Germany - No Marshall Plan lessons learned?

[redandguilty]

Wouldn't you think that if any nation understood the wisdom in bailing out your economic neighbors, regardless of what had happened to create the financial crisis, it would be Germany? What am I missing here?

 

[Michchamp]

Wouldn't you think that if any nation understood the wisdom in bailing out your economic neighbors, regardless of what had happened to create the financial crisis, it would be Germany? What am I missing here?

well, in the case of the Marshall Plan there was not much political resistance here to the spending because we knew that in the aftermath of WWII, there was a real risk of Western Europe falling to the communists if their economies tanked and unemployment stayed high.

you had a couple issues there: left wing groups were typically anti-fascist, and the more extreme ones were communist themselves, and often receiving some support from the USSR. having just beat Hitler & Mussolini, they were poised to take power.

another was simply the fact that post-war economies were in ruins; as we've seen, extreme conditions force people to take extreme political stances.

so, dumping spending on them (and also in turn creating markets for American manufactures...) was universally acceptable. No way the USSR could keep up with American aid, and even if certain countries were pre-disposed to the USSR instead of the US, it's hard to say no to big fat American dollars.

in Europe's present case, it's a lot different. Ireland, Greece, Portugal, and to a lesser extent Spain and Italy had higher borrowing costs prior to entering the Euro-zone. Afterward, they could borrow at a lower rate than before, and they took advantage of this... the effect of overspending was most marked in the poorer of the countries (i.e. Ireland, Greece).

SO... obviously it's tougher to justify a bailout there. esp. in light of the prevailing "wisdom" that in the face of deficits brought on by tax cuts and depressed economies you should cut spending further...

so Germany is stuck between a rock and a hard place: in order to push through a bailout which would be politically unpopular at home, they need to demand any bailed out countries accept harsh austerity... but the smart money behind the scenes realizes that austerity will only make things worse, making it even more unlikely that the bailout will succeed or ever be repaid.

 

[redandguilty]

This German asserts that in relation to GDP, the German effort to assist neighbors is already an order of magnitude (or 2) greater than the Marshall Plan. That's a fair point I suppose. (http://www.nytimes.com/2012/06/13/opinion/germany-cant-fix-the-euro-crisis.html)

However, after our own "too big too fail" arguments, the following is sort of a funny thing to try to argue in an American newspaper:

Moreover, a bailout doesn’t make economic sense, and would likely make the situation worse. Such schemes violate the liability principle, one of the constituting principles of a market economy, which holds that it is the creditors’ responsibility to choose their debtors. If debtors cannot repay, creditors should bear the losses.

If we give up the liability principle, the European market economy will lose its most important allocative virtue: the careful selection of investment opportunities by creditors. We would then waste part of the capital generated by the arduous savings of earlier generations. I am surprised that the president of the world’s most successful capitalist nation would overlook this.

 

[Michchamp]

a bailout, done correctly, makes sense.

I think the auto-industry bailouts... made sense. TARP? Since the practices that lead to TARP being needed were never banned, and any new regs were watered down, and completely unenforced anyway (See, e.g. JP Morgan Chase's Multi-billion dollar (and growing) loss)... not so much.

 

[redandguilty]

a bailout, done correctly, makes sense.

I think the auto-industry bailouts... made sense. TARP? Since the practices that lead to TARP being needed were never banned, and any new regs were watered down, and completely unenforced anyway (See, e.g. JP Morgan Chase's Multi-billion dollar (and growing) loss)... not so much.

TARP might have been a good idea. I have no idea how bad it might have been without it. But I agree that fixing the things the led to the situation is more important. It's such BS that even if you can manage to get watered down legislation to pass, corporations can find ways to continue to weaken it after the voting is done.