What joy

Now it\’s Germany going bust:

Jean-Claude Juncker, Eurogroup chief, fueled the fire by warning that Germany is no longer a sound credit with debt of 82pc of GDP. \”I think the level of German debt is worrying. Germany has higher debts than Spain,\” he said.

….

Germany\’s exposure to the crisis is already huge, and the strains can only get worse as the eurozone tips back into recession. The Bundesbank is so far liable for €465bn in \”Target2\” payments to the central banks of Club Med and Ireland for bank support. Hans Werner Sinn from the IFO Institute said this is a form of back-door eurobonds that leaves German taxpayers on the hook. \”The current system is dangerous. It is prone to a gigantic build-up of external debts,\” he said.

The Bundesbank is final guarantor behind €180bn in bond purchases by the European Central Bank, a figure still rising fast as the ECB buys Italian and Spanish debt.

On top of this, Germany is liable for its €211bn share of Europe\’s EFSF rescue fund, as well the original Greek loan package. If the eurozone broke up in acrimony with a clutch of sovereign defaults and a 1930s-style slump – already a \”non-negligeable risk\” – the losses could push German debt towards 120pc of GDP.

OK, there\’s still a fair few ifs and maybes in there. But it\’s not looking good is it?

12 comments on “What joy

  1. Germany’s losses would shrink if they left the Euro, as the DM would appreciate. The debtors would have a better chance of repaying as well.

  2. Surely it is not the level of debt as such. It is the likelihood that it will be paid back. I wouldn’t trust the Spanish or Italians with a bent five bob note. But I would lend a German thousands with a proper contract, all legally signed. He would sweat blood to pay it back.

    Still it does make for a fun office game – guess which European country is going to go belly up next. Personally I am down for Belgium going next. I am going to be pissed if Spain beats it to the poor house. No one I can see thinks Germany is going under any time soon. I should ask for the odds.

  3. Germany is the final frontier, of course. It goes like this: Greece, Italy, Spain, France, Germany….with the smaller countries (Portugal, Ireland, Belgium, Austria) falling by the wayside at various points.

    Austria is interesting because its problems are due to external exposure, particularly to Hungary which is a complete basket case as far as I can see (but no-one’s reporting it because of the much larger Euro crisis). And it is the gateway to the Eurocrisis extending to Eastern Europe.

  4. Of course Germany can pay its debts, unless we think Luxembourg or someone is going to block the ECB printing money if needs be.

  5. I’ve begun to wonder whether some of the people who did the early design of the Euro were not merely bloody fools but were on the books of the Soviet Union. This outcome would have pleased the USSR so much.

  6. @Serf, Germany absolutely does not want to return to the DM – it would be the new safe haven currency. Just look at the trouble the Swiss Central Bank is having to stop it’s currency going through the roof.

  7. Oh, and the official debt numbers do not include the public sector pension liabilities, which should be on-balance sheet. According to an OECD paper in May 2011, that amounts to 58% of gdp for Germany (it’s 91% for France) which has to be added to the formal government debt if we’re looking at cash flow or solvency.

  8. Surely the German taxpayer is only on the hook for all this if Merkel won’t let the ECB monetise. I think the Germans would call it “responsibility”.

  9. ……Germany absolutely does not want to return to the DM – it would be the new safe haven currency. …..

    That’s only a problem if you are stupid mercantilists. It would mean that Germany consumers would be much better off, and Germany’s trading partners would start to grow.

  10. Absolutely the only good things to have come from Germany, ever, are certain words that have been adopted in other languages.

    Such as schadenfreude.

  11. Blue Eyes

    German taxpayers are on the hook whatever approach is taken, whether economic collapse when their main export markets default, huge tax increases to pay for bailing out said export markets, or high inflation arising from ECB monetization of Eurozone debt to prevent default of said export markets. There’s no such thing as a free lunch.

    I think Germany is only just beginning to realise the extent of its folly in entering into union “for better, for worse” without an enforceable pre-nup agreement.

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