Germany - Between a Rock and Hard Place

By: Ian Campbell | Tue, Jun 19, 2012
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Why Read: In order to better understand Germany's Eurozone dependencies, and why Germany is between 'a rock and a hard place' as it makes decisions that likely will:

Featured Article: An article yesterday sets out in quite clear terms a number of current 'facts and circumstances' that are relevant to what a Euro rescue may have to mean to German taxpayers, and what a Euro break-up would mean to Germany. By way of background, the following table sets out population, 2011 GDP and Outstanding Debt:GDP Eurozone country data (source: Wikipedia).

 

Ranking by 2011 GDP Population (millions) 2011 GDP (U.S.$ billions) Debt:GDP Ratio
Germany 81.9 3,577 82.0
France 65.4 2,776 86.5
Italy 60.9 2,199 120.9
Spain 46.2 1,494 69.3
Netherlands 16.7 840 65.9
Belgium 10.9 513 98.7
Austria 8.5 419 72.9
Greece 10.8 303 144
Finland 5.4 267 49.3
Portugal 10.6 239 108.5
Ireland 4.6 218 108.4
Slovakia 5.4 96 43.5
Luxembourg 0.5 58 18.6
Slovenia 2.1 50 48.5
Cyprus 0.8 25 72.4
Estonia 1.3 22 6.1
Malta 0.4 9 73.0
Total 332.4 13,105

 

In summary, the article suggests that proposals made to date within the Eurozone create concerns that German taxpayers will in the end be asked to pay for the financial problems of other Eurozone countries. That said, reasons suggested as to the consequences to Germany of a Euro break-up include:

Commentary: Assuming the foregoing 'consequences' to Germany are realistically stated, and they sound 'directionally right', Germany has to be caught between a 'Rock and a Hard Place'. My comments:

This is a hugely important matter whose economic implications extend well beyond the Eurozone. It is also a highly complex matter that seems to become more complicated 'by the week'.

In a second article, Bill Gross ( who heads Pacific Investment Management Company, LLC, the world's largest bond fund) is reported as saying on Bloomberg television that German bonds are no longer attractive given:

World Turns to Unwilling Germany to Save the Euro
Source: Spiegel Online, June 18, 2012
Reading time: 4 minutes

Also read: What safe haven? Bill Gross calls Germany a credit risk
Source: The Financial Post, John Shmuel, June 18, 2012
Reading time: 1 minute

 


 

Ian Campbell

Author: Ian Campbell

Ian R. Campbell, FCA, FCBV
Economic Straight Talk

Through the Economic Straight Talk Newsletter Ian R. Campbell shares his perspective on the world economy, the financial markets, and natural resources. A recognized business valuation authority, he founded Toronto based Campbell Valuation Partners (1976), Stock Research Portal (2007) a source of resource companies market data and analytic tools, and Economic Straight Talk (2012). The CICBV* annually funds business valuation research in his name**. Contact him at icampbell@srddi.com.
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