The EU promoted reckless borrowing and spending. Now German taxpayers will suffer

By Lawrence Solomon on February 2, 2015 • ( Leave a comment )

It will now be the turn of Germany — more likely, individual German taxpayers — to take on the role of suckers.

By Lawrence Solomon for the National Post, published on January 30, 2015

Germany, the Ponzi promoter of the EU: Unlike the United States of America, which has a massive domestic economy and relies little on exports, Germany has a massive export economy, tantamount to half of its entire GDP. To reduce its export economy’s vulnerability to the vagaries of international markets, Germany promoted the concept of a United States of Europe, i.e., the European Union. The EU — in effect a quasi-domestic market for Germany’s exporters — accounts for more than half of Germany’s exports.

In a Ponzi scheme, suckers in a investment think they’re doing fabulously well by all the cash they’re suddenly receiving, not realizing that the cash isn’t coming from profits but from new investors suckered into the scheme. When no new suckers can be found to keep the cash flowing, it dawns on the investors that they’ve been had and the Ponzi scheme collapses.

This in less-nefarious variant is the story of the European Union and especially of its Eurozone, an enterprise that seemed to be doing fabulously well as more and more countries joined in, coming up with cash that made the good times roll on. The EU started off as a limited free trade zone among six affluent European countries. Then it added more and more countries that were less and less affluent, lured in by subsidies. Then it added a general requirement that new members adopt the euro and join the Eurozone.

The EU juggernaut expanded but unsustainably, fueled by debt implicitly guaranteed by the EU and directed by an ever-growing bureaucracy that — after extending across almost the whole of Europe and trying even to embrace Ukraine, a country whose GDP is at Third World levels — has run out of steam. Now that there are just about no European countries left who are willing to join the EU and the Eurozone, now that the momentum of expansion has ended and the borrowing bubbles have burst, it is dawning on Europeans that they’ve been had. Many citizens in the EU now want out; many not yet in, relieved, thank their lucky stars.

As in all Ponzi schemes, no one looks good — not the promoters selling a bill of goods, not the gullible, who don’t question a deal that looks too good to be true. The gullible ones most in the news today — the Greeks — show how the good times work at the Ponzi beginning and how they end.

Prior to 2001, the year Greece joined the Eurozone, Greeks had a per capita Gross National Income of $24,000, measured in purchasing power parity rates. Once in the Eurozone with its implicit guarantee, Greeks went on a borrowing and spending spree, inflating their economy and rapidly boosting their per capita income to almost $29,000. Then in 2009, with the financial crisis, the bubble burst. Greeks are back to their income levels of 2001 but they’re worse off now because their economy is in shambles. One quarter of its GDP disappeared, investment collapsed, unemployment is at 25 percent, youth unemployment is at 50 percent, and those fortunate enough to be employed are saddled with unrepayable debt. In similar ways, this story repeats in other semi-developed countries that, like Greece, got in over their heads when ruinous Eurozone borrowing policies encouraged them to overspend.

Those ruinous policies were devised by Germany, the Ponzi promoter of the EU. Unlike the United States of America, which has a massive domestic economy and relies little on exports, Germany has a massive export economy, tantamount to half of its entire GDP. To reduce its export economy’s vulnerability to the vagaries of international markets, Germany has promoted the concept of a United States of Europe, i.e., the European Union. The EU — in effect a quasi-domestic market for Germany’s exporters — accounts for more than half of Germany’s exports.

Ponzi schemes enrich while they last. While Greece and other weak countries borrowed big on the strength of the credit that came of being in the Eurozone, Germany’s exporters and German citizens thrived. With defaults now at issue with the weak countries, their credit and ability to import is drying up, causing grief to Germans as well.

It will now be the turn of Germany — more likely, individual German taxpayers — to take on the role of suckers. If Germany again bails out Greece, as it did after the financial meltdown of 2008, Germany’s taxpayers will again suffer, and have every reason to think they’ll be doomed to perpetual bailouts of weak EU countries that will perpetually have their hands out. If Germany refuses another bailout, and Greece leaves the Eurozone and maybe even the EU, Germans would have every reason to think Spain, Portugal, and others might follow suit, unraveling the EU which has provided Germany secure markets for its exports, and the source of its wealth.

Germans are damned if they do and damned if they don’t. Ponzi schemes never end well, even when they mean well.

For the original version of this article, see the publisher’s website here

Lawrence Solomon, executive director of Probe International’s sister division Energy Probe, and a columnist with Canada’s National Post, is a contributor to the top U.S. political website, The Hill. Email him at LawrenceSolomon@nextcity.com.