Saturday, February 27, 2010

Germany is to Greece as China is to the US

Dig this.
Germany’s biggest banks are looking at a rescue plan for Greece under which they would buy Greek debt backed by financial guarantees from Berlin, the Financial Times has learnt.
OK, so that sounds like one of our own recent bailouts. The German government will be guaranteeing the Greek debt bought by German banks. Right about now, trusting the Greeks to be able to repay anything seems like a bad idea. So just why are they considering this?
Several such banks, including Hypo Real Estate, Eurohypo and Deutsche Postbank, which hold billions of euros of Greek debt, all said they would not increase their holdings.
The German banks are already up their eyeballs in Greek debt. A Greek default would damage the German financial system. So right now, the German government is trying to figure out how to force Greece to cut spending and raise taxes, not because they care for Greece, but because a Greek default would be very painful for Germany.

That sounds a lot like China and the US. If you read the commentary around the Interweb Tubes, most of it is very sympathetic to the Germans. After all, they're working longer hours and producing things people want to buy while the Greeks are spending money they don't have to get things they haven't earned. It's not a big leap to see that same logic applied to the US.

Just something to think about as you watch all of this play out.

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