Guest post by Joe Joe Noory is an Architect, investor, and independent observer of news and opinion:
Somewhere between the emotional populism of wanting to burden the higher performing European states with guilt over resisting to bail out the Greek government, and the risk investors are being offered to take are the hard truths of bailing out of the broke Greek government by investing in their bonds: they might not just default on ?8,5 billion in obligations to bond purchasers due on 19 May, but run the risk of never being paid back for future bond offerings (of perhaps two years or less), much in the way depositors in an uninsured failed bank will never see a red pfennig of their invested savings on a default.
Ifo's Hand-Werner Sinn indicated that very same sentiment on Wednesday morning, according to this wire piece:
The warning came as a new poll showed nearly two-thirds of Germans were opposed to helping Greece, with a majority believing that membership of the EU brought more disadvantages than advantages. Asked on MDR radio if Berlin would ever get its money back, Sinn, who heads the Ifo institute and is one of the top economic advisers to the government, said: "To tell you the truth, no."
Greece "will not be in a position to carry out the necessary budgetary rigour" and will eventually have "to ask for Germany to waive the debt," he said.
He warned that bailing out Greece could set a precedent for other euro area countries labouring under high debt and public deficits. "It would be understandable if the Italians or the Spanish put pressure on us to pay up now because it is an important precedent for them," said Sinn.
Before you react, take the statement for what it is: a warning. It isn't a characterization of the ur-Greek citizen, or a nationalistic reflection, or a cultural issue, but a warning that the discipline to raise revenue and cut budgets in face of the street protests and strikes of civil servants and dependants on entitlements. It isn't a characterization of what they did, but a warning of future events, one which prices them and tells us what something is really worth, just as watching those who short an equity or commodity does.
The other thing these juicy spreads between German and Greek bonds of 8%, each fluctuating around 3,8 and 12,5 percent respectively (NB: the 10 year bond was offered for as high as 20%) might on the face of it to those trained into a social view of all things to be a "government giveaway to the rich", but it isn't: to the citizen not invested, high yields are sign of economic arthritis and future tax hikes. To the investing citizen, it's a rising risk proposition and foreboding for the economic future as well.
To the government treasury issuing them, it is a clear sign that the government just isn't to be trusted with your money. Otherwise a great shaker of that former trust is the resignation to the cause of this living beyond ones' means, that there is a majority in the population who can pressure or otherwise vote benefits for themselves at a punitive cost to the rest of society, and simply doesn't care. Social solidarity being a useful phase for some people and situations, but not applicable to the other half of the population without popular leverage.
Where do the German opponents of this bailout fit into this?
I think it simply a matter of seeing what it will cost them, and that their taxes are going to be shovelled into a social dynamic that has nothing to do with them, is unproductive, and will, like feeding squirrels, only attract other governments to assume that all they need is a ticket straight to Berlin, and not to London, Paris, Den Haag, or Brussels as well.
It explains the silence from those governments, and the nominal or tacit encouragement for someone (by which they mean Berlin and German investors) should do something about this. They should presumably do this before it shakes confidence any further in the continental economy and currency that THEY use too, mind you.
They appear more than willing to be generous with Berlin's tax collections in the face of the rising cost of the bailout.
Where does the emotion figure into all of this talk of bond yields and investment risk, you ask? That German people would resent being assumed to be thought of as an all-purpose rich uncle, by his almost equally rich kin should surprise no-one. Nor should it surprise anyone that the usual guilt-tripping will go ignored in Berlin, and provoke scorn in the papers or overheard in a Stube.
It doesn't stop there.
The same dynamics found in Greece are at play elsewhere on the perimeter of the EU as well:
As German Chancellor Angela Merkel delays approval of a 45 billion-euro ($59 billion) Greek rescue, the crisis is spreading. Portugal's benchmark stock index yesterday fell the most the aftermath of Lehman Brothers Holdings Inc.'s collapse, while the extra yield that investors demand to hold Italian and Irish debt over bunds remained near yesterday's 10-month high.
To be sure, the enormous gap between the German Bund and Greek bond yields reveal the presence of that fear. Having risen rapidly and quickly, the Greek bond return is rising because there are few takers. This is how the market puts a price to the doings of government, in spite of what those governments, social commentators, or those urging on governments "to be supportive in solidarity" to the Greeks would like to see take place.
In fact, the dynamic demonstrates quite plainly to people who don't like math, that Economics is a social science, and reflects on observations of social issues. With its' own set of truths and behaviors, its' maladies can't be permanently solved with a tonic from a better part of town. Fans of actively taking measures toward social harmonization should take heed in the fact that all Europeans and all EU member states being equally poor and indebted would find little more than a pyrrhic victory and even greater risks to their economy and social stability. After all, the poor aren't hiring, and those who can, individual citizen creating wealth through their productivity, are indispensable at the moment.
But to return to the matter of the German public's sentiment at this stage, it isn't just the century-old fear of inflation and turmoil that's influencing the unwillingness to be bail Greece out on the first date, but the fact that the public is keenly aware of what they have been asked to do many times before: that is, to bankroll the biggest and most difficult initiatives undertaken by any collection of nations acting as a part of Europe and the EU. Moreover, they have traditionally been more likely than any other Europeans to invest directly in the markets, and in larger numbers - and as such more aware of the immutable risks and realities of markets.
Don't look now, folks, but later in the day Wednesday and early Thursday, a similar shakiness is starting to reveal itself in Spain and Portugal, both of whose government bonds were each downgraded one step. It's wise of Berlin to ask itself how many bullets it still has, if further demands are placed on it by bond crises from excessive government borrowing emerge there as well.
What that population of silent investors know full well, is that one way or another, these intervention will harmonize Germany with southern Europe, and it won't benefit Germans much at all, but rather enfeeble those who depend on their largesse even more.
Joe Noory is an Architect, investor, and independent observer of news and opinion. He is a participant in ¡No Pasarán!, a transatlantic group blog focused mainly on the atmospheric anti-Americanism found in the European media.