Why Germany seems not to want a quick fix for the euro crisis

As a German I must say that in my opinion this article captures the German sentiment very well. On the one hand it is short sided, it will likely lead to more economic problems than necessary and the stance of the Euro members (and Germany especially) on Greece is hurting the economy there much more than necessary.<p>On the other hand I do feel that some of this sentiment is justified. After all the example of Italy (Bond markets demand high risk premiums, Italy announces much needed reforms, ECB buys Italian bonds, Italy removes reforms) is quite telling. The same (much worse, actually) applies to the financial institutions. What precedent have we set by bailing almost all of the out. Without a lot of reform investors will no doubt assume that financial institutions are state-guaranteed, allowing them to continue the tails I win, heads you (the state, taxpayers) loose game. Clearly more decisive action is required to deal with the current problems but I think we are deluding ourselves if we believe that we can make it out of this debt crisis only by clever policies.

As the article makes a point of mentioning Angela Merkel...<p>&#62; All this is true. Yet Mrs Merkel seems to lack a sense of urgency. Despite the world’s calls for action, she does not believe in bold strokes—be it letting Greece default, or issuing Eurobonds to mutualise governments’ debt. Only a slow, step-by-step approach will work. In other words, the pain, austerity and market turmoil will go on for the foreseeable future.<p>...it's worth pointing out, by comparison to other world leaders, Angela Merkel has a PhD in Physics (Quantum Chemistry in fact). In other words she's more than capable to grasping the complexities of financial markets.<p>Much as it annoys Anglo-Saxons, Mrs Merkel might be right.

&#62; and jealous institutions such as the constitutional court.<p>The Bundesverfassungsgericht (federal constitutional court) is the only organ that reliably keeps doing its job, ensuring that the newly passed laws are in fact constitutional -- a test that was failed so many times in the recent past. Calling that jealous behavior is a very strange position to take.

This article spotlights two of the root causes of the crises in Europe - namely, (i) broken governments that spend beyond their means and the (ii) moral hazard that exacerbates such overspending.<p>Greece Example: Greece spent too much money raised through issuing debt (which increasingly looks like an imminent default) and creditors continued to lend Greece money under the belief that Greece wouldn't be allowed to default by the rest of the Euro countries.<p>There's no painless way to fix this mess, but I don't think giving Greece a massive one-time bailout sends the right message to the rest of the Euro countries (and countries' creditors) regarding moral hazard. The citizens of bailing-out countries (e.g. Germany) will be incredibly angry, rightfully so, and who knows how that will play out. On the other hand, small delaying actions like the ones that have been taken since the Euro crises began only worsen the situation and undermine global confidence in European leadership.<p>Personally, I think the creation of a common currency (Euro), without a corresponding enforceable common fiscal policy, is the root cause of the global impact of this crises. One member of the common currency can bring down many of the rest of the members by contagion so essentially, the coalition is only as strong as its weakest link. The weakest link can be strengthened by enforcement of a common fiscal policy, but there was clearly no such common fiscal policy being effectively enforced in Greece.<p>Another problem with the common currency is that Greece cannot devalue its currency to (i) make its exports more competitive (thereby improving its economy) and (ii) lessen its debt load through inflation. Before the Euro, the Greek Drachma could have been devalued in order to accomplish (i) and (ii). Now, Greece has no way out other than default or waiting for a bailout which may or may not come.<p>No easy answers here, but my guess is that Europe will continue to incrementally increase its "help" to Greece and other struggling countries until a major comprehensive bailout is required. Similar to as in the US with its banks a couple of years ago, such comprehensive bailout will occur, global taxpayers will lose, and the cycle will continue until we see an even bigger problem next time. Happy thoughts to start off my morning...

&#62; Think of nuclear fission: it generates useful energy but if it runs out of control you get a cataclysmic explosion. After Fukushima, Germany announced that it would phase out nuclear power. And yet, when it comes to the sovereign-debt crisis, Germany is prepared to live with the risk of economic meltdown.<p>This bullshit analogy nearly made me stop reading the article.

"The vast majority of financial transactions, he told fellow finance ministers in a closed meeting earlier this month, “do not serve the real economy”. When markets go astray the answer is not to make the taxpayer step in once more, but to introduce better regulation."<p>Spot on!

One of the many reasons we got that far the global crisis is probably the reactive attitude "jump when the markets tell you so". As a German I find it comforting that our chancellor is not of that kind. One can criticize many points, but one has to agree that she does not fear head wind. Would be nice to have more politicians of her kind in Germany.

"German politicians are constrained by a complex federal system, a sceptical public, messy coalition politics and jealous institutions such as the constitutional court."<p>You mean German politicians are constrained by Democracy. This article portays it as if it was a bad thing.

I have no idea why Keynesian ideas are assumed as the proper way to solve economic problems when, in fact, they <i>never</i> work. Germany is unusual, especially in comparison to the United States, in that they make a point of only spending the money they have. They have been watching the "wonderful" results of Keynesian intervention in the US recently and around the world and likely noticed that the results are always greater economic disasters. What sense is there in pouring gasoline on a fire?

The real problem is the uncertainty of the solution. It is not clear whether strong action will have the slightest effect so Germany, given it's calamitous history with financial crises, is probably holding back just in case.<p>The picture of a group of penguins standing on the ice at the edge of the water waiting to see who jumps first (or gets pushed) seems to sum up the situation nicely.

Debt issuance is money creation, and debt destruction is money destruction. Why is the latter SO intolerable?<p>If nothing fails, nothing succeeds.<p>This is all a result of the myopic human opinion of perma-growth.<p>In the end private industry(the IMF) winds up bailed out, THEN using their ill-gotten gains to scoop up public assets for pennies on the dollar.

The EU has and always will be a forced construct that Germany will essentially have to shoulder. Other countries were going to tolerate Germany's reunion only when they support the EU. Now that they realize how the construct attempts to level the standards of live across the union, Germany realizes in what kind of downward spiral they tapped.<p>Going to be even more "fun" to watch, when certain rules such as "penalty" for countries that export more than they import are enforced. Germany makes an excellent Hamster-in-the-wheel.

Also interesting that the Economist continues to come up with the same kind of story every week. Just check the last Economist links that were posted on HN over tha last weeks and you will see that they all have the same message. To be honest, I would expect them to be more diverse.

While I generally abhor taxes, I really like the idea of a financial transaction tax. It would effectively eliminate the profit margin for high frequency trading and remove a LOT of volatility from the markets. IMHO the market volatility is causing the average person to doubt the stability of the economy and hurting the entire ecosystem.<p>Even a small transaction tax... Say, $1/EUR per trade would remove the incentive for High frequency trading and encourage some more productive market dynamics. I mean, really, who wants to IPO in a market like this? And that removes a pretty significant source of funding for new businesses...

Even the title of this article doesn't make a large amount of sense. Of course the Germans want to take part in "fixing" the Euro crisis. But this is the problem with people in the finance world today. All they want is a "quick" fix. "Patch" the hole and the boat will stop leaking. I completely agree, something must be done to avert a double dip however a "quick fix" will not get us there. Most importantly, people need to increase their savings, lower spending.

It comes down to the Protestants keeping the Catholics in check :)