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When you think about it in terms of balance sheet vs. the real economy, the Germans' behavior is ridiculous. They build up tons and tons of net financial assets

When you think about it in terms of balance sheet vs. the real economy, the Germans' behavior is ridiculous. They build up tons and tons of net financial assets, some of which have been and are still liabilities of Greece. They insist on those assets being "paid back". But what does that mean, exactly? It means that they are replaced by other financial assets. Why do they now insist that those other financial assets are no longer liabilities of Greece, but liabilities of somebody else? Who the hell knows. As long as everything is financial, it's just a silly numbers game. You really have to ask yourself the question: Why do you build up net financial assets in the first place? Ultimately, that only makes sense if, at some point in time, you plan to exchange them for real assets. But Germany (myself excluded) is hell-bent on ever increasing net exports. If they follow this policy, it means that Germany will never exchange net financial assets for net real assets, but will in fact continue to do the reverse. If Germany stopped insisting on being a net exporter, and started to become a net importer instead, they could use their financial claims towards Greece to import real goods and services from there, and increase their own real standard of living. Germany could be happy, Greece could be happy. But ideology and confusion stands in the way. It really is Kafkaesque.

anamax 15y ago
> Why do they now insist that those other financial assets are no longer liabilities of Greece, but liabilities of somebody else? Because they think that the other party is more likely to live up to its obligations than Greece. It's pretty clear that it's better to be owed $1 by the German govt than by the Greek govt. However, it is probably better to be owed $1 by the Greek govt than to be owed $0.10 by the German govt. Somewhere between those points, there's an equilibrium.
- nhaehnle 15y ago
  The thing is, as long as you never intend to redeem your financial assets for real goods, it really doesn't matter. Let's say Germany as a nation holds financial claims on Greece denominated as X€. If, as a nation, they intend to continue running net exports, this means that those financial claims never need to be redeemed. If the assets are in the form of e.g. 10 year bonds, then Germany could just exchange them for new 10 year Greek bonds at maturity. So long as Germany and Greece both accept the game, their will never be any problem of insolvency. This rollover game could continue indefinitely. That's my whole point. It would only have to stop if, at some point, Germany decides that it wants to become a net importer, which is equivalent to running down net financial claims against other countries. Then at some point they would want to reduce the amount of financial claims against Greece, and Greece would have to cancel their liabilities, ostensibly by sending real goods to Germany. The point is, however, that the German elite is totally hell-bent on staying a net exporting country forever. Of course, this is not what happens, because micro economics is different from macro economics. The micro actors behave like you explain, and their behavior is perfectly reasonable from their individual point of view (well, except that it is totally unreasonable for non-capitalist Germans to be in favor of net exports, but they have no say in the matter at the moment). However, on the macro level, this creates behavior that is quite literally schizophrenic.
  - anamax 15y ago
    > The point is, however, that the German elite is totally hell-bent on staying a net exporting country forever. That goal doesn't imply that it's reasonable for them to simply "give away" the value of that surplus, let alone for them to give away in excess of that surplus for any period of time. The latter is important because some of the bailout proposals have germany giving up multiple years of export surplus. In addition, some of the proposals seem to be both giving up on Greek debts owed to Germany (and/or German banks) and taking on debts owed to others. Note that the surplus does give Germany some power, so it isn't just bits on a disk. > So long as Germany and Greece both accept the game, their will never be any problem of insolvency. Another problem is that admiting to that game is (for Germany) admitting to being a sucker. While Germany may, in fact, be a sucker, admitting it is a very different thing.

anamax 15y ago

> Why do they now insist that those other financial assets are no longer liabilities of Greece, but liabilities of somebody else? Because they think that the other party is more likely to live up to its obligations than Greece. It's pretty clear that it's better to be owed $1 by the German govt than by the Greek govt. However, it is probably better to be owed $1 by the Greek govt than to be owed $0.10 by the German govt. Somewhere between those points, there's an equilibrium.

nhaehnle 15y ago
The thing is, as long as you never intend to redeem your financial assets for real goods, it really doesn't matter. Let's say Germany as a nation holds financial claims on Greece denominated as X€. If, as a nation, they intend to continue running net exports, this means that those financial claims never need to be redeemed. If the assets are in the form of e.g. 10 year bonds, then Germany could just exchange them for new 10 year Greek bonds at maturity. So long as Germany and Greece both accept the game, their will never be any problem of insolvency. This rollover game could continue indefinitely. That's my whole point. It would only have to stop if, at some point, Germany decides that it wants to become a net importer, which is equivalent to running down net financial claims against other countries. Then at some point they would want to reduce the amount of financial claims against Greece, and Greece would have to cancel their liabilities, ostensibly by sending real goods to Germany. The point is, however, that the German elite is totally hell-bent on staying a net exporting country forever. Of course, this is not what happens, because micro economics is different from macro economics. The micro actors behave like you explain, and their behavior is perfectly reasonable from their individual point of view (well, except that it is totally unreasonable for non-capitalist Germans to be in favor of net exports, but they have no say in the matter at the moment). However, on the macro level, this creates behavior that is quite literally schizophrenic.
- anamax 15y ago
  > The point is, however, that the German elite is totally hell-bent on staying a net exporting country forever. That goal doesn't imply that it's reasonable for them to simply "give away" the value of that surplus, let alone for them to give away in excess of that surplus for any period of time. The latter is important because some of the bailout proposals have germany giving up multiple years of export surplus. In addition, some of the proposals seem to be both giving up on Greek debts owed to Germany (and/or German banks) and taking on debts owed to others. Note that the surplus does give Germany some power, so it isn't just bits on a disk. > So long as Germany and Greece both accept the game, their will never be any problem of insolvency. Another problem is that admiting to that game is (for Germany) admitting to being a sucker. While Germany may, in fact, be a sucker, admitting it is a very different thing.