have seen Europe purely as an economic zone, which has come to be managed by technocrats (of a certain tendency, and dominated by financial capital) who claim expertise in economic management, but without accounting for political forces, the exercise of power, the social consequences of policy, etc. Often enough we might observe that our political leaders could benefit from having done Economics 101, but we might equally expect that our economists have done some Politics 101.

  13. @Peter Chapman I think that the failure of the euro is in part due to the euro not failing – despite the best efforts of supporters and detractors the euro is still holding value.

    The $US also went for (what seems to have been) a long time where it was judged to be worthless.

  14. Position of Germany in EU is that of an empire and its allies over its colonies. An empire needs resources and the most important resource today is labor, as cheap as possible. Germany is declining nonEU imigrants like from Midlle east and accepting southern and Baltic nationals.

    Asking of Germany to exit EU is akin to asking UK to exit India or South Africa.

    Isn’t it much easier to change the ECB to become a real Central Bank and solve EU and EZ issues?

  15. John, if you are (say) a Spaniard who expects Germany to leave the Euro, can’t you withdraw your Euros from your Spanish bank account, put them in a German bank account where they will be converted to New DM, and then move them back to Euros after the DM appreciates?

    Hence deposit outflows from non-German banks?

  16. @Uncle Milton Or is John saying that there is no conversion to the DM — that your existing deposits stay in Euros, but all your transactions after the cutover are in DM, so your next paycheck and next grocery bill are in DM, and you get a DM bank account alongside your Euro account?

  17. How much of anti German sentiment is based on envy? Post GFC German companies have done well, better than other comparable nations, as has their employment and economic situation. A lot has to be said for codetermination, a regulated system where labour and capital work to a common purpose.

  18. @John Quiggin

    What’s to stop a bank offering a new DM account to a Spaniard after it is official that the new DM will exist in the future but before the new DM does exist? It could be a cyber currency, like bitcoin.

  19. @Uncle Milton The bank will have a liability in ‘future DMs’. It will need to buy real DMs at some point, with the Euros the Spaniard gave it, at whatever exchange rate it can get. I don’t see any arbitrage here — the bank will need to hedge with a DM futures contract which will cost a lot more than 1:1, if devaluation of the Euro with respect to the DM is expected.

  20. @Uncle Milton

    Nothing stops this. But so what? There’s no reason for the Spaniard to bet on, or against, the DM relative to the futures price.

    The big problem is a shift in which existing euro accounts are converted to pesetas on D-Day.

  21. Why are German cars so cheap ? Now Volkswagen is the world’s largest car maker. I can’t help but think that this German ‘success’ has more to do with the Euro than genetic superiority, and is built on the pain and suffering of southern Europe.

  22. > The only way to (attempt to) stop this kind of thing is with capital controls.

    The idea that obligations owed to you in valencia must be tradable at par in Malmo is, bluntly, just silly. “International capital mobility”, stripped of the reifications, is a pretty way-out concept and, honestly, not one I can support.

  23. Whatever happened to the argument that the financialisation of ‘the economy’ (so-called financial capitalism) is a problem?

    The Telegraph article, linked to by JQ and linked to again below, bears the heading “Why its time for Germany to leave the Eurozone”. The authors of the article argue that “Germany’s trade surplus is the biggest thread to the euro” and they provide a set of graphs showing the behaviour of the trade surplus of various countries.

    http://www.telegraph.co.uk/finance/economics/11752954/Why-its-time-for-Germany-to-leave-the-eurozone.html

    It seems to me the articule encourages the reader to jump to the conclusion that ‘Germany’ is ‘the creditor’ to ‘countries’ which experience financial distress and this, in some mysterious way, is going to ‘threaten the euro’.

    But the data on external debt does not support the idea that ‘Germany’ is ‘the creditor’ (ie the issuer of financial securities). If ‘Germany’ would be ‘the creditor’ (in the financial sense) than its external debt should be negative.

    As can be seen from data recorded on the following web-site (scroll down until you find data on external debt), there are only two countries which have negative external debt (ie ‘the creditor’ in the world of finance). These are the U.K. and the USA.

    http://www.tradingeconomics.com/italy/external-debt

    What happened to the argument that debt (private and public) are a road to serfdom?

    Where are the centres of ‘financialisation’? In Brussel or in N.Y. and ‘The City’?

  24. My post with two links is in moderation. I’ll re-submit in 2 parts.

    Whatever happened to the argument that the financialisation of ‘the economy’ (so-called financial capitalism) is a problem?

    The Telegraph article, linked to by JQ and linked to again below, bears the heading “Why its time for Germany to leave the Eurozone”. The authors of the article argue that “Germany’s trade surplus is the biggest thread to the euro” and they provide a set of graphs showing the behaviour of the trade surplus of various countries.

    http://www.telegraph.co.uk/finance/economics/11752954/Why-its-time-for-Germany-to-leave-the-eurozone.html

  25. continued

    It seems to me the article encourages the reader to jump to the conclusion that ‘Germany’ is ‘the creditor’ to ‘countries’ which experience financial distress and this, in some mysterious way, is going to ‘threaten the euro’.

    But the data on external debt does not support the idea that ‘Germany’ is ‘the creditor’ (ie the issuer of financial securities). If ‘Germany’ would be ‘the creditor’ (in the financial sense) than its external debt should be negative.

    As can be seen from data recorded on the following web-site (scroll down until you find data on external debt), there are only two countries which have negative external debt (ie ‘the creditor’ in the world of finance). These are the U.K. and the USA.

    http://www.tradingeconomics.com/italy/external-debt

    What happened to the argument that debt (private and public) are a road to serfdom?

    Where are the centres of ‘financialisation’? In Brussel or in N.Y. and ‘The City’?

  26. “* The euro has failed in the aim of creating an Europe-wide currency union. The countries still outside are counting their blessings, and will almost certainly never join.”

    I think that rather than giving up on the Europe-wide currency union due to current problems, they should try to solve the problems.

    This is because to my mind the EU and the Euro-zone is the only practical example for how a global political federation and global currency could work. Unlike the examples of the US or Australia, the EU and Euro-zone example is suitable due to consisting of countries with very distinct cultures and languages, and which have often gone to war.

    These reasons also mean that the EU and the Eurozone are more difficult to make work than, say, out own Federation where the States and Territories have their differences but not as distinct. So I think it would be better to look for solutions to the current problems, as this would serve as a practical example for greater global co-operation and integration. I think probably to make the Euro-zone work solutions are going to be found in greater rather than lesser political and economic integration.

  27. If Germany left the Euro, don’t you think that the entire ‘German bloc’ (Netherlands, Estonia, Finland, Latvia, Lithuania, Luxembourg, Slovakia, Slovenia, Austria) plus possibly Ireland and Belgium would leave immediately as well? As I’ve pointed out before on CT in reply to your posts on Euro-matters, whatever you may think to the German approach to economics, it is actually popular in large parts of Europe.

  28. @Richard

    VW has evolved into a rather large multinational company, employing at least 370 000 people in 17 European countries, in Brasil and in Asia.

    My data source may be a little dated because 2013 is the last year in the data set in which a plant has been opened and VW is not listed as the world’s largest car manufacturer. I believe the data is good enough to provide an insight as to how the ‘global economy’ and multinationals within it is evolving.

    https://en.wikipedia.org/wiki/List_of_Volkswagen_Group_factories

  29. “Automatic Earth” has been following and discussing Greece quite closely and has an interesting piece today:

    http://www.theautomaticearth.com/2015/07/what-happens-when-economists-talk-politics/

    It boils down to: This is not an economic problem, it’s a political one.

    Which at first seems a bit weird, but I get the point:

    See what the real intentions are amongst those that have real power, and only after that, have staff, like economists and lawyers, discuss specifics and fill in details.

    The problem for Tsipras is that he doesn’t seem to have dealt with it that way, folding 100% and throwing Greek sovereignty under the bus to play along with the neo-liberal rulers of the world.

  30. @Ernestine Gross

    You have stated: “As can be seen from data recorded on the following web-site (scroll down until you find data on external debt), there are only two countries which have negative external debt (ie ‘the creditor’ in the world of finance). These are the U.K. and the USA.”

    You are totally incorrect in your conclusions as you are not looking at the figures directly relevant to this debate.The figure that matters in this context is the net international investment position (NIIP) of each country.

    “The difference between a country’s external financial assets and liabilities is its net international investment position (NIIP). A country’s external debt includes both its government debt and private debt, and similarly its public and privately held (by its legal residents) external assets are also taken into account when calculating its NIIP.” – Wikipedia.

    “A country’s international investment position (IIP) is a financial statement setting out the value and composition of that country’s external financial assets and liabilities. A positive NIIP value indicates a nation is a creditor nation, while a negative value indicates it is a debtor nation. The USA, as recently as 1960 the world’s largest creditor, has now become the world’s largest debtor, and since the 1980s, Japan has replaced USA as the world’s largest creditor nation.” – Wikipedia.

    If you find this table in Wikipedia “Net International Investment Position in absolute terms; OECD Countries, 2013” then you find as of 2103;

    1. The USA was the largest DEBTOR nation with US$ – 5.382000997 Trillions. The minus sign means “in debt”.

    2. Spain was the second largest debtor with US$ -1.389621918 Trillions.

    3. Australia was third largest debtor!!! with US$ -743,491.296 Billions.

    4. Italy was fourth largest debtor with US$ -643,874.027 Billions.

    5. Mexico was fifth largest debtor with US$ -433,000.527 Billions.

    6. France was sixth largest debtor with US$ -433,000.527 Billions.

    At the end of the table;

    Germany was second largest creditor nation with US$ +1.660000721 Trillion owed to it.
    Japan was largest creditor nation with US$ 3.086000434 Trillion owed to it.

    Ernestine, you are diametrically wrong according to these figures. The NIIP is what counts.

    The scarey thing according to these figures is that Australia has to be totally stuffed if it ever repays all that net debt. One can probably predict from these numbers that a terrible collapse is due for the Australian economy IF the world financial system enforces all these debts as ruthlessly as it has dealt with Greece to date.

  31. @Ikonoclast

    The data I linked to pertains to external debt which is part of the total debt that is owed to creditors outside the country.

    The net international investment position (NIIP) includes equity investment (either shares or physical assets usually referred to as direct investment)

    While it would be misleading to say the financial affairs of a country are idential to that of a household or a corporation, it is equally misleading to say there is no comparison at all, given the current international financial system that drives ‘globalisation’ with multinational firms in the vanguard.

    When one talks about ‘a country’s NIIP’ one is talking about the net asset value recorded by the statistical office of a juristiction. Except for official purchases of foreign securities by say the monetary authority (‘official investment in a foreign country’) the assets are privately owned and controlled.

    It is possible ‘a country’ has a positive NIIP and the government of this country faces financial distress. This is the case if the government has sold debt securities to foreigners ( the government in question cannot tax the foreign owners of these securities and it cannot nationalise their assets) and its internal budget position (tax revenue – expenses) are insufficient to meet the debt obligation to foreigners. The opposite is also possible . Australia is a good example. The situation becomes a little more complex when government issued debt securities are internationally traded.

    Similarly, a corporation can have a positive net asset position (positive owners’ equity) and still go bankrupt. This is the case if the corporation cannot meet its debt repayment obligations and cannot ‘roll over’ the debt. That is, it cannot find buyers of newly issued debt securities (eg a bank loan or sell debt securities, previously known as debentures) and attempts to raise equity funds fail.

    Similarly, a household can have a positive net asset position and still be taken to the bankruptcy court if it cannot pay its bills.

    Now consider the case where the monetary authority of ‘a country’ bought junk securities from private banks which, without this ‘quantitative easing’ would have become bankrupt. Subsequently, these private banks have become profitable again. Banks can only be profitable if they sell loans (of various types) to anybody anywhere in ‘the global economy’.

    I do believe I am looking at meaningful data.

  32. @Richard

    My comment on your post is in moderation, apparently because I linked to a web-site.

    I wrote:

    VW has evolved into a rather large multinational company, employing at least 370 000 people in 17 European countries, in Brasil and in Asia.

    My data source may be a little dated because 2013 is the last year in the data set in which a plant has been opened and VW is not listed as the world’s largest car manufacturer. I believe the data is good enough to provide an insight as to how the ‘global economy’ and multinationals within it is evolving.

    You can google my data source by entering
    en.wikipedia.org/wiki/List_of_Volkswagen_Group_factories

  33. “Economically, the euro has been a disaster, producing a deep depression in most of Europe and not even doing much for Germany. It’s an open question whether this was an inevitable consequence of a common currency, or the result of ECB mismanagement in the crucial years after the crisis, but either way, this is a failed experiment.”

    To the extent that Grecce entered the Eurozone too early (ie without having introduced internal institutional reforms which even Paul Krugman says are essential), ‘the euro’ has turned into a disaster for Greece two years after the onset of the GFC. A private creditor debt write-off (EU banks, primarily the Deutsche Bank) of Euro100billion in 2012 was not enough to solve the problem.

    The “deep depression in most of Europe” is firstly a rather significant exaggeration of the actual state of affairs in ‘Europe’ (eg the UK is in Europe but not in the Eurozone) and second, the ‘deep depression’ (eg very high unemployment in Spain) is a direct result of the significant misallocation of resources created by the growth of private sector debt. To believe, as you seem to suggest, deficit financed government expenditure could result in the immediate re-employment of a significant number of excellent Spanish building and construction workers raises the question: What are they supposed to build? Building is the skill they have. This is what they do. There was demand for their skill when they took up the trade. Now there is little. There are still large numbers of rather beautiful but empty houses on the coast line around Bacelona and elsewhere, there are new highways with few cars, a partially constructed small airport in a tourist town has recently been sold for Euro 10,000 – removing the unfinished constructions is costly. And so forth.

    Several years before the GFC the ECB warned about the growing debt levels and the associated risks of financial distress. Who listened?

    As for “failed experiment”, I would say the attempt to achieve a Eurozone failure failed. Witness, Yanis Varoufakis as well as Tsipras confirming that they had no mandate from the Greek people to get Greece out of the Eurozone. Witness the USA proposal of the Transatlantic Trade and Investment Partnership agreement. A little more has transpired about this secretive agreement process. It is not only the investor protection clause with private dispute resolution processes that does not meet with approval of the EUC, there is worse. It has transpired that this agreement is conceived of as a “living agreement”, meaning a group of experts is supposed to write details which could affect social policies in various European countries after the agreement has been signed. According to news reports in the SZ, the UK (non-Eurozone), France and Germany have raised objections.

    It seems to me the evolution of the European project, imperfect and full of difficulties as it may be, is much more democratic and transparent than the TTIP thing.

    Finally, the financial ratio rules of the Eurozone, which seem to be a thorn in the eyes of Keynesians, are first of all public knowledge (in contrast to the TTIP rules to be written after the event). Furthermore, they do address the glaring problem of an unbounded financial system which evolved after the Bretton Woods system collapsed. This is not to say improvements aren’t to be negotiated by the Eurozone members.

    Incidentally, short term Keynesian crisis management has been practised by Germany (public works and all this) at the time of the GFC. The unemployment rate in Germany is currently 4.7%. I can see why financial middleman, traders of financial securities and banks would love the German government to issue more debt securities. But they don’t have to pay the interest.

    On the other hand, there is evidence of popular resistance to ‘neoliberalism’ all over Europe.

    .

  34. @Ernestine Gross

    I still don’t understand the figures you linked to. They do not accord with other figures I have found. Do the figures you linked to measure total external debt or government external debt? Furthermore, are they gross or net of amounts owed the other way (i.e. back into each country)?

    When I look up the definition of external debt I get;

    “External debt, otherwise known as foreign debt, is the component of total debt held by creditors of foreign countries, i.e. non-residents of the debtor’s country.” – InvestingAnswers.

    “External debt (or foreign debt) is the total debt a country owes to foreign creditors. The debtors can be the government, corporations or citizens of that country. The debt includes money owed to private commercial banks, other governments, or international financial institutions such as the International Monetary Fund (IMF) and World Bank. Note that the use of gross liability figures greatly distorts the ratio for countries which contain major money centers such as the United Kingdom due to London’s role as a financial capital. Contrast net international investment position.” – Wikipedia.

    The list you linked to indeed shows the numbers you say but it does not accord with other lists I find. For example, in Wikipedia look up “List of countries by external debt”. (I won’t add a link as it will put this comment in moderation.) This list seems to show gross debt as the US is the biggest debtor and all nations listed are shown as debtors. There are no creditor nations in this list.

    So whilst this Wikipedia list of external debt is clearly a gross position, your list must show something else I assume? Question 1, is it a net position? Question 2, is it a public sector position, a private sector position or both?

    At this stage, I think I would have to hold to the line that net international investment position (NIIP) is what counts and what affects international finance overall. In particular, it is what affects domestic politics, as Germany and the German people with a positive NIIP are creditors and want their investments back. This to my mind explains the “no haircuts” call from certain parties.

  35. Euro has been a succes and it still is marginally. Most of the south is still in better shape then before entering EZ. Unemployment is still better in countries then before Itally, Germany, Portugal, Ireland, east europeans entered EZ. Only greece and Spain have worse unemployment rate now then before accepting euro..
    In actuality, being in Europe alone did improve employment after the birth of euro. Irational exuberance ruled over europe due to the birth of euro that was a beacon of hope for united Europe. This improvement in standards and employment probably does not have any other connection to euro but psychological that overcame years of melancholy in Europe.

    This is why Greeks refuse to abandon euro no matter future problems but still tying past years of growing prosperity with existence of euro.
    Euro should stay, not only because of sense of unity among Europeans but alao because is the great attempt to unite an area of diffeering nations by peacefull means, not as it was the historic rule by wars as it was the case with every country in Europe.

    I still argue that it is easier to save euro by changing stupid 3% defict rule and making ECB a real central bank that is freeing up nations budgets from guaranteeing private bank debts which is where problems started. Taking on bank’s debts onto nation expense is where problems started. If EU have had bankruptcy provisions for defaulted loans as it was the case in US before 2005 this problem of national debts would be much smalller.

  36. @Ikonoclast There seems to be some confusion between gross and net debt.

    The Maastricht Treaty requires that member states limit debt to 60% of GDP and budget deficits no greater than 3% of GDP. There is no room for stimulus, bailouts of temporary stress or automatic stabilisers. Politics has been overruled by bankers.

  37. @rog

    1.5 per cent growth is “enviable” only by the miserable standards of recent eurozone performance. And it’s only been achieved by an exchange rate policy that guarantees depression in most of Europe.

  38. @John Quiggin
    I envy it. Germany’s population is not growing so per capita 1.5% is equivalent to about 3.4% pa if population was growing at Australia’s rate (using 1.9%pa for Australian pop growth). More of the growth will translate into income -assuming more of the domestic economy is owned by Germans. Less of the growth is based on short term stimulus of selling mortgaging and PPPing assets to foreigners. Their export economy should benefit from action on renewables given their electrical and wind expertise and the substantial energy transformation already undertaken- bit different from Qld and Australia. El Nino should not hit them as hard as it might Australia. Their leadership seems to be less complacent and self-absorbed than ours. They are not damaging their environment with pop growth. Finally, and reflecting these things, the future DM looks strong and and the AUD weak, so give it a few years and their per capita GDP (in some foreign currency basket, from first half 2015) might have grown remarkably against Australia’s, despite the shocks of a future DM strengthening, and the severe globalisation pressures in manufacturing.

  39. I don’t envy Germany. They are busily making themselves lots of enemies unlike Australia… Doh! We are making more enemies than Germany and we are much weaker. Not a smart move.

  40. If Germany left the eurozone the remainder would still be stuck with the terms of the treaty. They need to revisit the treaty and apply the principles of codetermination in reviewing those terms (IMHO of course).

  41. @Stockingrate
    Agree with everything you said. I also envy Germany but I wouldn’t be so worried about the future pressures on their manufacturing. They strongly support manufacturing which provides a strong base for high tech manufacturing. The world (especially China) loves German cars for their quality. The smartphone manufacturers need the bleeding-edge-state-of-the-art ICs the Germans and Koreans make to provide the most important (and expensive) components of such devices. They’re a lot smarter than us with industry and trade governance.

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