Although Europe may seem far away from the economic life of the average American, the fate of the eurozone weighs heavily on the United States economy. Pension funds have invested in bonds issued by southern European states, while banks and insurance companies have underwritten a sizeable fraction of the credit default swaps protecting investors against default. It’s no wonder, then, that President Obama is urging Germany to share in the debt of the eurozone’s southern nations.
We are... already in the fifth year of generous liquidity help to Europe’s uncompetitive members. Since late 2007, the European Central Bank has helped with an international shift of refinancing credit, also known as Target credit, from the core euro states to the periphery, to which the German Bundesbank has contributed $874 billion. Greece’s and Portugal’s entire current account deficits were financed that way.
Moreover, since May 2010, the ECB has bought more than $250 billion in government bonds, while nearly $500 billion has come from rescue programmes and help from the IMF. Add to that two European rescue funds, and you have a total of $2.63 trillion.
It is unfair for critics to ask Germany to bear even more risk. Should Greece, Ireland, Italy, Portugal and Spain go bankrupt and repay nothing, while the euro survives, Germany would lose $899 billion. Should the euro fail, Germany would lose over $1.35 trillion, more than 40 per cent of its GDP. Has the United States ever incurred a similar risk for helping other countries?
Some critics have argued that Germany, having benefited from the Marshall Plan, now owes it to Europe to undertake a similar rescue. Those critics should look at the numbers.
Greece has received or been promised $575 billion through assistance efforts, including Target credit, ECB bond purchases and a haircut after a debt moratorium. Compare this with the Marshall Plan, for which Germany is very grateful. It received 0.5 percent of its GDP for four years, or 2 per cent in total. Applied to the Greek GDP, this would be about $5 billion today.
In other words, Greece has received a staggering 115 Marshall plans, 29 from Germany alone, and yet the situation has not improved. Why, Mr Obama, is that not enough?
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