German bail out continues

I have mentioned many times, that the Germans were willing participants in building up the Eurozone credit crisis. They benefited the most from selling goods on credit to club med customers who were buying their brains out. Truthfully the Germans aided and abetted the credit bubble just as surely as did China–both enthusiastic exporters funded through various forms of vendor-take-back financing (buying bonds of customer countries insatiably, to keep the gig going).

Little discussed is the extent to which bail out efforts the past few years have also directly supported Germany. See this excellent article:  Hey, Germany: you got a bail out, too.

“In the millions of words written about Europe’s debt crisis, Germany is typically cast as the responsible adult and Greece as the profligate child. Prudent Germany, the narrative goes, is loath to bail out freeloading Greece, which borrowed more than it could afford and now must suffer the consequences.

Would it surprise you to know that Europe’s taxpayers have provided as much financial support to Germany as they have to Greece?  An examination of European money flows and central-bank balance sheets suggests this is so.

Let’s begin with the observation that irresponsible borrowers can’t exist without irresponsible lenders. Germany’s banks were Greece’s enablers. Thanks partly to lax regulation, German banks built up precarious exposures to Europe’s peripheral countries in the years before the crisis. By December 2009, according to the Bank for International Settlements, German banks had amassed claims of $704 billion on Greece, Ireland, Italy, Portugal and Spain, much more than the German banks’ aggregate capital. In other words, they lent more than they could afford.

When the European Union and the European Central Bank stepped in to bail out the struggling countries, they made it possible for German banks to bring their money home. As a result, they bailed out Germany’s banks as well as the taxpayers who might otherwise have had to support those banks if the loans weren’t repaid. Unlike much of the aid provided to Greece, the support to Germany’s banks happened automatically, as a function of the currency union’s structure.”

The whole article is a worth the read.

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