The letters page of the FT is often pretty interesting. Today’s is better than most. Several of the submissions are well worth a read (John Griffiths on the scandal of corporate remuneration, for example) but the most interesting comes from Olaf Dreyer of Hamburg.
We’ve written here before that one of the reasons we assume the eurozone will hold together for longer than seems possible today is that its main beneficiary is Germany. That’s because the euro is a significantly weaker currency than a standalone German currency would be, something that has been a huge driver of Germany’s recent export success.
But Dreyer notes that Germany has benefited in several other ways too.
The most obvious point to make is that “because Germany is perceived as safe, the interest rates on German bonds have reached historic lows”. So servicing German debt (yes Germany does have debt… to the tune of well over 70% of GDP) is “vastly cheaper than it used to be.”
Less obvious is how much money Germany has made out of ECB bond-buying. In the first part of this, the ECB bought up €200bn of southern European sovereign bonds, around half of which came from Italy. There has been no default on these bonds and the average interest rate on them has been around 6%.
The result? “Via the detour of the ECB, the German taxpayer received €2bn from Italy alone.”
You might think that the knowledge of these vast advantages resulting directly from the existence of very weak states in the eurozone would make the German taxpayer want to do all he can to keep those states happy – perhaps meeting Greece half way on debt renegotiation.
You’d be wrong. The problem, says Dreyer, is that “the German press is mute on this point” – any discussion of it is met with “disbelief”.
When I met with Nobel Prize winning economist Robert Shiller earlier this week, he pointed out that all economics is about the stories people believe: as long as the Germans believe they are paying for Europe rather than being paid by Europe, compromises are going to be tough to find.