Monday, December 23, 2013

The German State and Economic Bailouts


Germany does not hold a responsibility to assist weaker European economies through economic bail outs.  The dilemma for Germany is that to bail out European states with weak economies “might encourage more spending and would enrage German voters. Yet to let them go bankrupt might threaten the Euro, the European currency that benefits Germany” (Kesselman, Krieger, & Joseph, 2013, 142).  This dilemma can been seen after the 2008 financial crisis as “one bailout cost German taxpayers about $140 billion” (Kesselman, Krieger, & Joseph, 2013, 157) and a “2009 Constitutional Court decision sent shockwaves through the EU because it limited any deeper German integration with the EU and restricted German money for bailouts for other European countries” (Kesselman, Krieger, & Joseph, 2013, 160).  At the same time, couldn’t it be argued from the opposite position that Germany benefits the Euro?  The German economy was strong coming out of the scramble for Africa and leading into World War I, and was stronger than expected leading into World War II, and is now a leading European economy under globalization.  While “Germany’s economic fortunes are tied to globalization” (Kesselman, Krieger, & Joseph, 2013, 161), European states such as Greece, Ireland, Portugal, Spain, and Italy are submerged in debt.  The problem with Germany’s positive position in globalization, compared to German growth prior to World War I and II, is that the majority of exports are privatized and do not strengthen the state because bail outs force “indebted countries such as Ireland to pay above market interest rates for bailouts that go primarily to repay foreign banks, many of them, you guessed it, German” (Kesselman, Krieger, & Joseph, 2013, 182) and privatized.  It is detrimental to the domestic political stability of Germany, who would be a strong exporting state even without the European Union collective, to place the interests of other European states before, or on an equal level, as German state interests when “German voters have felt enraged enough for mass demonstrations” (Kesselman, Krieger, & Joseph, 2013, 179) on issues such as bailouts for foreign states.  Many German voters, acknowledging German “flat wages and some painful cuts in social programs” (Kesselman, Krieger, & Joseph, 2013, 183), already feel that the German state has “sacrificed while other countries borrowed their way into trouble” (Kesselman, Krieger, & Joseph, 2013, 183) leaving the average working German holding “little sympathy for the Greeks and the Portuguese” (183), and other European states with extreme debt levels and faulty economies.
The article link below is a New York Times article dealing with a recent IMF proposal for dealing with possible future bailout defaults by extending some of the fiscal responsibility on private sector bondholders instead of solely on state tax payers.  The article, from November 2013, provides a pretty solid picture of debt in the Eurozone and shows the fierce opposition from the United States, Germany, and the international banking lobby toward the IMF proposal.

http://www.nytimes.com/2013/11/27/business/international/imf-plan-for-next-crisis-would-split-the-bill.html
Resources:
Mark Kesselman, Joel Krieger, and William Joseph. 2013. Introduction to Comparative Politics, 6th edition. Boston, MA: Wadsworth

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